[Senate Hearing 107-969]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 107-969
 
                  THE STATE OF FINANCIAL LITERACY AND
                          EDUCATION IN AMERICA
=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                                   ON

        THE STATE OF FINANCIAL LITERACY AND EDUCATION IN AMERICA

                               __________

                         FEBRUARY 5 AND 6, 2002

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs





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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  PAUL S. SARBANES, Maryland, Chairman

CHRISTOPHER J. DODD, Connecticut     PHIL GRAMM, Texas
TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York         WAYNE ALLARD, Colorado
EVAN BAYH, Indiana                   MICHAEL B. ENZI, Wyoming
ZELL MILLER, Georgia                 CHUCK HAGEL, Nebraska
THOMAS R. CARPER, Delaware           RICK SANTORUM, Pennsylvania
DEBBIE STABENOW, Michigan            JIM BUNNING, Kentucky
JON S. CORZINE, New Jersey           MIKE CRAPO, Idaho
DANIEL K. AKAKA, Hawaii              JOHN ENSIGN, Nevada

           Steven B. Harris, Staff Director and Chief Counsel

             Wayne A. Abernathy, Republican Staff Director

                       Aaron D. Klein, Economist

                    Daris Meeks, Republican Counsel

   Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator

                       George E. Whittle, Editor

                                  (ii)




                            C O N T E N T S

                              ----------                              

                       TUESDAY, FEBRUARY 5, 2002

                                                                   Page

Opening statement of Chairman Sarbanes...........................     1
    Prepared statement...........................................    40

Opening statements, comments, or prepared statements of:
    Senator Shelby...............................................     4
    Senator Dodd.................................................     4
    Senator Bennett..............................................     5
    Senator Corzine..............................................     6
        Prepared statement.......................................    41
    Senator Enzi.................................................     7
        Prepared statement.......................................    42
    Senator Stabenow.............................................    14
        Prepared statement.......................................    43
    Senator Akaka................................................    15
        Prepared statement.......................................    44
    Senator Carper...............................................    16
        Prepared statement.......................................    45
    Senator Schumer..............................................    17
    Senator Johnson..............................................    21
        Prepared statement.......................................    46

                               WITNESSES

Paul H. O'Neill, Secretary, U.S. Department of the Treasury, 
  accompanied by: Sheila Bair, Assistant Secretary for Financial 
  Institutions...................................................     2
    Prepared statement...........................................    46
Alan Greenspan, Chairman, Board of Governors of the Federal 
  Reserve........................................................    18
    Prepared statement...........................................    54
        Response to written questions of Senator Akaka...........    65
Harvey L. Pitt, Chairman, U.S. Securities and Exchange Commission    21
    Prepared statement...........................................    56

              Additional Material Supplied for the Record

Statement of the National Association of Federal Credit Unions...    68
Data and Statistics assembled by the staff of the Senate Banking 
  Committee......................................................    70
                              ----------                              

                      WEDNESDAY, FEBRUARY 6, 2002

Opening statement of Chairman Sarbanes...........................    77
    Prepared statement...........................................   113

Opening statements, comments, or prepared statements of:
    Senator Gramm................................................    78
    Senator Miller...............................................    79
    Senator Akaka................................................    79
        Prepared statement.......................................   113
    Senator Corzine..............................................    85
    Senator Dodd.................................................    89
    Senator Stabenow.............................................    94
        Prepared statement.......................................   114
    Senator Schumer..............................................   109
    Senator Carper...............................................   111

                               WITNESSES

David Dreier, a U.S. Representative in Congress from the State of 
  California.....................................................    80
Susan Molinari, National Chairperson, Americans for Consumer 
  Education and Competition......................................    81
    Prepared statement...........................................   114
Steven Brobeck, Executive Director, Consumer Federation of 
  America........................................................    85
    Prepared statement...........................................   116
H. Patrick Swygert, President, Howard University, appearing on 
  behalf of Historically Black Colleges and Universities.........    87
    Prepared statement...........................................   120
        Response to written questions of Senator Akaka...........   146
Don M. Blandin, President, American Savings Education Council 
  (ASEC).........................................................    90
    Prepared statement...........................................   124
Esther ``Tess'' Canja, President, AARP...........................    93
    Prepared statement...........................................   132
        Response to written question of Senator Akaka............   146
Raul Yzaguirre, President and Chief Executive Officer, National 
  Council of La Raza.............................................    95
    Prepared statement...........................................   137
        Response to written question of Senator Akaka............   147
Denise Voigt Crawford, Texas Securities Commissioner, Texas State
  Securities Board...............................................    98
    Prepared statement...........................................   140

              Additional Material Supplied for the Record

Statement of Adam J. Bass, Senior Executive Vice President, 
  Ameriquest Mortgage Company....................................   148
Statement of Michael J. Caslin, III, Chief Executive Officer, 
  National Foundation for Teaching Entrepreneurship (NFTE).......   154
Statement of Robert F. Duvall, President and Chief Executive
  Officer, National Council on Economic Education................   183
Statement of Lynda Glass, on behalf of the American Bankers 
  Association....................................................   186
Statement of the American Financial Services Association and the 
  American Financial Services Association Education Foundation...   191
Statement of the Credit Union National Association (CUNA)........   204
Statement of the National Association of Federal Credit Unions...   209
Statement of the Women's Institute for a Secure Retirement.......   211


                  THE STATE OF FINANCIAL LITERACY AND
                          EDUCATION IN AMERICA

                              ----------                              


                       TUESDAY, FEBRUARY 5, 2002

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.

    The Committee met at 9:30 a.m. in room SD-106 of the 
Dirksen Senate Office Building, Senator Paul S. Sarbanes 
(Chairman of the Committee) presiding.

