Prepared Remarks of Richard Cordray at the Investing in Our Future Conference
Director of the Consumer Financial Protection Bureau
Investing in Our Future Conference
April 30, 2013
Thank you, Camille.
The topic of our conference here today is of critical importance to the future of our nation and our economic health. Education in matters of personal finance is an essential pillar of life as we know it in America. In the past few years, we have been working through the residue of the worst financial crisis we have known since the Great Depression.
In this crisis, families have lost trillions of dollars in household wealth; many have lost their homes and their life savings. People have been shaken in their deeply held belief that if they work hard and behave responsibly, they can and will get ahead in life and pass on a higher standard of living to their children.
There were many causes of the crisis, and my point is not to catalogue or evaluate them here today. But the problems experienced by many Americans were exacerbated by this plain fact: faced with the growing complexity of financial decisions around mortgages and other household credit, they were poorly equipped to deal with that complexity by making sound and sensible decisions. We hear this often from consumers who come to our website to tell their stories.
To help them, we are working to improve the financial marketplace by providing effective rules, consistent oversight, and evenhanded enforcement. Moreover, we are working to ensure that financial markets and products are fair, transparent, and competitive, that product marketing and disclosures are clear and useful, and that consumers of all ages have the opportunities and resources they need to improve their financial knowledge and capability. We want consumers to be able to navigate the financial marketplace effectively and to take more control over their economic lives in pursuit of their goals.
Ten years ago, I served as the Franklin County Treasurer in Columbus, Ohio. The economy had been in recession, and among my duties was to collect delinquent real estate taxes from people who had fallen behind. Under state law, we were able to arrange payment plans for people to become current on their obligations over time – the same types of workouts or modifications that have become more familiar in the aftermath of the recent financial crisis.
This task brought me face to face with good people who had spent their entire lives climbing the ladder toward the American dream, but due to bad fortune or poor decisions, or both, had slipped back downward. The reasons for their predicaments were many, but most of them had one thing in common: they lacked sufficient understanding of major decisions that confronted them in the consumer financial marketplace. And what was interesting was how often they were keenly aware of it. Out of these encounters, I became convinced of the critical need for personal finance education.
I believe many of the struggles people face could be mitigated by financial education that is designed to change behaviors, which requires starting at a young age. We want all consumers to understand how to manage household budgets, grow their savings, and use credit. Today, we are unveiling the Consumer Bureau’s policy recommendations for youth financial education – starting in kindergarten and continuing through the end of high school.
Financial education should be as fundamental as the education we are all required to receive in American history and government. We must be deliberate about pursuing financial education in our schools. Failing to do so is to condemn boys and girls to make the same mistakes others have made before them by enrolling them in the “school of hard knocks,” which we all know is no school at all. It is the antithesis of education for each generation to have to learn the same lessons the hard way. It is utterly unacceptable.
One of the steps to a more financially capable America is developing a knowledge base that gets passed on to others in a more rigorous and systematic way. Just hoping that children will learn these lessons at home, where finances often are a sensitive sore spot or may even be strictly taboo, is no way to build a stronger future for this country.
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 very shameful and costly way. So, our first recommendation is that financial education should start early and be continuous. The financial services marketplace is complex and constantly evolving. Managing one’s finances is a lifelong endeavor.
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. We all need to know why we have bank accounts, why we keep track of checking account balances, and why we should check our credit reports regularly.
In addition to integrated curricula, I believe it is extremely important to require young people to receive further instruction in personal finance education during high school, when they are becoming conscious of the reality that they are getting close to going out on their own to make their own way in the world.
When young people do not have the skills to make effective financial decisions, they can incur unnecessary debt, miss opportunities to save money, and develop a poor credit history. A poor credit history can prevent them from accessing opportunities and resources that are essential to building financial stability like bank accounts, rental housing, and even employment.
We also recommend that as part of youth financial education, students should practice financial management through experiential learning. The financial education we provide our children needs to include practical experience. Students may be more likely to retain financial knowledge when they apply the concepts they have learned in concrete situations. Regardless of whether they are simulating a banking experience, playing a computer game that hones financial decision-making skills, or following the stock market in the newspapers, they will be learning from this experience.
We must also engage and support those teachers who are interested in teaching personal financial management. An overwhelming majority of K-12 teachers say that personal finance should be taught in school, yet only one out of five teachers believes that they are adequately prepared to teach personal finance. We want to ensure that teachers have the support they need. We want them to have access to training and incentives to take part, such as continuing education credits or need-based travel stipends.
Not only do we want to equip teachers with the training they need to teach financial skills, but we are also recommending the integration of financial education concepts into standardized tests. Doing so would increase incentives for educators to teach these topics and present an opportunity to measure and track the performance of students on financial education content. Standardized tests would not have to be completely changed – they could simply be reframed to include more consumer finance content. For example, a reading comprehension passage could contain tips on saving money, developing good credit, or applying for student loans.
We know that financial education in schools is critical, but we also know that there can be enormous benefits when that education starts at home. We want parents to be engaged as their children are learning to master the concepts of personal financial management. Children form their financial identities early, and so it is important for parents to talk to their children about money at an early age. Research has demonstrated that if parents engage their children by establishing a savings account for them, these children are seven times more likely to attend college than those without a savings account.
With today’s white paper and conference , we hope to spark a national conversation about youth financial capability. This is an exciting opportunity to develop a coordinated policy framework that can provide young people with the information, experience, and results they need to be informed and empowered managers of their money. Collaboration among a wide range of stakeholders, including those of you here today, can help ensure that every young American can gain the knowledge, skills, and resources required to build healthy financial futures.
At the Consumer Bureau, our goal is to give all consumers the confidence and peace of mind that the financial world is not full of pitfalls that will ruin their lives. Part of our mission is working to ensure that the recent financial crisis does not repeat itself. Empowering young people to be more financially savvy than earlier generations is absolutely essential to that mission. 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.
To make that happen, we believe the new Consumer Bureau is uniquely positioned to build on existing best practices to help bridge the gap between the often complex financial decisions people have to make and their actual financial capability. We want to make the risks and benefits of financial decisions more accessible to people. And we want to enhance their ability to make responsible decisions for themselves and their families. By working in coordination with those leaders who are already dedicated to achieving these goals, we can bolster financial capability in this country. We are glad to join with everyone who shares these same convictions, and I look forward to today’s conversations.