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Financial Literacy Subject of Committee Hearing

On April 15, the House Financial Services Committee held a hearing on “Financial Literacy and Education: The Effectiveness of Governmental and Private Sector Initiatives.”

Chair Barney Frank (D-MA) said, “We are now in a financial downturn in our economy, in which lack of financial literacy is a contributing factor and so we hope now to use the attention we have gotten to encourage people in this effort…Obviously, there has been some criticism made about financial institutions. One of the best things that can be done both for the economy and from the standpoint of alleviating the economic difficulties of people in the lower economic sectors is to help them become customers of banks and credit unions. One of the things we should be clear about is that people who stay outside the banking system pay a much higher set of transaction fees for some basic things than most of us in this room do; check cashing fees, pay day loans, high charges for the transmission of funds to relatives in another country. All of those are higher for people on a whole, outside the banking system or outside the credit union system than it would be if they were in there. So helping people understand the importance to them of taking advantage of that set of financial institutions and educating them [about the] basics as to what they should and should not do.”

Rep. Judy Biggert (R-IL) said, “Under the leadership of Treasury Secretary [Henry] Paulson and Deputy Assistant Secretary Dan Iannicola, the FLEC [Financial Literacy and Education Commission] has worked very hard to consolidate and coordinate the various federal economic education initiatives. But we frankly wanted a commission that would bring together the best of both worlds, private and public sectors, to attack this problem. It turns out that what was true in 2003 is still true today: teaching financial literacy requires cooperation between government and industry. The government can’t and frankly shouldn’t be solving this problem on its own. And make no mistake, we have a problem. The savings rate is still hovering around zero. Ten million Americans are unbanked. There were 2.2 million foreclosure filings in 2007. The front page of newspapers across the country proclaim that millions of Americans are losing their homes because they were not ready to be homeowners. Some of our financial challenges are a result of the slowing economy. But many of them are the direct result of families that don’t have the knowledge and tools they need to hold a mortgage, or to manage credit risk, and savings. That’s why we need to improve the coordination between the public sector efforts and those of financial institutions, non-profits, faith-based organizations, and educational foundations.” 

Anna Escobedo Cabral, treasurer of the United States, said, “Today, many Americans are struggling — we have young adults struggling with debt, families struggling to understand the terms of their mortgages, and older Americans struggling with retirement issues. These are complex problems and there are no simple solutions. But what we can do to make a difference and what is greatly needed in this country is a little preventative medicine. That is, to teach all Americans how to make smart, sound financial choices.”

Ms. Cabral continued, “An abundance of our financial literacy efforts are through the Financial Literacy and Education Commission. This 20-agency group was established by the Fair and Accurate Credit Transactions (FACT) Act of 2003 [P.L. 108-159]. The FACT Act named the secretary of the Treasury as chair of the Commission and gave the Commission and Treasury four mandates: a website, a hotline, a multimedia campaign, and a national strategy.” Ms. Cabral noted the progress made on each project, “In October 2004, the Commission launched, a website designed to be a one-stop shop for federal financial education information… also provides links to financial education grants offered by different Commission member agencies…In October 2004, the Commission also launched a toll-free hotline called 1-888-MyMoney. Operated by the GSA [General Services Administration], the hotline is available in English and Spanish and permits callers to order a free MyMoney toolkit… The Treasury is working with the Ad Council on the production of a campaign that will address the topic of credit literacy, emphasizing the impact of one’s credit score. The project has progressed through the research, focus group, and creative stages, and is now in production. The campaign is scheduled to launch in the summer of 2008. It will feature television spots, radio spots, and a new website…The FACT Act also required the Commission to develop a national strategy for financial literacy. In April of 2006, the Commission released Taking Ownership of the Future: The National Strategy for Financial Literacy. The Strategy is a comprehensive blueprint for improving financial literacy in America, covering 13 areas of financial education in 13 chapters.”

In closing, Ms. Cabral said, “As Americans, we share the desire to provide for our families, achieve financial security, and have a comfortable retirement. Being financially literate makes those goals more attainable. We hope that through our efforts to increase financial literacy people will lead better, more prosperous lives. Through our continued outreach and education effort, as well as through the ongoing work of both the Financial Literacy and Education Commission and the president’s new Advisory Council on Financial Literacy, Treasury can help more Americans become financially literate.”