         OPENING STATEMENT OF CHAIRMAN PAUL S. SARBANES

    Chairman Sarbanes. Let me call this hearing to order.
    Today, we begin the first of 2 days of hearings on the 
state of 
financial literacy in the United States. We are very pleased to 
have this panel with us. This panel had originally been 
scheduled for September 20. But in view of the developments of 
September 11, we shifted the subject to the financial markets 
and the measures taken to assure their timely reopening and 
functioning.
    Actually, they reopened after only a few days of 
interruption. And on its first day, the New York Stock Exchange 
handled the largest volume of transactions in its history. And 
I want to express my commendation to the three of you, Treasury 
Secretary O'Neill, Chairman Greenspan, and Chairman Pitt, for 
your expert contribution to that effort.
    I know that they were very intimately involved and Chairman 
Pitt I think was in New York for a good part of that week 
before the reopening took place. That was a very impressive 
accomplishment and I want to put that on the record this 
morning.
    We are going to depart a bit from the usual procedure. 
Secretary O'Neill has a commitment on the House side which was 
made some time ago and which he needs to honor. But he very 
much wanted to be with us this morning because he has a keen 
interest in the subject matter of the Committee's attention.
    So, we are going to take Secretary O'Neill's statement and, 
if he has time, perhaps ask him a few questions, before he 
departs. And then we will go back to the normal course with 
statements from the Members of the Committee and then we will 
hear the testimony of Chairman Greenspan and Chairman Pitt.
    So with that, Secretary O'Neill, we are very pleased to 
recognize you. We appreciate your being with us and we 
particularly appreciate your own keen interest in the subject 
matter of the Committee's hearing this morning.

            STATEMENT OF PAUL H. O'NEILL, SECRETARY

                U.S. DEPARTMENT OF THE TREASURY

                  ACCOMPANIED BY: SHEILA BAIR

         ASSISTANT SECRETARY FOR FINANCIAL INSTITUTIONS

    Secretary O'Neill. Mr. Chairman, Members of the Committee, 
I thank you so much for accommodating me in this way so that I 
would have an opportunity to be here with you.
    I do have a prepared statement of some length that I think 
comprehensively covers the subject of the Committee's 
attention. And rather than read through it, if I may, I would 
just make a few comments and then see if you have a few 
questions for me before I have to depart for the Ways and Means 
Committee.
    Chairman Sarbanes. The full statement will be included in 
the record.
    Secretary O'Neill. Thank you, Senator.
    As you noted in your own opening remarks on financial 
literacy and, more broadly, education, particularly the 
foundation of education for every human being, is something 
that I have come to care a lot about and to be involved in in 
many different ways over the last 30 years.
    Just to mention a few of those, during the period of 1989 
to 1992, I was the Chairman of President Bush's 41's Education 
Policy Advisory Committee and helped to formulate the national 
education goals that were established in that time period.
    During Governor Ridge's time in Pennsylvania, when I was in 
Pennsylvania, I chaired the State education standards 
committee. And through the whole period that I was in 
Pennsylvania, I chaired a group of people at the local level 
who were dedicated to the idea that every child can learn. It 
is just a matter of our organizing ourselves to achieve that 
purpose for every human being.
    More directly to the subject of financial literacy, it is 
more and more imperative, it seems to me, that every American 
citizen be financially literate. This ties very well to my 
notion that by the age of 10, every child should have the 
ability to read and write and compute at a level that, if they 
never saw the inside of a formal educational institution again, 
they would have the foundation stones that, if they had the 
will, would permit them, with access to a library, to develop 
their brain power and their knowledge to the fullest possible 
extent.
    In order to do that, one needs to have all of the 
foundation stones, which means reading and reading 
comprehension and computational capability, and an ability to 
express oneself in writing at a competent level.
    I believe if we can--let me say better--when we reach that 
objective, financial literacy will be what will come along 
without special attention. In the meantime, we do have problems 
I think in the subject of financial literacy with the 
population that is adult, or nearly adult, because they have 
not achieved or received these foundation skills in their 
earlier years. This Committee and other Committees of Congress 
have focused particularly and specifically on the issue of 
financial literacy, I think appropriately so.
    We in the Treasury Department have several efforts that we 
are pursuing to help with the accomplishment of this objective. 
And, as I say, for myself, education is the foundation of a 
civil society and this aspect of education fits very neatly 
into the legislation that was passed last year with the 
President leading the charge, saying, no child should be left 
behind.
    I would make a plug for what I would consider to be a 
subordinate idea to the President's no child left behind, which 
is an idea that says, every child, one at a time. In my 
experience in working on this subject at the local level, I 
found that schools do not learn and classrooms do not learn, 
the issue of learning and attaining knowledge that is necessary 
to function as an adult human being, happens one at a time. I 
believe we are not going to achieve the objective of no child 
left behind until we recognize that fundamental issue, that 
people learn one at a time, and we so organize ourselves to 
assure that every child is learning and that we assess the 
learning process on a very regular basis, so that where we are 
not creating building blocks in a person's mind, we recognize 
it early and not wait until a child gets to be 10, but 
discover, as we now do, that 20 percent of them cannot read and 
write and compute. At a national level, 20 percent of 10 year 
olds cannot read and write and compute. It is not to say that 
they cannot do it well. They cannot do it, period.
    So it is obvious that we have very fundamental issues to 
deal with. Financial literacy, in my judgment, should be 
integrated into the basic learning process. And it is not too 
early to start when we teach people how to add and subtract.
    Mr. Chairman and Members of the Committee, with that, I 
would be happy to take a few questions before I have to go.
    Chairman Sarbanes. Well, we understand your time 
constraints. Let me ask you one question and then I will yield 
to some of my colleagues.
    Senator Corzine and I wrote to you back in the summer when 
we saw the announcement that the Department of the Treasury was 
considering a financial literacy initiative and indicated that 
we thought that was a very high priority. And in fact, Senator 
Corzine got a very important amendment into the Education Act 
with respect to providing financial literacy programs in the 
school system.
    One of the things that I have been very interested in is 
these first accounts, trying to get the unbanked into the 
banking system. That is not directly a financial literacy 
issue, but if they become part of the banking system, I think 
they would receive a lot of protections and benefits.
    We have provided a substantial sum of money to try to get 
first accounts going to serve low- and moderate-income 
individuals. I 
am interested in how the Treasury is doing in implementing that 

