Chairman of the U.S. Securities and Exchange Commission Elisse Walter gave George Washington University students a quick lesson in financial literacy on Monday.
It was particularly appropriate, she said, that she happened to be speaking at the event—organized by GW’s Alpha Kappa Psi co-ed business fraternity—on the first day of National Financial Capability Month.
“The fact is, very few people under 30 are looking very far down the road,” Ms. Walter told the sea of students dressed in suits and sitting in front of her in the City View Room at the Elliott School of International Affairs. “And this can lead to fundamental investing errors and missed opportunities.”
Delaying investing for retirement, for example, means missing what the chairman considers the “awesome power” of compounding interest. A 25-year-old who invests $100 a month and earns a 6 percent return will have $211,000 by retirement age. Contrast that someone who invests $100 a month starting at 45 and, at the same percent return, has just $52,000 by retirement. Saving twice as long brings in four times the money, the chairman said.
Other important lessons she wanted the students to remember: take advantage of employers’ 401k match, and don’t cash out the account before retirement.
Unfortunately, Ms. Walter said, many people don’t know such key financial tips.
“As chairman of the SEC, it pains me greatly that for as much efforts that we and others have expended, many retail investors still lack an understanding of basic financial principles,” she said.
Ms. Walter pointed to a recent report that individual investors in the country have a weak grasp of elementary financial literacy concepts and lack the knowledge of how to avoid investment fraud.
The SEC is working to change that, Ms. Walter said. Its investor.gov site helps educate investors, allowing them to research public companies, find annual reports and check out information on the benefits and risks of stocks, bonds and mutual funds, among other resources.
But financial literacy isn’t just about education; it’s also about protecting against scammers.
While the SEC works to ensure a safe financial environment, its job is becoming much harder as scammers now lurk in social media channels like Facebook and Twitter.
Many use a classic “pump and dump” ploy, claiming to have inside information on a stock and encouraging investors to buy. When they do, the price of the stock artificially inflates, the scammers sell their shares for a big payoff and the unknowing investors “watch their investment disappear,” Ms. Walter said.
“So we’re counting on you, the generation that has been bombarded with Nigerian banking offers, discount prescription drug scams and even misleading personal ads practically since birth,” she said. “We want you to be our eyes and ears.”
People can alert the SEC to such scams in a simple online submission, and the agency has the ability to classify, analyze and compare huge amounts of tips and search for patterns.
Ms. Walter also emphasized the SEC’s whistleblower program, which offers a reward of 10 to 30 percent of the money collected when high-quality, original information leads to a judgment of at least $1 million against a securities law violator.
Outside of her lesson on financial literacy, Ms. Walter also made a case for students to consider public service if they’re interested in the financial industry.
“Our government offices aren’t plush, there are no stock options and we fly coach,” she said, but public servants gain the “immense satisfaction that comes from working on really important matters.”
Plus, the diverse groups of people who work at the SEC are driven and intelligent, Ms. Walter added.
“It’s a place where you can really make a difference and have a positive impact on businesses and lives.”
Students had the opportunity to pepper the chairman with questions after her speech. They asked about how to break into public service (work hard, decide what you’re interested in and follow your passion) and how to balance paying off debt and saving for retirement (analyze your finances and make a plan), among other questions.