Federal Reserve Chairman Ben Bernanke told the Senate Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia, Committee on Homeland Security and Governmental Affairs that financial education must be a life-long pursuit. "(It) enables consumers of all ages and economic positions to stay attuned to changes in their financial needs and circumstances and to take advantage of products and services that best meet their goals. Well-informed consumers, who can serve as their own advocates, are one of the best lines of defense against the proliferation of financial products and services that are unsuitable, unnecessarily costly, or abusive."
Tying the financial crisis to the need for good financial decision making, Bernanke said good choices depend on reliable and useful information, presented in an understandable way. He included as essential components of personal financial management and understanding of how to budget strategically, use credit, save to build personal wealth, and shop for and choose suitable financial products.
The Federal Reserve has taken a three-pronged approach to assisting consumers successfully navigate the financial marketplace. First, the Chairman said, the Board has worked diligently to foster financial and economic education. For years it has provided unbiased, credible research-based information to consumers in print and on line. They have publications in both English and Spanish that provide consumer tips on topics from avoiding foreclosure scams to managing a checking account. Recently the Fed has developed interactive webpages that offer information on changes in regulations that affect consumer financial products and services.
Exposing young people to financial information, he said, is especially important. Students can be vulnerable to the lure of taking on excessive debt so the earlier they develop basic financial skills the better their decision making will be as adults. With this in mind, the Federal Reserve works closing with teachers and schools to provide resources such as educational games, classroom lesson plans, and multimedia tools for financial education
The bank also collaborates with numerous other organizations and agencies that have financial education as their goal. Chief among the organizations is NeighborWorks American which supports homeowner counseling but the list also includes Junior Achievement, AARP, the National Council of LaRaza, America Saves and many others. Since 2004 the Board has participated in the Financial Literacy and Education Commission which is composed of representatives from 22 federal agencies and commission and coordinates financial education resources offered by the federal government
Second the Federal Reserve conducts research on consumer decision-making to identify what works in financial education. For example, the Board's Survey of Consumer Finances is one of the most important sources of information on the assets, debts and wealth of American households. Several years ago, researchers in the Board's Division of Consumer and Community Affairs joined with Army Emergency Relief to conduct a longitudinal study of the effect of a two-day financial education program on soldiers' financial management. The Federal Reserve has also developed substantial expertise in assessing and drawing policy conclusions from a range of consumer financial data, such as data from credit records or data on mortgages provided by lenders under the Home Mortgage Disclosure Act. The Fed has also analyzed alternative approaches to financial education such as an evaluation of students taught by teachers who had taken a 30 hour Federal Reserve of Philadelphia course. A 50 question exam administered both before and after the class showed that the student has a significant increase in their personal financial achievement compared to other students of the same age.
Third the Board recognizes that basic financial knowledge is not sufficient to safeguard consumers from fraud and deceptive practices so it has developed strong consumer protection rules and financial product disclosures and vigorously enforces those regulations. In recent years the Fed has issued rules for mortgages, credit cards, student loans, and overdraft protection programs and has maintained a robust compliance program for banks under the Fed's purview.
Bernanke said that after its consumer-protection rulemaking authority and consumer-protection supervisory and enforcement authority transfers to the Bureau of Consumer Financial Protection the Board will retain some relevant rule-writing authorities as well as supervisory authorities for smaller financial institutions it regulates for safety-and-soundness purposes. The Board is working closely, he said, with the Department of the Treasury and the new Bureau to facilitate the necessary transfers of authorities and personnel.
"Regardless of how the regulatory and supervisory responsibilities are distributed," Bernanke concluded, "a comprehensive approach--one that includes education, research, and regulation--remains essential to ensuring that consumers receive adequate protections and that markets for consumer financial products function well."