program.
    Secretary O'Neill. Senator, as I recall, the rules have 
been issued and distributed at the end of December. We are 
looking to beginning to make grants under that program banner 
in the next 3 months.
    So, we are moving ahead and we are very anxious to see how 
this works. It has been an initiative shared by the Treasury 
Department and you particularly and Members of this Committee. 
And we are anxious to get it into place and see how it works.
    Chairman Sarbanes. Good. Well, we intend to follow that 
very closely and we look forward to continuing to work with you 
on that.
    Senator Shelby.

             COMMENTS OF SENATOR RICHARD C. SHELBY

    Senator Shelby. Thank you, Mr. Chairman.
    Mr. Secretary, isn't accurate information, financial 
information, essential to every economic decision made, whether 
it is at the very high levels of finance or the low levels of 
the man on the street or the woman on the street?
    Secretary O'Neill. Yes, sir, no doubt about it.
    Senator Shelby. And without that, financial literacy would 
not matter, would it? You have to have accuracy. You have to 
have truth.
    Secretary O'Neill. It is necessary to know when you do not 
have what you ought to have.
    Senator Shelby. You could be the most literate person in 
the world and still not be informed if there was one set of 
information here and one set for you on the street.
    Secretary O'Neill. That is certainly true.
    Senator Shelby. And that should not be, should it?
    Secretary O'Neill. Absolutely not.
    Senator Shelby. Thank you, Mr. Chairman.
    Chairman Sarbanes. Senator Dodd.

            STATEMENT OF SENATOR CHRISTOPHER J. DODD

    Senator Dodd. Thank you, Mr. Secretary, for being here.
    I am going to raise this with both the other witnesses 
later on, and my colleagues have heard me talk about this over 
the years, and it relates to the literacy issue. That is, among 
young people and credit cards.
    Chairman Sarbanes. Yes.
    Senator Dodd. I have tried on I do not know how many 
occasions to adopt some legislation, most recently, I think, 
this past year, that would require that if you are under 21, 
when you demonstrate an ability to pay or have someone cosign 
or, third, either one of these things, to show that you have 
taken some literacy course in what the responsibilities of debt 
are.
    The statistics are still pretty stunning. I have them right 
here. Seventy-eight percent of college students have at least 
one credit card. The debt now is almost $3,000. It has gone up 
46 percent since 1998. Nine percent of students carry balances 
of debt in excess of $7,000, almost 10 percent. We had the 
number of bankruptcies declared by people between the ages of 
18 and 25, went from 60,000 in the 1990's to 118,000 in 1999.
    Seven percent of all personal bankruptcies are taken by 
people under the age of 21. That is stunning, those statistics, 
and they seem to be getting worse.
    Again, I do not want to deny anyone a credit card. All I am 
suggesting in the first two instances, you either demonstrate 
an ability to pay, which any older person would have to do, 
cosigned, or that you would be required to have some knowledge 
of credit.
    I wonder if you might just comment on that, without seeing 
the specifics of the bill. I am not asking you to endorse a 
bill, but just to comment on the general proposition.
    Secretary O'Neill. For all of us who have children or 
grandchildren, who have gone through a learning experience with 
credit cards, we can relate to some of the statistics that you 
are talking about.
    You watch young people go through their own learning 
experience. It is so easy to turn up a card and to end up with 
unserviceable debt. One would wish the young did not have to 
learn lessons we have already learned for ourselves. But it is 
a very complex issue because, at the same time, we are saying, 
well, maybe children or young people should not have access 
without some special provisions until they are 21 years old. 
Eighteen year olds are serving in Afghanistan.
    So there are certain times and rights of passages, I 
suppose. And for me, at least, the question of what the Federal 
Government should do on behalf of we the people in setting 
demarcation lines and limits on individual freedom, is really a 
complicated issue.
    And while I can relate to the concern that you are 
expressing that, not just young people, but many people, have 
an inadequate financial literacy and abusing and, in fact, 
destroying, their creditworthiness, are really complicated 
issues.
    I think at the Federal level, we need to be very careful 
about how much we interfere with the rights of individuals to 
make their own decisions, including ones that turn out not to 
be everything we would hope they might be.
    Senator Dodd. To be continued, I guess. Thank you.
    Chairman Sarbanes. Senator Bennett.

