IndependentInvestor.info's superb review (dare I say definitive critique) of the failings of current investor education programs leaves one quite depressed. It seems the result of investor education is that the average person is worse off!
Education doesn't work? At all, ever? The notion that education does not work is rather contrary to a foundation of the modern world. Saying it does not work today should not mean it cannot work.
One basic problem appears to be that current investor education programs, in the interest of being "fair" and "balanced" and presenting all alternatives, ends up suggesting that active investing, whether directly through stock picking and market timing, or through buying high-cost funds, gives the investor as good an outcome as buying and holding passive, whole-of-market, low-fee, index funds. The facts unfortunately deny such a position.
The fact is that government and regulatory organizations, who probably know the truth, are the ones in charge of investor ed. How can they be expected to say that a massive part of a huge industry is doing it wrong? It doesn't look like they are the right people to be leading the effort.
One of the interesting links from InvestorInfo is to the Financial Education Institute of Canada, a private company that provides seminars to employees. The Institute gets paid by employers. It emphasizes its product neutrality and gets the correct answer (index ETFs). We need more of that. Employers are a good path for providing better education to individuals.
There's another fix that employers are in a great position to implement. The most important investment money for individuals is their retirement savings, which flows through defined benefit or defined contribution pension plans at their employer. Two of the big faults of individual investors - 1) picking the actively-managed, high-cost funds and, 2) not saving enough - can be vastly improved through changing the default options in plans. Instead of some active fund, when a new employee enters a plan, make the default the index ETF. Defaults have been found in the USA to have a huge influence on participants' plan choices (e.g. download The Future of Lifecycle Saving and Investing conference proceedings and search for the word "default").
For the "not saving" bit, add another option: provide a little checkbox to have some or all of a pay increase go automatically to increased deductions for pension. Apparently our faulty brains find it a lot easier to commit future money than present money to savings. Money we never see we don't miss. Such defaults address one of the big gaps in making investor education useful in practice, namely that success is not just about knowing facts (like the differential performance of active vs index funds). It is also crucially about countering and avoiding bad reactions and decisions to which we are all subject, as behavioural finance research has embarassingly revealed.