Prepared Remarks by Richard Cordray
Director of the Consumer Financial Protection Bureau
April 18, 2012
Thank you for inviting me tonight. From my work with Jump$tart over the years, I know you to be a leader in improving financial literacy from kindergarten to college. So I am glad to be here with so many who share the same objectives as the Consumer Financial Protection Bureau.
My own history with your organization has been very positive. Back when I served as a county treasurer in Ohio, my primary initiative was to collect more unpaid delinquent property taxes. And let me tell you: That kind of project really makes a person popular! Reflecting back, I can now see how actually doing that hard work brought my team and me face to face with very different categories of people. Some resisted paying their share because they had gotten away with ducking us before. Some would not prioritize payment until they were sure we were serious about pursuing them. But many people were simply “down on their luck,” to borrow a quaint but apt phrase – with the adversity consisting of unplanned and unwelcome events such as disease, divorce, job loss, or a death in their family.
People’s troubles were often magnified by their incomprehension of financial matters. Difficult situations led to bad decisions. That experience led me to form a local committee on personal finance education. We gathered information about school programs for young people and community programs for adults, such as there were, and looked to match people up with those available resources. Eventually, we became more ambitious and set a goal to pass legislation that would require every student to receive personal finance education before graduating from high school. It is not easy to change anything about the high school curriculum, but we managed to do it, with the help of a broad coalition that included Jump$tart. And what we found next was that there was so much more work to do. By this time, I was serving as State Treasurer, and we worked with the same broad coalition to develop curricula and organize teacher training in hundreds of school districts. It was hard work, but we believed deeply in it and the difference it could make for people, which made it all feel enjoyable and worthwhile.
Aristotle said, “The neglect of education does harm to the political order.” Although he made that observation more than 2,000 years ago, it still rings true today. As everyone in this room knows, the neglect of financial education can certainly help ruin the constitution of a nation founded on a regime of personal responsibility and organized around a free market, as is true with the United States of America. We see that in the personal struggles of individuals and families, and we saw it more broadly across entire communities during the run-up to the 2008 financial crisis. Consumers made many bad choices because very often they did not know any better. And unscrupulous businesses took advantage of those consumers.
The President has officially proclaimed April to be National Financial Capability Month because everyone should have access to information that empowers them to make the right financial decisions for themselves. In our lifetimes, we have seen a widening gap between people’s financial literacy and the ever-more complex financial decisions they have to make. At the Consumer Bureau, we are uniquely positioned to help bridge this gap. We can help consumers elevate their financial literacy. But we can also make decision-making easier by bringing choices down to a level where they are more accessible, clearer and expressed in straightforward terms.
Tonight, I want to talk with you about what we are doing to bridge that gap. But first, I want to say a few words about K-12 education, which I think are worth noting as a backdrop to the work we do at the Consumer Bureau – and the important work you do every day.
At the Consumer Bureau, we are deeply committed to a vision of an America where everyone is financially educated. But the challenges that confront us in achieving this goal are complex, varied, and significant. To face them, we must start early. We must start where all good education starts – with our children.
One of the fundamental pedagogical tenets is that education builds on work already done by others – by previous generations, previous schools of thought, even previous civilizations. People learn various things – it may be a bit of information, or a personal experience, or a concept. These things get shared and recorded. And then they can be passed on as building blocks. Through these many accretions, we gain a base of practical and theoretical knowledge that becomes ever more substantial with the passage of time. Think what it would be like if every generation had to learn all mathematics from scratch. Even just the concept of numbers would be baffling enough. Or imagine if we knew nothing of biology and tried to teach ourselves anew every twenty years or so.
I raise this point because, in our society, financial education typically seems to be an outlier from this model. When it comes to building a knowledgeable society, we make sure to teach our young people many things, but then we leave them to learn about personal finances in the so-called “school of hard knocks.” This phrase is a facetious one, reflecting that this is no school at all, but a place where people will continue to make the same kinds of mistakes that others have made before them, with the same results and the same regrets. One of the challenges to building a more financially literate America is developing and motivating a knowledge base that gets passed on to others in a more rigorous and systematic way. Leaving children to learn these lessons at home, where too often finances are a sensitive sore spot or strictly taboo, is not good enough to build a stronger future for this country.
When we do not teach children about personal finance – about managing household budgets or making informed decisions about larger investments in an education or a home – we are condemning them to learning it largely and perhaps entirely on their own, if at all. We are intent upon teaching them that worms are classified as annelids but we do not teach them why it is important to save for retirement. One thing we can count on is that when our children pass that arbitrary threshold to becoming an adult, we expect them magically to be able to operate “on their own,” and to be able to handle all the decisions (including financial decisions) that go with that unmoored status. If we teach them subjects like science, history, and math but do not teach them anything about personal finance, then we need to understand that we are making a conscious choice to release them into a financial world where they have to fend for themselves. And in the school of hard knocks, they will definitely take their knocks. As everyone in this room knows, if you do not know what you are doing financially, you can suffer years of damage with just one or two bad decisions.