             STATEMENT OF SENATOR ROBERT F. BENNETT

    Senator Bennett. Thank you, Mr. Secretary, and thank you 
for your testimony, both written and oral.
    Let me just share with you an experience I had when I was 
teaching a class on financial management. After I had gone 
through the formal presentation and opened the floor for 
questions, a woman said to me, I just had a windfall of about 
$1,000 that I was not expecting. I have this money. Tell me an 
investment that I can put this in that will be worthwhile.
    I said to her, do you have any credit card debt? She said, 
yes. I said, all right. I have an investment that will pay a 
minimum of 16 percent, that has absolutely no downside risk 
whatsoever, and the 16 percent is guaranteed.
    She said, well, that is wonderful. What is it? I said, pay 
off your credit card bill. She said, no, no, no, no. I am 
making my payments on the credit card. But I want this money to 
grow. I want it to be something.
    We had this exchange and I could never get her to accept 
the idea that paying off her credit card was a good investment. 
It becomes a semantic kind of thing. We think of an investment 
and money growing as a good thing and we think of our credit 
card payments as the regular course of doing business, and we 
never quite get the understanding that paying off debt at a 
certain level, certain carrying cost, is an investment at that 
level. Whereas, debt at a lower level, say a mortgage and the 
benefits you are getting out of it, tax-wise and other, with 
rent, is a good kind of thing.
    I just leave that with you to plug into whatever 
information you may be putting out because most Americans do 
not speak the language that leads them to understand where 
their financial interests will best be served.
    Secretary O'Neill. Senator, I think your example 
illustrates in a very important way how much this issue of 
financial literacy is ingrained into decisions that people make 
every day in their lives all over this country. And it is why 
this is such a worthy subject that you all have undertaken the 
work on. I am committed, as I am sure my friends here are, to 
helping in every way that we can to do our part to raise the 
standard of financial literacy for the American people.
    Mr. Chairman, I must go. I thank you all very much for 
letting me lead off.
    Chairman Sarbanes. Let me just get Senator Corzine, who has 
had a keen interest and who wrote you this letter----
    Secretary O'Neill. I will explain to the Ways and Means 
Committee, Senator Corzine, why I am late.
    [Laughter.]

              STATEMENT OF SENATOR JON S. CORZINE

    Senator Corzine. I will be brief. I would hope that we 
could work together following on a concept that you talked 
about with regard to education, which I think most of us would 
put solidly on the same side that you would be on basic 
education.
    I think that there is a need for curriculum and real 
proactive 
educational process, or otherwise, people do not understand 
what 
interest rates are, compound interest, how to put together tax 
returns and how to deal with mortgages.
    I was a little concerned that you were arguing that the 10 
year old who learns how to read and calculate will 
automatically get the result. That does not seem to be the case 
even among students that are having adequate educational 
experiences with regard to reading and arithmetic and other 
issues. So are you familiar with some of the statistics of how 
poorly all of our students do with regard to some of these 
various fundamental issues?
    Secretary O'Neill. Indeed, I am. And I pointed out, one of 
the confounding things in all of this is that the national 
statistics show that 20 percent of our children cannot read and 
write and compute at all. If they cannot read and write and 
compute at all, teaching them financial literacy when they are 
12 does not seem like a very rewarding process to me.
    So, I was making the case that we need to establish the 
basic things. And I would say this. In my own experience in 
looking at the data, I am absolutely convinced that every 10 
year old has the capability to learn to add and subtract and do 
multiplication and division in their head at 12 times levels. 
With those foundations, it is possible to understand all the 
rest of esoteric mathematics. But without that foundation, we 
are not going to get there.
    What I am saying is, I think it is important that we 
integrate financial literacy concepts into the regular 
curriculum and not treat it like a separate subject. It can be 
part of reading. It can be part of elementary arithmetic, 
building a foundation up, so that, in fact, by the time a child 
finishes the 8th grade, they should have most of the 
foundations to understand most of what one would consider to be 
financial literacy, including the credit card example that 
Senator Bennett gives. And then I would say just one more 
thing. If you include in financial literacy all of our citizens 
understanding the tax code, I am not sure I agree with you that 
that is possible.
    Senator Corzine. All I would cite is 82 percent of high 
school seniors in a 2001 survey failed a 13 question personal 
financial quiz. I am sure that that encompasses the 20 percent 
that you are talking about that did not get the basic skills. 
But it also includes a whole wealth of kids who may have those 
fundamental skills. And so, I think that question of whether 
you have particular curriculums or whether it is embedded is a 
fair debating point among educators.
    Secretary O'Neill. The tax code was a joke. I am sorry.
    Chairman Sarbanes. Well, Mr. Secretary, I was just going to 
say, as you depart, maybe Senator Enzi wants to leave you with 
a final thought.

