Prepared Remarks of Richard Cordray
Director of the Consumer Financial Protection Bureau
FINRA Investor Education Conference
May 29, 2013
Thank you for having me here today. We are finding FINRA’s National Financial Capability Study to be a crucial source of information about the habits of American consumers and the complex decisions they face in the financial marketplace. All of us here today share the same goal of educating and empowering consumers to help them make responsible financial decisions that are sustainable over time.
But, I think we also need to share something else: not just the substance of this goal, but a sense of its urgency. We have just suffered through the most serious financial crisis of our lifetimes – the most dislocating economic event in this country since the Great Depression. Families lost trillions of dollars in household wealth; many lost their homes and their life savings. We are slowly recovering, but the harm has been deep and broad, and its effects on social and economic behavior may well be lasting. People have been shaken in their deeply held belief that if they work hard and behave responsibly, they will get ahead in life and pass on a higher standard of living to their children.
Out of this crisis, lessons must be learned and changes must be made. To begin with, we need to make sure that consumer financial markets are not rigged against people. At the Consumer Financial Protection Bureau, we are intent on making those markets work better by providing reasonable rules, consistent oversight, and evenhanded enforcement of the law. People expect and deserve to be treated fairly, so we are aiming to ensure that disclosures are transparent, that products are devoid of predatory features, and that marketing is not deceptive or misleading. If we do our work well, then consumers should be enabled to navigate the financial marketplace more easily and to exert more effective control over their economic futures.
But the best and most immediate form of consumer protection is self-protection: being able to avoid problems in the first place and to know what you can do about it when you do experience a problem. Our new agency is uniquely positioned to help bridge the widening gap between people’s actual financial capability and the increasingly complex financial decisions they have to make. In order to do that, we must also consciously devote ourselves to the essential importance in our society of financial education. Americans simply are not well equipped to fight through the complexity to make sound and sensible decisions. In fact, we now hear every day from people who lament the choices they made, often expressing anguished regret that they did not know more about the risks involved at the time they made key financial decisions.
So we are acutely aware that consumers of all ages need sound information and advice to bolster their financial knowledge and capability. But where can they find these tools? They can look in the marketplace itself, but much of what they find there is likely to be skewed by the financial self-interest of other parties. So people need trusted and impartial resources, and it is difficult to know where to turn. We intend to make the Consumer Bureau itself a source for this kind of information, and we are working to accomplish this goal in several ways.
To begin with, we can readily agree that all consumers need to understand basic information about budgets, savings, investments, and credit. We are working with various partners to provide it, such as the FDIC with its renowned MoneySmart curriculum. We also are developing a library of consumer information at “Ask CFPB,” where we answer frequently asked questions from consumers about issues in the financial marketplace.
But consumers also need to be aware that there are a few big moments in their lives where they will confront specific decisions with potentially far-reaching consequences, such as paying for school or buying a home. Do you go to school here or there? Do you buy this house or that one? How much debt do you take on? What kind of debt, and how do the alternatives differ? We want people to understand which decisions are the most important ones, not to treat them casually, and to know where they can get trusted help when they need it. We have begun to develop modules to address these key decision points, beginning with our “Paying for College” web tool already available at consumerfinance.gov.
Today’s FINRA report underscores the importance of these efforts. For example, it shows the need to encourage consumers to save in order to protect themselves from the effects of economic shocks. For people aged 18 to 34 and for those in the peak earning years of 35 to 54, only one-third reported that they had set aside three months’ worth of emergency funds. Yet saving matters: saving is critically important to financial health and to reaching personal goals. Whether it is a car, a college degree, a home or a stable retirement, getting into a habit of saving money and planning ahead can be integral to financial success.
The report also shows a solid baseline that we can and must build on together. By overwhelming numbers – 89 percent of those surveyed – Americans recognize and acknowledge that financial education should be taught in schools. Echoing that sentiment, we recently unveiled the Consumer Bureau’s core policy recommendations for youth financial education, starting in kindergarten and continuing through the end of high school. If these policy recommendations are broadly embraced around the country, we will be better prepared to cope with the kinds of problems that arise in our lives and to help stave off the threat of the next financial crisis.
First, we recommend that financial education should start early and be continuous. When we do not teach children about personal finance – about managing household budgets, saving for the future, or making informed decisions about larger investments in an education or a home – we are failing them in a shameful and costly way.
We also need to have integrated curricula in our schools – where the benefits of compound interest are understood in math class, where economic costs and risks are taught in social studies class, and where an essay in English class explains how we use money or how we protect our money or how we can take control of our financial lives to achieve our goals. And financial education concepts should be integrated into standardized tests, which would increase incentives for educators to teach them and present opportunities to measure and track student performance on financial education content. Standardized tests could easily be reframed to include more consumer finance content – for example, a passage for testing reading comprehension could focus on topics like tips on saving money, developing good credit, or applying for student loans.
As young people approach the magic threshold of adulthood, we need to require them to spend some time and attention on what this independence will mean from a financial standpoint. The question becomes immediate and insistent: How can we take control of our financial lives to achieve our goals? We all need to know why we have bank accounts, why we keep track of our account balances, why we should check our credit reports regularly. We also know how important it is for students to practice, through experiential learning, how to manage their finances. So, financial education in our high schools should include practical experience, and it should not be an option that many students can and will avoid. Regardless of whether they are simulating a banking experience, playing a game that hones financial decision-making skills, or following the stock market, they will be learning from this experience.
We must also engage and support those teachers who are interested in teaching personal financial management. A large majority of K-12 teachers say that personal finance should be taught in school, yet less than a third of them say they have taught lessons about money. And more than half of them report that they feel unqualified to teach their state’s financial literacy standards. We want to ensure that teachers have the support they need. We want them to have access to high quality, no-cost training and incentives to take part, such as continuing education credits.
Financial education in school is imperative, but there can be enormous benefits when that education starts at home. We want parents to talk to their kids about money, and we have resources to help them do just that on our website, at consumerfinance.gov. Such engagement has been shown to help children form their financial identities early. And in my experience, this process is often beneficial for parents too. In fact, a surprising number of in-school programs generate a strong response from parents, who want to know where they can get the same kind of information and experience to improve their own financial performance.
The United States cannot continue to miss the mark on the importance of financial education. Other developed countries around the world – including Australia and the United Kingdom, most recently – now require such instruction in their schools. We cannot afford to fall behind, and to fail our young people, in this fundamental respect. Our democratic system rests on the effective operation of a free market economy. This arrangement demands strong and effective consumers.
Just as each citizen is entitled to vote and to participate equally in our civic life, each is also expected and required to manage his or her own financial affairs. From the time we become adults, each of us is on our own and responsible for the choices we make. The freedom and liberty that we cherish to direct our lives depends on being able to manage the ways and means of our lives. And so we must arm our fellow citizens with the wherewithal to stand on their own two feet and make sustainable economic choices. We have built the greatest system of economic liberty in the history of mankind, but it will only endure if we take the necessary steps to strengthen that system from the bottom up, starting with the individual.
By working in coordination with all those who are dedicated to achieving these goals, we can bolster financial
capability in this country. We are glad to join with you to do that.