Op-ed: Former SEC chair Jay Clayton on what his grandparents taught him about investing

Grandparents are invaluable. They provide love, support, perspective and education, often when
it is most needed. And, importantly, at no cost. Grandparents fill in many gaps. They watch the children after school and in the evenings when parents can’t be home or need a break. They cook meals. They provide emotional support, often when it is most needed. They teach history and religion, providing perspective on our past successes and ongoing challenges. The list goes on.

Putting aside love and support, which cannot be purchased, think what it would cost to hire
others to perform those services. It’s a whole lot. The limits on personal interactions necessitated by Covid-19 has made this value even more clear. Dozens of parents have told me how much more work they have because their parents, who want to help fill those gaps, cannot.

A very important gap grandparents can fill is the financial literacy gap. As John Hope Bryant and I recently discussed in an Op-ed and on CNBC, we know that financial literacy is a significant problem, one that can have significant effects over a lifetime. We also know the reasons for the problem, including a lack of financial education in our secondary schools.

The importance of closing the financial literacy gap to individuals and our society cannot be overstated. The privilege of chairing the Securities and Exchange Commission provided many memorable moments, most indelible among them were our investor town halls. The women and men of the SEC love helping hard-working Americans become better investors and I was fortunate to be part of their efforts. These free-flowing sessions gave me a better appreciation for the perspectives of many of our current investors.

Almost all of these retail investors, regardless of age, shared two related views: they wished they had started investing earlier in their lives; and they wished they had known more about personal finance and investing earlier. When asked why they did not start investing earlier, common themes emerged. They were nervous about making mistakes and they did not think they had the time necessary to learn enough to make good decisions.

Here, I will turn to a personal perspective. These events brought home to me just how fortunate I
was to have not one, but two, grandparents who invested in my future by ensuring that I understood the basics of consumer debt — eg., credit cards, car loans and mortgages — and investing.

My maternal grandfather, Patrick Kerwin, a long-time public servant and child of the Great Depression, helped me open a 50 cent-per week Christmas Club account at the local bank when I was six. Each week, you went to the bank, handed them your Christmas Club book and fifty cents, they stamped a credit in your book and, after 49 weeks, the bank gave you a “free” week. Come mid-December, I had $25 — money I would not otherwise have had — to buy presents for my parents and brothers.

A few years later, he gave me three shares of stock, a value of about $60 at the time, and encouraged me to read at least the first page or two of the annual shareholder letter. I held on to that investment for over forty years, only selling it when I was required to do so to become the chair of the SEC.

My paternal grandfather, Walter Clayton, also a product of the Depression, raised by his older siblings and a
long-time federal employee, made it a point to teach me investing basics, including focusing on net returns — returns after fees, costs and taxes. These are not natural conversations to have with a 12-year-old who was more interested in playing sports and watching “Gilligan’s Island” reruns than just about anything else. He was a saver and a long-term investor with a keen focus on financial security for himself and my grandmother.

As his health deteriorated, I was in college and he asked me to learn more so that my grandmother, who was very nervous about financial security and questioned her own decision-making ability, would have another trusted person to consult. To be clear, we did not study how to value companies or how to pick particular stocks or bonds, we studied how to construct a long-term, low-cost portfolio of cash, bonds and stocks that would best serve to supplement my grandmother’s Social Security and government pension. This was a great gift from him to me. Just as the Christmas Club and the three shares of stock had been gifts far beyond their financial value.

More from Invest in You:
Op-ed: Why financial literacy matters in an economic crisis
Teens call for more personal finance education
3 ways to make Financial Literacy Month count

I tell these stories for several reasons. First, I’m very proud and thankful for the lives my
grandparents led, overcoming hardships and focusing on providing their children and grandchildren with the tools to participate meaningfully in our society. They recognized that having comfort with one’s financial affairs, whether as a borrower or investor, was all but essential to achieving one’s potential.

More importantly, stories like these illustrate just how valuable grandparents or other trusted
individuals can be in our quest to improve financial literacy and inclusion. Key financial decisions come early in life. Should I take out a student loan or a car loan? Should I buy consumer goods on credit? The answers to these questions require an understanding of the costs of credit and related fees. If the first time you think about these decisions is when you’re faced with them, the chances of making good decisions goes down.

If my employer provides 401(k) matching — as I call it “free money” — should I take it? The
answer to that question is unequivocally yes, to the maximum extent you can. Yet, many choose not to take the free money. Over a lifetime, this can be a costly mistake.

Yes, the government — local, state and federal — and the private sector should be focused on closing this gap. The SEC has staff dedicated to improving financial literacy and offers a host of free resources. John Hope Bryant and I, and many others have offered additional ideas, including providing all children with a bank account so they are connected to our financial system at an early age and using technology to imbed investor education directly in financial services offerings.

However, even if the government and the private sector make progress, on an individual level, the benefits will pale in comparison to one-on-one practical wisdom from a grandparent. So, as I came to ask at the SEC town halls, I ask grandparents and others trusted family members to help children and young adults understand as many of the following as you are comfortable discussing:

1. Financial decisions are an important part of everyday life.
2. Debt can be helpful to gain an education, purchase a home or get through a difficult patch, but it can be costly and get out of control.
3. Watch fees and costs both when you take on debt and when you invest — this is money you never get back.
4. The “magic” of compound interest — which helps explains why starting investing for retirement as early as possible is so important.
5. The benefits of diversification.

The SEC website has tools to help you and help you teach your grandchildren. If they learn even some of those lessons early, they will be better off and their children and grandchildren will almost certainly benefit too.