Robert Duvall, president and chief executive officer of the National Council on Economic Education (NCEE), said, “The need to strengthen, expand, and enhance education in economics and personal finance in our nation’s schools remains urgent. The issues faced by the Financial Services Committee in recent months are stark examples of this need. We must prepare our young people, while they are in school, with the basics of economic and financial literacy so that they can succeed in life. There is now widespread agreement for these propositions among policymakers, business leaders, and educators. The challenge is to transform this consensus into action. In order to address the economic and financial literacy gap, our elementary and secondary schools must integrate standards-based economic education into their core curriculum. The NCEE, through its EconomicsAmerica program, along with other partners, is striving to accomplish this goal. The federal government plays a critical role in providing resources for these efforts through the Excellence in Economic Education (the EEE) program.”

Mr. Duvall continued, “Well-prepared teachers instill in children a sense that they are themselves future stakeholders, decision makers, and movers of the American economy. Through innovative lessons, simulations, and other active-learning techniques, they help students see that to grasp the basics of economics is to grasp the reins of lifelong empowerment for themselves, their families, their communities, and our country. Ensuring teachers are well-trained in economics is especially critical because more often than not, the teacher assigned to this class specializes in another subject. Infusion of personal finance and economics principles into other subjects can be an effective way to assure these subjects a place in the crowded ‘shelf space’ of the school curriculum. NCEE has developed extensive experience in addressing the challenge of infusion…integration of financial decision-making skills into other subjects requires effective training. Several EEE subgrants have been directed toward training programs for curricular infusion. A few fine examples include: Training on Integrating Economics and Finance into the Classroom for Grades 6-12 Social Studies Teachers; Elementary and Middle School Integration of Economics with Literature, Math, Social Studies, and Practical Living; Integrating Basic Economics into High School American History Courses; K-6 Teacher Training on Integrating Economics with Other Subjects through Ohio Academic Content Standards; and Training on Integrating Economics and Geography for Middle School Teachers using an innovative set of lesson plans entitled ‘Middle School World Geography: Focus on Economics.’”

Marc Morial, president and chief executive officer of the National Urban League, said, “Basic financial literacy, such as owning a bank account, managing household finances, and being able to save for the future is critical to success in the modern American economy. Working families need bank accounts in order to conduct the transactions of daily life, but more than 10 million U.S. households lack this basic financial tool. Account ownership is also critical to saving for short-term emergencies, and for establishing credit history to access consumer, home mortgage, and business credit. A bank account can help low-income families plan better financially and save for the future. Lack of a bank account can be quite costly to low-income families as they cash their checks and conduct transactions at alternative providers…In addition, low-income and minority families need better mechanisms to foster savings for important life events, including buying a home, sending their children to college, or retirement…In conjunction with financial literacy education, housing counseling also plays a key role in support of the goal to increase financial awareness and sophistication and to close the wealth gap between minority and non-minority households.”

To alleviate this problem, “[T]he National Urban League advocates three key objectives that the federal government and the Financial Literacy and Education Commission should pursue to promote economic opportunity for minority and low-income families and communities: expand access to capital and financial services through mainstream banks and thrifts, particularly by ensuring that CRA [Community Reinvestment Act P.L. 95-128] remains effective; bank the unbanked with innovative new private sector products and services, driven by new incentives for financial services for the poor; and promote saving among the poor by catalyzing wide-scale establishment of Individual Development Accounts and other mechanisms that help low-income families save for homeownership and other key assets.”

Janis Bowdler, associate director for the Wealth Building Policy Project at the National Council of La Raza; Saundra Braunstein, director of the Division of Consumer and Community Affairs at the Federal Reserve Board of Governors; Steve Brobeck, executive director of the Consumer Federation of America; Jill Docking, president and founder of the Financial Fitness Foundation and member of the Board of Regents of Kansas; Phyllis Frankfort, president and chief executive officer of Working in Support of Education; JoAnn Johnson, chair of the National Credit Union Administration; Dean Martin, treasurer of Arizona; Cassandra McConnell, director of Consumer and Community Affairs at the Office of Thrift Supervision; Robert Mooney, deputy director for Consumer Protection and Community Affairs at the Federal Deposit Insurance Corporation; Dallas Salisbury of the American Savings Education Council and president and chief executive officer of the Employee Benefit Research Institute; and Barry Wides, deputy comptroller for Community Affairs at the Office of the Comptroller of the Currency, also testified.

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