Director of the Consumer Financial Protection Bureau
Clinton Global Initiative Conference
June 14, 2013
Thank you all for your interest in financial inclusion, financial capability, and financial education – all issues that are vital to economic recovery and economic stability in our nation. The recent financial crisis, and the deep recession that followed in its wake, delivered a devastating blow to American households. In recent years, we have seen household wealth shrink by trillions of dollars. Many lost their jobs; many lost their homes; and others who avoided these fates lost substantial value in their homes. All of this is set against the backdrop of long-term wage stagnation for many Americans. 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.
At the Consumer Financial Protection Bureau, we are working to restore confidence that consumers can improve their lives by engaging in the marketplace for lending and savings products. To begin with, we need to make sure that consumer financial markets are not rigged against people. So we are focused on making consumer financial 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 clear, that products are transparent and not predatory, and that marketing is not deceptive or misleading. Someone needs to stand on the side of consumers to ensure this kind of fair treatment, and the Consumer Bureau recognizes that Congress has singled out our new agency to take on this task. If we do our work well, then consumers should be enabled to navigate the financial marketplace more easily and to exert more control over the ways and means of their lives.
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 our society.
We cannot do that unless we consciously devote ourselves to the essential importance of financial education. As it stands right now, 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.
Those of us here today are leaders within our own organizations, and we have a clear opportunity to stand up and make a difference on these issues. We can insist that from this day forward, both the public sector and the private sector in the United States will commit themselves to the concept that American citizens need to be fully capable of economic self-government, just as we expect them to be able to participate on full and equal terms in our democratic system of government. For a society built on a foundation of free and responsible individuals, operating within a free market system, nothing less will do.
We must strengthen our country by no longer accepting that when we send young people out in the world, we are condemning them to a rough education in the school of hard knocks, which is really no school at all, when it comes to financial capability. We must insist that every student will receive sound financial education in our schools. And for those adults who will never return to school, we must insist on providing greater and more effective attention to these issues in the workplace and through other community institutions, such as places of worship.
Research shows what intuition suggests, that particularly in the wake of the recession, financial distress is widespread among the American workforce. In recent surveys by PricewaterhouseCoopers, more than half of all workers say they are financially distressed. That distress negatively affects their work. It reduces their productivity and distracts from their focus and commitment to the job. It increases their absenteeism and undermines their health. One-third of workers admit they have spent time in the office worrying about money or even dealing with issues of personal finances.
Workers will be more likely to avoid financial distress if they are better positioned to manage their own finances. Employers can play a critical role in this effort by implementing practices in the workplace that strengthen financial capability. It is possible to start out small by providing a few basic offerings, such as using direct deposit to encourage savings. Many employers already offer direct deposit, but they could ease the options for employees to allocate their paychecks across spending, savings, and investment accounts. And employers could do more to help employees prepare for their long-term futures.
Many employers already enroll their employees automatically in retirement accounts, but they could move toward a higher percentage of pay as the auto-enrollment default choice to encourage more retirement savings. Employers could also provide options – including default options – that automatically increase the amount contributed to retirement plans over time, as pay increases.
Along with these types of offerings, employers can make straightforward efforts to educate employees and help them develop sounder financial strategies from their first day in the office. We want to see more organizations offer financial education benefits and savings options to their employees. We also want them to be much more conscious of the need to ensure that more employees understand and utilize the benefits made available to them. Employers offering financial education and savings programs should organize them in one central location so that employees know where to turn to access resources and assistance. Strategic awareness campaigns can promote positive financial behavior and increase employee participation in benefits programs. Employers with an open enrollment season for choosing insurance benefits could use that time to promote their financial education and savings programs as well.
For those employers who want to go beyond the basics, they can provide financial planning sessions and education classes tied to milestones in employees’ lives. A recent college graduate, a new parent, an aspiring homeowner, and an employee approaching retirement have very different needs and interests when it comes to financial fitness. Good decisions at these key moments will exert a disproportionate influence on the trajectory of people’s financial futures. Employees should also be encouraged to work together to support each other throughout the financial education process.
For those employers who want to be even more innovative in their approach to employee financial fitness, they can offer personal financial planning or credit counseling. Workers who receive one-on-one financial planning along with financial education are more likely to get on a stable footing and make fewer requests for 401(k) loans or advance pay. Employers can also offer savings incentive programs by matching a certain percentage of the employees’ savings. This can be a good strategy to increase employee retention or to provide non-permanent benefits.
At the Consumer Bureau, we believe in leading by example. We are a fairly new organization, but this year we have launched an entire program focused on providing our employees with a solid foundation for their financial lives. Based on what we have learned from studies about financial decision-making in the workplace, we are striving to build a set of best practices for our own employees.
We are interested in sharing these practices with other employers that want to help their workforce become more financially fit, and to learn from those of you who may already be doing even more. We offer individual financial planning services, life-event guides, and in-office seminars on topics like retirement savings and financial wellness.
For those of you here today, I ask you to join us in our mission to improve the financial capability of American consumers. If you leave this conference committed to implementing some or all of the various options we have discussed, you will make a positive difference for your workforce. And if we take on these issues together, then we can make important strides for the future of this country. Mark my words: the United States cannot continue to miss the point on the importance of financial education. Other developed countries around the world – including Australia and the United Kingdom, most recently – now require such instruction as part of children’s schooling. We have no excuse for falling behind, except that we have frankly failed to recognize the importance of these issues. And that is not an acceptable excuse for this great and powerful nation.
So we strongly encourage you to provide your employees with the information and resources they need to exert more control over their financial lives. Please consider making the commitment to a financial wellness program for your employees. Doing so will benefit them and their families, increase your productivity, strengthen our economy, and brighten the future of our country.