               COMMENT OF SENATOR MICHAEL B. ENZI

    Senator Enzi. Recognizing the importance of the Ways and 
Means Committee, just tell them that I let you go, even though 
I was the second person here.
    [Laughter.]
    Secretary O'Neill. Thank you all very much. It was nice to 
be with you.
    Chairman Sarbanes. Thank you. I understand Sheila Bair is 
going to stay behind. So if we have further questions--she is a 
very worthy stand-in.
    Secretary O'Neill. She is a wonderful public servant and 
she is really on top of these issues in great detail. So, I 
commend her to you and I am sure that she will give you great 
answers to any questions that you may have for Treasury.
    Chairman Sarbanes. Thank you very much, Mr. Secretary.
    Secretary O'Neill. Thank you.
    Chairman Sarbanes. We look forward to working with you on 
this issue.
    I will say to the Committee Members, we will revert to the 
regular procedure. I have a short statement that I would like 
to make here at the outset, and then I will recognize other 
Members and then we will go to Chairman Greenspan and Chairman 
Pitt.
    There is a vote scheduled at 10:30 a.m., so, I would hope 
that we can move along and hopefully get the testimony in 
before that time. We would have to adjourn briefly and come 
right back.
    As I indicated at the outset, we had originally scheduled 
this hearing for September 20. It was obviously put off. It 
seems always things are happening that could warrant putting it 
off, and I do 
not know that this circumstance is any different right now. But 
I 
wanted to press ahead.
    I would say to my colleagues that I hope we can stay away 
from monetary policy in the question period, particularly with 
Chairman Greenspan. The Chairman is scheduled to come back 
before the Congress in just a few weeks, both House and Senate, 
to present the Fed's semiannual monetary policy report to the 
Congress. And of course, we will have a hearing here at the 
beginning of next month because the Chairman will go to the 
House side first devoted to that subject. So, I hope we can 
focus with both of the Chairmen on the financial literacy.
    And I would also say to my colleagues, a week from today, 
the Committee will begin the first in a series of hearings on 
the issues raised by Enron, but not only by Enron. But other 
things that have occurred in the corporate world.
    We will have a series of hearings stretching through the 
rest of this month and into next month. We intend to go into it 
in a very thorough and comprehensive way. We will get the 
benefit of a lot of very expert opinion. And we hope at the end 
of that process to be able to move ahead with what we think 
will be an appropriate work program.
    I want to say just a few words about the financial literacy 
issue that is before us today. I think this is very important. 
It is by no means a magical solution. It will not solve all the 
problems that confront consumers with respect to financial 
decisions. I frankly think that you need a framework, which 
also includes strong legal protections, vigorous enforcement, 
and best industry practices with respect to the availability of 
responsible credit. In fact, I agree here with a three-pronged 
approach, which was outlined to the Committee last year by 
Roger Ferguson, the Vice Chairman of the Federal Reserve Board, 
at his confirmation hearing, when he said, ``legislation, 
careful regulation, and education are all components of the 
response to these emerging consumer concerns.''
    There is substantial evidence that Americans do not have an 
adequate basis for making sound decisions about their personal 
and household finances, especially given the myriad choices 
they face.
    Now, Senator Shelby touched on an important point and that 
is, you may be very financially literate, but if you are not 
given the proper information, you cannot do very much.
    But a number of organizations have sought to assess the 
level of Americans' grasp of financial matters, and their 
survey evidence consistently shows very substantial gaps.
    We know that there are some costly consequences of 
financial literacy: Increasing reliance on the high-cost fringe 
financial sector by men and women who find themselves closed 
out of mainstream banking institutions.
    Millions of people in this country are without bank 
accounts. They are, in effect, unbanked, a status which usually 
carries with it heavy financial penalty. To conduct even the 
most essential transactions, like paying bills or cashing 
paychecks, unbanked Americans must rely on financial operations 
which have large and often hidden fees. Furthermore, without 
access to banking facilities they face serious obstacles to 
saving and accumulating assets, and to building credit.
    The growth of various predatory lending practices, when 
people are persuaded to borrow on terms they do not fully 
understand and cannot afford. Single-premium credit life, yield 
spread premiums, various pay-day lending, all contribute to an 
environment in which consumers are very vulnerable to 
overcharges and to hidden costs.
    There is an issue that I hope to develop in this Committee 
at some point and that is the exploitation of remittances. 
Millions of Hispanic and, indeed, other workers support 
families in their home countries by sending a portion of their 
earnings home in the form of remittances. This has long been a 
common practice among newly-arrived Americans. Today's workers, 
however, are paying very high fees for the service, as much as 
20 percent in some cases, and they are given an exchange rate 
which is both highly disadvantageous and often not disclosed. 
The amounts are quite large taken in the aggregate. And I think 
it warrants examination. In fact, the return of a larger 
percentage of these remittances to the home country would be a 
form of economic assistance that would amount to a considerable 
amount of money once one looked at the figures.
    If financial literacy is important in the short-term, as we 
go about the business of our daily lives, I think it is also 
critical to 
our future. It is constantly asserted that Americans are 
spending 
too much on consumption now, with little thought to the years 
ahead. America's personal savings rate has averaged an anemic 
1.6 
percent for the last year, while consumer debt has grown at a 
much faster rate.
    Secretary Summers actually saw a benefit of an emphasis on 
financial literacy that might result would be to raise the 
savings rate in the United States. That is a macroeconomic 
benefit, which, if it were to occur, I think would be very 
significant.
    We also know that the largest generation in this Nation's 
history is approaching retirement. One example of the 
challenges facing us with respect to retirement is the status 
of women who face particular challenges as they grow older. 
Millions of women, either because they have been widowed or 
divorced, find themselves in charge of their household's 
finances at or near retirement age, without having had 
significant financial education. At that point, they are 
expected to make very complex financial choices which will 
affect them throughout their retirement.
    These hearings, which have been long in the planning stage, 
take on a special urgency in the context of our present 
circumstances. The economy is in recession. Its future course 
remains unclear. Recent events in the markets threaten to 
undermine the confidence on which the functioning of the 
markets depends.
    I believe that it is long past time for the public and 
private sectors to come together in a national strategy to 
raise the level of financial education in our country. These 
hearings are a first step in that direction.
    Tomorrow, we will hear from a number of organizations that 
have been working to enhance financial literacy. But today, of 
course, we begin with our three public-sector witnesses who I 
think are uniquely qualified to examine this question. I look 
forward to hearing from both of them. Chairman Greenspan has 
actually on a number of occasions highlighted the importance of 
this issue. Last year, in an address to the Federal Reserve's 
Consumer Affairs Research Conference, the Chairman stated: 
``Efforts to increase awareness of, and access to, information 
that promotes financial literacy are increasingly seen as 
necessary to ensure that consumers can meet their immediate 
obligations, as well as achieve their broader goals of buying a 
home, funding higher education for themselves or their 
children, and preparing for retirement.''
    And, of course, Chairman Pitt's agency, the SEC, bears a 
unique responsibility now, when, for the first time in our 
history, over half of our population qualify as investors, 
either directly or indirectly. Many of these people have had 
little preparation for these financial responsibilities which 
they now confront.
    So, I thank the witnesses for appearing this morning and I 
yield to Senator Shelby for any statement he may have.
    Senator Shelby. Thank you, Mr. Chairman. I will be brief.
    First of all, I want to thank you for pursuing this 
hearing. I think it is very important. I think it is important 
for all of us to recognize what we can and cannot hope to 
achieve when considering a topic as broad as financial literacy 
here.
    I think we can find ways to better inform American 
consumers and investors so that they are more likely to achieve 
their financial goals in the marketplace.
    But we cannot eliminate risk from the world. Fundamentally, 
our market system requires the existence of risk and reward to 
function. In order for markets to efficiently operate, 
individuals must be able to properly identify and assess the 
risks and the rewards. Without timely disclosure of the 
appropriate information, analysis is impossible. Decisions are 
merely guesses.
    Furthermore, where criminal activity occurs and little is 
done to prevent or appropriately punish it, people are not true 
market participants. Rather, they are unknowingly playing a 
rigged game that they can never win at any level. I believe we 
must recognize that individuals are responsible for their 
choices. Recognizing this, however, does not mean abandoning 
people in the marketplace. Instead, it requires the complete 
opposite.
    Congress must ensure, Mr. Chairman, that markets provide 
full and timely disclosure and ensure that the law is actively 
and uniformly enforced. Under these conditions, the market will 
provide the greatest benefits to all of us and then financial 
literacy will take care.
    Thank you.
    Chairman Sarbanes. Thank you very much.
    Senator Dodd.
    Senator Dodd. Thank you very much, Mr. Chairman. And again, 
thanks to our witnesses.
    It is going to be an important 2 days. It is not going to 
probably attract the same degree of attention that other 
hearings focusing on Enron specifically will in the short-term. 
But in the long-term, what we do on this subject matter may 
have as much to do with minimizing the kinds of problems that 
at least we know about now in the Enron situation from 
occurring again. So, Mr. Chairman, I think this is extremely 
worthwhile. It is very forward-looking.
    Senator Corzine mentioned the statistic of 82 percent of 
high school seniors--I think it is seniors--that fail the basic 
quiz on what interest rates were and credit cards and the like.
    There is a series of data and statistics, Mr. Chairman, 
that you have assembled. I think the Committee staff assembled 
it, which I am going to ask unanimous consent be made a part of 
the record. I assume it would be, anyway. But some of them are 
just stunning in their revelation. There is a chart that 
indicates where they have come from.
    I would certainly agree with Senator Shelby and others. 
Obviously, having accurate information is absolutely critically 
important. But when you read that two-thirds of investors 
believe that there is an agency some place, or an organization 
that ensures you against losing money in the stock market, you 
get some idea of the gap that exists, even with people who are 
making investments.

