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Ultimately, I think itís just good business and good citizenship to do our part and try to educate people, and hopefully when this happens theyíll appreciate it and do business with us. – W. David Hemingway
The following interview with W. David Hemingway, Senior Investment Officer of Zions Bancorporation and Chairman of the Board for Zions Direct, examines the value of financial education for the contemporary investor.
Question: In 1897, the San Francisco Call published an article that noted: To the citizen thus engaged in business, the intrinsic value of thorough knowledge cannot be disputed. With it he can confidently enter the arena of public affairs fully equipped to meet the educated professional citizen.1 Do you believe that this concept of an educated citizen or more specifically, an educated investor is more, less or equally important now, more than a century later?
Answer: I think its more important because, historically, the tools for an individual to manage his or her money did not exist or they were not as readily available. If you turn the clock back 20, 50 or 100 years, there was no Internet, and you did not have ready access to information needed to make decisions.
Fifty years ago, if I wanted to buy a short-term municipal bond, the only way I could do so was by calling up a commissioned salesman to see if he could go find me one and trust that once he was finished marking it up, there would still be some yield left for me. For individuals 10, 25, or 50 years ago, there was no Bond Desk . There was the Blue List, but to gain access to the information and have the control we are giving people today, you would have had to go start your own broker/dealer. So I do think the access to securities at good prices has increased. The requirement to have more knowledgeable investors has also increased.
Q: One of the goals or milestones that people often have in mind when making a financial plan or investing is retirement. Recently, a Dartmouth and Wharton study of financial literacy and retirement preparedness found that "over the age of 50, those who are more financially knowledgeable are also much more likely to have thought about retirement."2 What is Zions Direct doing in terms of education to help those preparing for retirement and those looking to invest in general?
A: I am a strong believer in providing education and making investment tools as accessible as possible. Our approach is to empower our customers by providing knowledge so they can make their own decisions. We are doing this through the educational videos and interviews that can be watched on the Zions Direct YouTube channel, through the articles we post on the Think website, and in our weekly newsletter, all of which are free and open to the public.
What we have at Zions Direct is a variety of securities and yes, it is in our interest to find knowledgeable customers who are comfortable with FDIC-insured CDs, municipal bonds, corporate bonds, and US Agency bonds. Our business is helped by having a more knowledgeable customer base. It is kind of like democracy. A democracy only works successfully with an educated populace. That is one of the reasons why free public education was developed. Like democracies, we cannot really reach our full potential without an educated customer base.
Ultimately, I think its just good business and good citizenship to do our part and try to educate people, and hopefully when this happens theyll appreciate it and do business with us. I continue to hear from customers who love what we are doing.
Q: We live in a world of seemingly boundless technological innovation, helping to bring about a greater sense of transparency and accessibilitythat is, giving people, customers and clients, the means to learn about and the ability to act on their investments. What effect do you think this has on individuals?
A: It is true that people not only have access to the depth and breadth of information we provide, but they also have the ability to actually make a decision or act upon that information. In other words, they can go open a Zions Direct account and once they have learned more about bonds and other investments, they can actually find bonds and generally buy them at a better price than would have been available historically. However, only educated investors should take advantage of these new tools.
Q: Looking at multiple studies, it seems that people who have not received sufficient financial education either do not actively participate in managing their investments, or they do actively participate but tend to make poor investing decisions. Which result is more dangerous?
A: Well, that depends on your inclination. Some people have the rather arrogant mindset that the average investor is not smart enough and not capable of making their own investment decisions, and therefore must be protected and taken care of by the professionals. The other view is that there should be self-reliance, that people should be responsible for themselves, and it is not necessarily anyone elses responsibility to take care of you. I think it really comes down to whether you generally think that people will be responsible if they are given adequate information, or if you take the position of those who suggest they are the only one smart enough to make decisions and youre not, so you should hire them to do it.
So what do I think? I actually believe in transparency and I believe that people can learn and I believe there ought to be something reasonable in place to protect those who do not have adequate knowledge. For instance, our customers must attest that they are prepared and informed prior to taking part in the auctions.
Q: What value can investing- and finance-related education bring to those who choose not to actively manage their investments?
A: There is obviously a balance and a threshold here somewhere. If you have $100 million to manage, it may not matter as much if you can easily afford the cost of private management. I think the real issue is if you have $10,000 or $20,000. If you go to an advisor, there is a chance that you could be steered toward a product that may not be in your best interest, if it is the only way the adviser can get paid. Even with $100,000 or $250,000, it can pay to have enough education to determine if it is valuable to have someone else manage your money or do it yourself. Many people choose to have some of their investments managed professionally, while managing some themselves. Zions Direct and its affiliates provide both of these options to customers.
1Business men and liberal education. (1897, December 31). The San Francisco Call. Retrieved from http://chroniclingamerica.loc.gov/lccn/sn85066387/1897-12-31/ed-1/seq-12/
2Lusardi, A., & Mitchell, O.S. (2007). Financial literacy and retirement preparedness: Evidence and implications for financial education. Business Economics, 42(1), 35-44. Retrieved from http://www.springerlink.com/content/8816883j07p17851/
Investment products and services offered through Zions Direct, member of FINRA/SIPC.
Investment Products: Not FDIC Insured • No Bank Guarantee • May Lose ValueW. David Hemingway is a Senior Investment Officer of Zions Bancorporation and is Chairman of the Board for Zions Direct. Alison Andersen is an employee of Zions Bank. Zions Direct is a non-bank subsidiary of Zions Bank.