On April 30, the Senate Homeland Security and Governmental Affairs Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia held a hearing on “The Federal Government Role in Empowering Americans to Make Informed Financial Decisions.”
Chair Daniel Akaka (D-HI) said, “Americans of all ages and backgrounds face increasingly complex financial decisions as members of the nation’s workforce, managers of their families’ resources, and voting citizens. Many find these decisions confusing and frustrating because they lack the information and skills necessary that would enable them to make wise personal choices about their finances.” He added, “Without a sufficient understanding of economics and personal finance, individuals will not be able to manage their finances appropriately, evaluate credit opportunities, and successfully invest for long-term financial goals in an increasingly complex marketplace.”
Sheila Bair, chair of the Federal Deposit Insurance Corporation (FDIC), stated, “Recent problems in the subprime mortgage market illustrate how increasingly complex products can lead to poor product choices for consumers who do not fully understand them.” Ms. Bair added that a July 2004 study by the Consumer Federation of America found that “the consumers most likely to purchase complex ARMs [adjustible rate mortgages] were among the least likely to understand these products,” and that a follow-up study in 2006 revealed that “consumers using interest-only and payment-option ARMs were more likely to be from a middle- to lower-income population segment, minorities, and have weaker than average (less than 700 FICO) credit scores.” Ms. Bair continued, “Better informed consumers could have recognized that the tradeoffs presented by these products…did not make financial sense in their situations and that the long-term costs of these products were much more expensive than more appropriate fixed rate products.”
Deputy Assistant Secretary for Financial Education Dan Iannicola said, “The Department of Treasury supports the expansion of financial education both through its own work and through its leadership of a multi-agency commission.” Mr. Iannicola stated that the department’s Office of Financial Education “promotes and delivers financial education across the country through its ambitious outreach efforts”; sets “standards for quality financial education” through the “development and dissemination of the ‘Eight Elements for Successful Financial Education’ programs”; operates a “Technical Assistance Center…for those seeking advice on establishing or improving financial education programs in their communities”; “broker[s] partnerships between…organizations [with] financial education resources to offer [and] organizations…in need of such resources”; and “coordinate[s] financial education efforts across the federal government.” He added that the multi-agency Financial Literacy and Education Commission (FLEC) has mandates to establish a website, a hot line, a multimedia campaign, and a national strategy in an effort to provide economic literacy to the American public.
“We at the NCEE believe our young people deserve to know about the economic system they will be laboring in, contributing to, benefiting from, and ultimately, inheriting,” said Robert Duvall, president and chief executive officer of the National Council on Economic Education (NCEE). In advocating for federal support for financial literacy at the elementary and secondary education level, Dr. Duvall said, “We believe that financial literacy comes through effective education, that the education must be part of the core learning experience that our young people get while they are in school, K-12, and that they will best learn the basics of practical, applied economics and personal financial decisionmaking through well-trained teachers, who are equipped with excellent standards-based teaching materials.” Dr. Duvall concluded, “Teaching sound economics and personal finance, and making it stick, is not only vital to an individual’s success and well-being, but will ultimately contribute to ensuring a strong national economy and a more prosperous future for our country.”
Stephen Brobeck, executive director of the Consumer Federation of America (CFA), explained that while CFA believes that FLEC has made progress in advancing financial literacy, it “faces several significant constraints in developing [its] national strategy,” such as “inadequate funding of FLEC; inadequate participation by federal agencies; inadequate understanding of effective financial education; inadequate recognition of the limits of financial education; and an inadequate appreciation of the complexity of developing a national strategy.” Mr. Brobeck concluded, “Our greatest concern about the efforts of the FLEC members is that they are not reaching those populations with the greatest financial literacy needs. Sharply focused campaigns that persuade and empower millions of Americans to improve key decisions in their financial lives would address this concern and also demonstrate to the country that financial education can be effective.”
Robert Danbeck, associate director of human resources and services for the Office of Personnel Management, and Yvonne Jones, director of financial markets and community investment for the Government Accountability Office, also testified.
