The economist John Maynard Keynes was once asked what interest is. He replied simply and directly: “If I let you have a halfpenny and you kept it for a very long time, you would have to give me back that halfpenny and another too. That’s interest.” Of course, that is not Keynes’s most insightful comment on economics, but it may be his earliest: He was four-and-a-half years old at the time.
Clearly, we cannot draw useful lessons on early financial education by studying the childhood of such a renowned economic genius. But we can say this: It is never too early to begin teaching our children the economic and financial concepts that will help them make well-informed financial decisions throughout their lives.
Today’s results from the Programme for International Student Assessment show that much works need to be done and can be done when it comes to financial literacy for young people. Young Americans struggle to solve financial problems, have trouble with financial decisions, and lack understanding of larger financial concepts. The United States ranked in the middle among the 18 education systems that participated in the tests. Youth in Shanghai, Australia, and New Zealand did better than we did in demonstrating strong financial education skills. What this means is that we have an opportunity to learn from others. The goal here should be a collaborative one, not a competitive one. What are they doing differently? How can we replicate their successes?
All over the world, our youth need to understand how to plan and manage their finances, how to understand risks and rewards, and how to evaluate financial issues. Debt, interest, loans, and fees will be a part of their adult lives and they should be armed with all the appropriate knowledge, skills, and resources before they have to make important decisions. Savings will help them in life. We learned how integrated we all were when the financial crisis hit, and the level of interconnectedness in this global age should engender a collaborative spirit to improve every country’s score on these tests.
In our country, where education is highly valued as a means to a better life, failing to teach our children about financial matters is unacceptable. A free market economy like ours is only as strong as its consumers, and we each need to be able to take responsibility for making sound and sustainable financial choices. For these reasons, the Consumer Financial Protection Bureau has made it a cornerstone of our strategy to start early and maintain a continuing focus on financial education over the entire period from childhood to adulthood.
Last year, we published a report that assembled and synthesized all the best thinking we could find on ways to promote youth financial capability. We concluded that every state must include financial instruction 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 essays in English class include topics involving money. Young people should learn about money − what it is, how it has evolved, how we use it, how we keep it safe. I know Secretary Duncan agrees with me and has made these points a key part of his work, first at the local level and now nationally.
We also suggested that part of the answer is to incorporate financial concepts into standardized tests that states already administer. Indeed, many tests around the country already incorporate some real-life examples of money management or economic decision-making, but we could do much more. And, by the way, if you look back at math textbooks from a century ago, you will find that they contained extensive discussion about household economics, how to make a budget, financial choices, and the like. We need to regain that common-sense focus on how the things we are learning relate directly to our everyday financial lives, which we surely can do.
To construct a more financially capable America, we must develop a knowledge base that gets passed on to others in a more rigorous and systematic way. Fashioning bridges of experience between peoples is the mark of all great societies; building upon what others have done before us is a hallmark of civilization and the primary means of improving life for the coming generations. The same approach is amply justified in the field of financial education.
I want to close with the words of another great economist, Herbert Stein, who said, “If something cannot go on forever it will stop.” We saw this principle at work in the financial crisis, when a cycle of destructive behavior came to a crashing halt. Fortunately, we are now well on our way to making a new start. By the same token, America’s neglect of financial education cannot go on forever, and it is high time to stop it. We need to seize this moment and arm our young people with the skills and support they need and deserve in order to build a brighter financial future. Thank you.
The Consumer Financial Protection Bureau (CFPB) is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.