    So these numbers are terribly important to look at and be 
aware of. I mentioned to the Secretary of the Treasury the 
numbers relating to credit cards and, again, credit card debt. 
I realize that there are a lot of factors for this, but it is 
just alarming to me when I see the tremendous increase in the 
amount of consumer debt in the last few years.

    In 1995 through 1998, the median amount of family debt 
jumped from $23,000 to $33,000, an increase of 42 percent in 3 
years. Debt service payments constitute approximately 14 
percent of Americans' disposable income. And the ratio of debt 
to after-tax income in the average household was 85 percent. 
Today, it is 104 percent.

    Going on down with the numbers, Americans are more in debt 
to credit cards than they are to education obligations. And the 
numbers I mentioned earlier about young people--again, I 
realize the tremendous value that credit cards provide to 
people who would not have been able to become consumers without 
that kind of assistance, but it is getting out of hand, it 
seems to me.

    I do not have any quick solution for you, but it seems to 
me that the subject of literacy and consumer debt are not 
unrelated. We have to find some way to connect these, and we 
need to do something more than just warning people about it. It 
seems to me that we need some guideposts here about what people 
can do, what credit card companies can do, what steps they 
ought to be taking to minimize that risk is important.

    I think that these are extremely important hearings and I 
look forward to the testimony of both of these very powerful 
witnesses.

    Chairman Sarbanes. Thank you.

    Senator Bennett.

    Senator Bennett. Thank you, Mr. Chairman. I will follow 
your admonition to avoid talking about monetary policy with 
Chairman Greenspan.

    Chairman Sarbanes. It is a great temptation, I realize 
that.

    Senator Bennett. It is a great temptation. But there is a 
temptation that I cannot resist, and everything has been said 
about consumer education that I think needs to be said, and I 
will not go on to repeat it.

    I am concerned about the level of economic literacy in the 
Congress. We are having a debate about stimulus packages, about 
what stimulates the economy and what does not.

    Yesterday, Robert Bartley had an editorial in the Wall 
Street Journal, quite frankly, on this issue of Keynes and 
Phillips Curve and other issues which dominate the policy 
debates around here.

