FINRA Foundation study finds only 18% of investors understand risk at an advanced level

The FINRA Investor Education Foundation and the Stanford Initiative for Financial Decision-Making published research on 5 October finding that only 18% of US investors surveyed show advanced investment literacy, which the study defines mainly as understanding risk. The release opens World Investor Week, which runs from 5 to 11 October.

What the study measured

The research uses data from the FINRA Foundation’s 2024 National Financial Capability Study on 2,861 investors who hold investments outside retirement accounts. It sorts them by their answers to 13 investment knowledge questions: 18% showed advanced literacy, 66% basic-only literacy and 16% low literacy.

Six of the eight questions that mark the advanced group are about risk: diversification, interest rate risk, buying on margin, short selling, option payoffs and the order of claims in a bankruptcy.

Knowledge, sources and fraud

The study links where investors get information to how much they know. Of those with low literacy, 74% rely on friends, family or colleagues and 43% follow recommendations from social media personalities, compared with 51% and 13% in the advanced group.

Respondents were asked whether they would invest in a hypothetical offer promising a guaranteed, risk-free 25% return every year for five years. Willingness peaked in the basic-only group at 54%, against 49% in the low group and 35% in the advanced group. The researchers suggest that investors who know enough to feel confident, but not enough to understand risk, may be the most exposed to fraud.

FINRA Foundation President Christine Kieffer said the findings support “elevating financial fraud recognition as a complementary subject” alongside risk education.

What it means for traders

Margin, short selling and options are everyday tools for many active traders, and they are exactly the concepts most respondents could not answer correctly. A promised fixed, risk-free return is a classic warning sign in trading schemes. Our guide on how to choose a trading educator covers the questions to ask before paying for courses or signals.

World Investor Week

The SEC said on 5 October that it had issued a joint investor bulletin for the week with the CFTC, FINRA, the Securities Investor Protection Corporation, the National Futures Association and the North American Securities Administrators Association. It urges investors to stay alert to relationship investment scams and impersonation scams. World Investor Week is run by the International Organization of Securities Commissions and marks its tenth year in 2026.