6. Knowledge Not Just for Knowledge’s Sake

Board knowledge is a key component to successful investing. The extent of mandated trustee training on investments varies across public plans, endowments, and trusts. In our pension plan study, we found that the most effective organizations had high participation rates among both the audit and investment committees. To be effective, those organizations needed members who demonstrated both engagement and an adequate base of financial literacy.

However, the general lack of education to promote financial literacy is a significant and widespread problem and not just in the public pension plan world. In the “Retirement Income Literacy Survey” conducted for The American College of Financial Services in 2014, 80% of the respondents received scores of 60 or lower on financial questions about retirement. Just 20% received what amounted to a passing grade (https://​retirement.​theamericancolle​ge.​edu/​research/​ricp-retirement-income-literacy-survey). The results are just as dismal when it comes to general financial knowledge. Asked five multiple-choice questions about topics like interest calculations, mortgage payments and investments, just 39% of the 25,509 adults surveyed answered at least four correctly, according to a 2012 survey from the FINRA Investor Education Foundation (http://​www.​usfinancialcapab​ility.​org). That was down from 42% in 2009. Many boards, as has been studied and documented, are held back by insufficient knowledge of its members.