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Financial Literacy Subject of House Subcommittee Hearing

On September 28, the House Financial Services Subcommittee on Financial Institutions and Consumer Credit held a hearing focusing on the efforts of the private sector to increase financial literacy and the role the federal government can play in highlighting and coordinating those efforts.

In his opening statement, Chair Spencer Bachus (R-AL) said, “While a basic understanding of checking and savings accounts was all that was needed twenty-five years ago, most Americans now need to be knowledgeable about credit cards, mortgage products, retirement and investment plans. Our committee recognized the important role of financial literacy by including a financial literacy component in legislation from Sarbanes-Oxley to the Fair and Accurate Credit Transactions Act, known as the FACT Act.”

“Financial literacy is unequivocally necessary in today’s global economy,” said Rep. Maxine Waters (D-CA). “Persons who fail to recognize the importance of acquiring these skills early in life are marginalized. Financial literacy is something that I have advocated must be introduced to school children in elementary school, or sooner if possible. A recent survey suggests that 60 percent of young people between the ages of 18 and 34 say they do not have the knowledge needed to effectively manage their personal finances and retirement security. Unless this percentage is reduced many of these individuals will remain marginalized in society.”

President and chief executive officer of JA Worldwide, David S. Chernow, stressed the importance of financial literacy, saying, “To put it as simply as I can, time is of the essence. We are experiencing an epidemic in this country. Financial illiteracy is threatening sustained economic growth and development of the populace. And what we have learned is that this problem cannot be solved alone.” Mr. Chernow’s company provides “hands-on, experiential learning programs” to nearly 4 million students in the U.S. annually. He said that “private sector commitment to financial literacy education is a key component of our success and something we believe is absolutely essential in our efforts to improve financial literacy in our country. Private sector volunteers serve as meaningful role models to our youth as they share their personal and professional insights with students who sincerely wish to prepare for financial stability in their lives.”

Ted Beck, president and CEO of the National Endowment for Financial Education (NEFE), explained that his organization particularly focuses on “those who often are outside of mainstream financial services and are most at risk for experiencing significant financial difficulties: youth, low-income individuals and families, minority populations, and people facing special challenges due to illness or other life-changing events.” Mr. Beck detailed several examples of NEFE partnerships and collaborations, including a high school financial planning program, which includes a six-unit curriculum teaching students money management, budgeting, saving and investing, and other financial planning basics; and financial education collaborations to address specific life circumstances that require tailored information, such as a collaboration with the National Coalition Against Domestic Violence to assist domestic violence victims to move toward economic self-sufficiency.

Based on NEFE’s experiences, Mr. Beck made a number of recommendations for the federal government, including evaluating financial education provided to federal employees and the military; helping to streamline the fragmented financial education effort; sponsoring a large-scale public awareness campaign; establishing a national clearinghouse for effective financial education programs available to the public at little or no cost; and creating a “Financial Literacy Corps” of volunteers who could train community groups to provide basic financial literacy to their members.

Julie Cripe, testifying on behalf of the American Banker’s Association (ABA), said “As bankers, we are in the fortunate position of helping other people make their dreams come true. Bankers put people in homes and cars, they create jobs by funding the start-up and continuing operations of small businesses, and they help people save for retirement and send their kids to college. Yet it is heart-breaking that so many people fail to realize their dreams or lose their hard-earned money because they lack basic knowledge about money management.” She continued, saying, “One aspect of the seriousness of the financial literacy problem is that it can linger for decades–even lifetimes. Those who are uneducated about banking services often turn to check-cashing services and payday lenders to address their financial needs. They pay more than they have to for financial services in a very competitive market and are easy prey for criminals and fraudsters.”

Ms. Cripe told the subcommittee about two ABA initiatives: “Teach Children to Save” and “Get Smart About Credit.” “Every April,” she said, “the National Teach Children to Save Day brings bankers into local schools to talk with students and their teachers about savings and money management. Since its inception in 1997, over 46,000 bankers have entered classrooms to teach lessons about the importance of saving money to almost two million students nationwide. The ABA also makes Teach Children to Save resource kits available, which include age-appropriate lesson plans, student worksheets, display posters, and media tips and talking points. Every October, on Get Smart About Credit Day, hundreds of bankers across the country trade their balance sheets for black boards and volunteer in classrooms to teach kids the do’s and don’ts of credit. Nearly 70,000 students have learned how to use credit wisely through the Get Smart About Credit Day program, which is now in its fourth year.”

Executive Vice President Donald Kittell testified on behalf of the Securities Industry Association (SIA), and described the work of their nonprofit foundation, the Foundation for Investor Education, which created the Stock Market Game, a program that simulates the basics of investing for students from grades four through twelve with a “hands-on experience investing a hypothetical $100,000 in real securities.” Teachers are provided with grade-level curriculum and support; the program now serves 500,000 students each year, with efforts to reach underserved populations. Mr. Kittell also described member firm projects: Merrill Lynch partners NBA teams with inner-city schools in itsInvesting Pays Off program, and the Charles Schwab Foundation and the Boys and Girls Clubs of America partner on Money Matters: Make it Count, a program to teach money management skills to teens.

Stephen Brobeck, executive director of the Consumer Federation of America (CFA), expressed frustration with the lack of a “coherent national strategy” to address the need for financial literacy. He discussed the progress made by Jump$tart and its partners in advocating for state financial education mandates; yet, many states have not yet required financial education for students. The CFA contends that financial education alone is not enough–motivation and opportunity also must be present. Discussing the characteristics of effective financial education programs, Mr. Brobeck cited the America Saves program, which has enrolled thousands of “nonsaving” individuals as “Savers.” Almost 60,000 individuals, half of them African American and Hispanic, have enrolled to date. He concluded his testimony by recommending that the federal government support a public-private initiative to “encourage and assist all Americans to estimate and monitor their net personal wealth,” stating that people are more likely to spend wisely, live within their means, and build wealth if they have an awareness of their own net personal wealth–“real and financial assets minus debts.”

Also testifying were Elisse B. Walter, senior executive vice president of NASD; David G. Kittle, president of Principle Wholesale Lending, Inc.; Carl Sorgatz, chief executive officer of Hawthorne Community Credit Union; and Frank Pollack, president and chief executive office of the Pentagon Federal Credit Union.

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