    I know that the Nobel Committee seems to alternate between 
giving a Nobel Prize to a very conservative economist and the 
following year, a Nobel Prize to a very liberal economist, so 
they are hedging their bets that no matter who comes out, the 
Nobel people will say that it was a Nobel Laureate that led us 
to the promised land, either way.
    [Laughter.]
    And if Chairman Greenspan could find his way clear to 
comment a little on the question of economic education in terms 
of fiscal policy, I would be very grateful. If he decides to 
hide behind your 
caveat and say, we will deal with that later, I would 
understand 
that as well.
    Thank you, Mr. Chairman.
    Chairman Sarbanes. I am reminded of President Truman's 
story that he wanted a one-armed economist. And they asked him 
why. He says, I am tired of getting this, on the one hand and 
on the other hand advice.
    [Laughter.]
    Senator Corzine.
    Senator Corzine. Thank you, Mr. Chairman. I welcome the 
witnesses and thank them for their thoughtful presentations 
that they will be making.
    This is an issue that I think is fundamental to the sound 
workings of free markets. If you are committed to the economic 
system that we have and that has prospered in America, I think 
it has to be built on an understanding of the workings of it.
    I am extraordinarily troubled by the kinds of statistics, 
level of understanding among our students. But, frankly, it is 
a life-long issue. Those most vulnerable in our society appear 
to pay the highest price for lack of financial literacy. I 
think the Chairman cited some of those statistics on 
remittances and I think you can see 9 and 10 percent charges 
for cashing checks for the unbanked. And then we find quite 
frequently that predatory lending that comes with refinancing 
homes of seniors and others that are often cited.
    So, we have a problem that faces our total population. I 
think it begins with a solid curriculum as one begins their 
educational process. A lot of us went back to business school 
so we could understand what compound interest was about and 
other kinds of issues. And I just do not think this is a 
priority and we end up with results that I think make Americans 
more vulnerable than would otherwise be the case.
    So, I think this hearing, it is terrific that we are 
spending the time on this. I hope we can flesh it out in 
something that is in practical terms, other than saying that 
people ought to inform themselves more, because I think that 
this is something that, not unlike science, not unlike other 
complicated issues in life, needs some detail in the 
educational process, and adult education would be fine, too. I 
look forward to it. I have a longer statement that I would like 
to put in the record that it is terrific what we are doing.
    I also want to thank Senator Enzi and Senator Akaka for 
their help on the financial literacy issue that we included in 
the ESEA education reform bill.
    Chairman Sarbanes. Thank you. The statement will be 
included in the record.
    Senator Enzi.
    Senator Enzi. Thank you very much, Mr. Chairman. And I do 
thank you for holding this hearing. I know that it was planned 
months ago and was to be held at about the time that the 
September 11 events happened.
    We did have the same panel before us at that time. But our 
topic changed to stock market stability. And I think it made an 
impact, thanks to the caliber of the people that were able to 
be at that hearing. I think it made a difference in convincing 
America that the stock market was still capable of functioning 
and that it still would do a good job.
    It is imperative that we do focus on financial literacy. 
And it is a little different area of discussion than you 
normally get to do, or than we normally get to do. But it is 
very basic to the future of our country.
    As Senator Corzine mentioned, we did an amendment to the 
Elementary and Secondary Education Act, no child left behind, 
that allowed flexibility so that money could be spent for 
financial literacy. I think that is a good first step.
    I have taken a look at some of the education plans or some 
of the courses that are being provided in schools, and one of 
the distressing things that I found was that, while they 
allocate the students a certain amount of money to work with, 
say $2,000 a pay period, one of the things that they usually 
forget to do is take out withholding and Social Security and 
Medicare first. And that leaves that as a much later literacy 
shock for those kids. They do need to learn at an earlier age 
that death and taxes are the only things that are sure.
    Evidently, the programs that are in place are not making it 
because we have this huge college students' credit card debt. I 
think it is an average of $2,748. That translates into some 
adult problems after they get out of college.
    I used to be the mayor of a boom town. This was 25 years 
ago. And the people that come to a boom town are the young 
people who do not have jobs. They leave their source of normal 
financial advice, which are their parents--now they do not 
always take that advice, but the advice is often given, and it 
is still something that they have to mull through their minds. 
These kids came to Gillette and made an average of about 
$60,000 a year. That was far more than their parents had ever 
dreamed of making. What we discovered was that you could go 
broke on $60,000 a year. This was in the 1970's, and at that 
time, $60,000 was worth a lot more.
    We tried to find a way to get some financial literacy 
programs going, and it is hard to find a credible source. The 
ones that were willing to do it were the churches. But the 
churches are the ones who are always asking for money.
    The banks would be a good source, but they are looking for 
bigger customers, usually, than the people who are in financial 
difficulty. So, I will be asking to see what you think would be 
good sources of advice for these people. Now, I am encouraged 
by some programs that are happening.
    In my home State, the Wyoming Community Development 
Authority has joined with Fannie Mae and they are educating 
first-time homebuyers. And they are doing this by distance 
education. They are having a lot of applicants--it is a 
relatively new program--but they are about to have their 
thousandth customer.
    Incidentally, the financial institutions give a little 
break in the interest rate if people take this financial 
literacy course on how to buy a house. It gets into several of 
the other aspects of financial literacy as well.
    Wyoming students have been doing well on tests. Eighty-two 
percent of school seniors fail nationally. We have a much 
better rate in Wyoming. It still can be improved quite a bit. 
And of course, the Enron situation shows that people need to 
have a little bit more financial literacy when it comes to 
dealing with their 401(k) plans, a little reminder not to put 
all the eggs in one basket. Other financial literacy lessons 
will be coming out of hearings that will be held in the next 
several months. So, I think this is really a prime area of 
investigation that we need to do and I am so pleased that we 
have such a distinguished panel to do it.
    I thank the Chairman for having this hearing.
    Chairman Sarbanes. Thank you, Senator Enzi.
    Senator Stabenow.

              STATEMENT OF SENATOR DEBBIE STABENOW

    Senator Stabenow. Well, thank you, Mr. Chairman, for 
holding this hearing. And to our witnesses, Chairman Greenspan 
and Chairman Pitt, welcome.
    I share along with all of my colleagues a great interest 
and belief that this is a critical, long-term issue and part of 
the solution as we move forward on a number of fronts.
    Last December, back in my home State of Michigan, I 
attended an event at Eastern High School in Lansing, Michigan, 
where the Michigan Jump$tart Coalition for Personal Financial 
Literacy released the findings of a statewide survey in 
conjunction with the National Institute for Consumer Education, 
and it was much like what we have been hearing today in terms 
of the numbers. I am very pleased to see that the Michigan 
legislature in a bipartisan way is moving forward on literacy 
education. I commend them.
    One of the interesting findings in the survey that was 
released back in December in Michigan was the fact that 
students who 
participated in the Stock Market Game, which is a national in-
vestment game, did better in the survey than people who had 
entire courses in money management or even an entire course in 
economics.
    And I say that only because I believe that from the 
standpoint of learning, that we need to be looking at 
interactive learning, 
reality-based learning and that, clearly, on the survey, 
students were learning much more through an interactive 
approach than they were through other more traditional classes 
that had been 
developed.
    I also wanted to recognize, as others have, Freddie Mac for 
their ``Don't Borrow Trouble'' campaign, which they brought to 
southeastern Michigan, to the Detroit area.
    Mr. Chairman, I know that you have been a real leader and 
at the forefront of that and I want to thank them because the 
efforts of Freddie Mac, as well as Fannie Mae, their 
counterpart, I think are critical in tackling abusive lending, 
especially as these two companies move increasingly into the 
subprime lending market.
    But we have some real challenges for adults, as colleagues 
have raised, as well, in addition to the next group of adults 
as our children are moving up through the system.
    Mr. Chairman, I would ask that my entire statement be 
placed into the record and I again welcome those who will be 
speaking to us in the next 2 days and I hope that we can 
develop some recommendations as well as, in the long run, in 
predatory lending some legislative actions that will help 
address those critical issues.
    Chairman Sarbanes. Thank you very much, Senator Stabenow. 
We will include your full statement.
    Senator Akaka.