So given how we have chosen to organize our society, marked by a vibrant private sector and accordingly a wide realm of private responsibility, being an effective citizen is about much more than knowing how to vote or knowing that the government has three branches. It also is about being able to have the know-how and the capacity to manage your affairs and make the most of your opportunities. What could be more important to teach in school than enabling our children to function as productive citizens? How can they exercise their fundamental right to the pursuit of happiness, as our Founding Fathers promised, if they find themselves caught up in financial snares when they try to pursue their dreams and aspirations?
In short, training the minds of the young must include training about money. This should be mandatory in every state. And for those adults who are never going to find their way back to high school, we need to find more ways to reach them, whatever else they may do in their lives.
When Congress and the President created the Consumer Bureau, they made sure to establish the Office of Financial Education for these purposes. Of course, the Bureau is still an infant and so the Office has just begun its work. But we have recognized from the outset that there are other dedicated organizations – many represented here tonight – already doing good work on these issues. We do not intend to step on anyone’s toes or add yet another voice to the tumult. Instead, we want to be efficient, resourceful, and effective.
So we will be seeking input from practitioners and the public about what works in financial education. What really works best seems to be a bit of an unknown at this point. We need to find that out – and strategize with you on how best to implement it.
What we do know is that Americans today have some of the highest personal debt levels in the history of our country. We know that too many Americans live beyond their means. We know that young Americans today are less likely to be financially capable than older Americans. We know some 23 percent are spending more than their household income, which is unsustainable. And nearly 70 percent have no rainy day fund for that unexpected setback.
We envision a world where our young people understand budgets, savings, investments, and credit. We want to see 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; where an essay in English class explains why we have money and what purposes it serves. Our children need to know why we have bank accounts, why we keep track of our bank balances, why we should all check our credit reports regularly.
Above all, people need to know that there are a few big moments in their lives where they are going to confront specific decisions with potentially massive consequences, such as taking out a mortgage or student loan. Do you go to school here or there? Do you buy this house or that one? How much debt do you take on, and on what terms? Do you understand the consequences? These crucial decisions have huge ripple effects in your life, lasting for years. These are significant occasions where you can make a terrible decision by focusing on the wrong things or failing to gather enough information. At a minimum, our young people need to understand which decisions are these important decisions and not to treat them casually. They need to grasp all the ins and outs, or they need to get help from an advisor they can properly trust.
So a key part of a sound financial education is learning to distinguish the few large decisions from the many small ones, and to give those decisions a more appropriate amount of consideration. We want people to look out for themselves and to get help when they need it.
Indeed, choosing a credit card, buying a home, or saving for retirement requires real financial savvy. To help elevate the financial literacy of consumers in this country, we have recently launched the “Ask CFPB” tool on our website, consumerfinance.gov, featuring hundreds of questions and answers that inform consumers about various financial products and services. You can help us by suggesting additional questions that you believe are worth answering, or by asking about answers you do not understand; either way, give us your feedback so we can improve our tool.
But we also know that many useful approaches to financial education can already be found in other places, and we have no desire to try to reinvent any wheel that is already round enough. When I was a local treasurer in Ohio, we discovered the FDIC’s “Money Smart” curriculum, and we worked with them to train people who trained others to use that excellent resource. Rather than redoing that work, at the Consumer Bureau, we are focused on the insight that there are two ways to close the gap between consumers and the portfolio of financial decisions they must be able to make. One way is to better inform consumers; another way is to bring more transparency and accountability to the financial markets. If we can bring financial decisions down to a level where they are more accessible, by making choices clearer, then we close the gap. You should not need a law degree to read a bank or credit card contract. As Einstein once said, “If you can’t explain it simply, then you don’t understand it well enough.” We are advocating for greater transparency in the financial markets not to dumb things down, but to take overly complex information and make it reasonably accessible to normal human beings, so that they can make the choices that are right for them.
At the Consumer Bureau, we are doing this with our signature “Know Before You Owe” project to simplify and streamline the application forms and closing documents for mortgages. We also are showing how this can be done with our model credit card contract. On student loans, we first produced a model “Financial Aid Shopping Sheet” for students and then followed up with our “Financial Aid Comparison Shopper,” an online tool that can be used to estimate the costs of higher education and related debt burdens by evaluating schools side by side. In each instance, greater transparency makes comparison and decision-making easier for consumers.
We also understand that sometimes people need special help. At the Consumer Bureau, we now operate a complaint system on our website and through a hotline. You can send us a complaint about your mortgage, credit card, bank account, car loan, or student loan. Our consumer response specialists will follow up on your concerns and seek to get them resolved.
Our goal is to give people the confidence and the peace of mind that the financial world is not booby-trapped with pitfalls that can ruin their lives. We want to make decisions more accessible to people, and we want them to be better informed about how to make those decisions. By bringing closer together what the financial world demands and what actual consumers understand, we will bolster financial capability in this country.
It is inspiring to know that those of you who are here tonight share this conviction, and we are glad to join you in this most worthy cause.