              STATEMENT OF SENATOR DANIEL K. AKAKA

    Senator Akaka. Thank you, Mr. Chairman, for convening this 
first hearing on the state of financial literacy and education.
    And I want to add my welcome to Secretary O'Neill, Chairman 
Greenspan, and Chairman Pitt to this morning's hearing. I look 
forward to their views on this important subject.
    Mr. Chairman, I wish to make a brief statement and ask that 
my full statement be included in the record.
    Chairman Sarbanes. Your full statement will be included in 
the record.
    Senator Akaka. I became actively involved in this issue in 
1999, after reading a study on financial literacy conducted by 
the National Council on Economic Education. The disturbing 
results of that study caught my attention. In a basic economics 
test, half of the adults and two-thirds of the high school 
students received failing scores. More than half of the 
students and adults did not have a basic understanding of 
economic concepts such as money, interest rates, and inflation. 
After reviewing these test results, I investigated further the 
lack of financial literacy in our society.
    Americans of all ages and backgrounds face increasingly 
complex financial decisions as members of the Nation's 
workforce, managers of their families' resources, and voting 
citizens. Many find these decisions confusing and frustrating 
because they lack the tools necessary that would enable them to 
make wise, personal choices about their finances.
    Increased education about basic economic concepts will help 
people to make better financial decisions and increase 
opportunities for participation in today's global economy. All 
citizens need to 
be prepared, starting from youth, to make informed decisions 
re-
garding fundamental undertakings such as purchasing a first 
home, financing a college education, and saving for a 
comfortable retirement.
    The reauthorization of the Elementary and Secondary 
Education Act included the Excellence in Economic Education Act 
as an amendment, which I introduced along with my colleagues, 
Senator Corzine and Senator Enzi. This legislation will 
significantly improve the knowledge of fundamental, yet 
critical, economic principles among our country's young people. 
The measure aims to 
increase student knowledge of, and achievement in economics by 
providing our Nation's teachers with the tools to enhance 
teaching methods of economics. This legislation encourages 
economics-
related research and development, dissemination of 
instructional 
materials, and replication of best practices and programs. It 
increases private and public support for economic education 
partnerships between schools and local businesses and private 
industry.
    I was also pleased, Mr. Chairman, to support another 
financial literacy amendment sponsored by Senator Corzine that 
was also included in the legislation.
    Today's hearing is the beginning of a national dialogue on 
financial literacy and education. I applaud the efforts of 
Secretary O'Neill, Chairman Greenspan, and Chairman Pitt to 
bring attention to this issue, and I look forward to your 
recommendations on how to increase financial literacy.
    Again, I want to thank you, Mr. Chairman, for convening 
these hearings on financial literacy. Thank you very much.
    Chairman Sarbanes. Thank you, Senator Akaka, and thank you 
for your initiatives in this field, which have already made a 
significant contribution.
    Senator Carper.

             STATEMENT OF SENATOR THOMAS R. CARPER

    Senator Carper. Thank you, Mr. Chairman.
    Gentlemen, welcome. We are delighted to have you back 
before us and thank you for coming today.
    A long time ago, I used to be State Treasurer for Delaware, 
at a time when we had the worst credit rating in the country, 
closed out of the credit markets, could not borrow money, could 
not balance our budgets. We were a mess. I became a State 
Treasurer when I was 29 years old. It was a lot of fun.
    [Laughter.]
    Today, we have a new State Treasurer. His name is Jack 
Markell. He does not have to worry about any of those things. 
And what he is focused on is financial literacy, and taking the 
problems to a lot of our schools where we focus big time on the 
three R's--reading, writing, and arithmetic. And he has really 
done a nice job in helping to introduce a fourth R in our 
schools. I call it relevance. Why is it relevant that we know 
how to read, write, and do arithmetic? And one of the reasons 
is so that we can be financially literate and make some wise 
decisions about our investments in our future.
    I watched in the wake of Enron and others have alluded to 
this. There are some real smart people who did not really know 
what was going on there. Some of them were folks at big 
accounting firms. Others were analysts at top Wall Street 
firms. We had some people at rating agencies who really did not 
know what was going on very well.
    They are well trained. They know those three R's, and the 
fourth one as well of relevance. But they missed the signals 
and missed the boat for a lot of people.
    I do not know that we can ever hope to work with kids and 
their parents in schools and communities in Delaware so that 
they can catch what those other folks missed. I think that is 
probably the triumph of man's hope over experience. But we can 
sure do a better job and we are trying to do it in our own 
small way in our little State. And I am encouraged to hear what 
others are doing, too.
    I do not know to what extent this is one that Congress 
needs to focus on, to work on, but I think we all can do 
something and we ought to do something. And I am encouraged by 
your presence here and your attention to these matters that we 
are all going to do our share.
    With that having been said, Mr. Chairman, I would like to 
ask that the rest of my statement be added to the record and we 
will hear from the folks that we really want to hear from.
    Thank you.
    Chairman Sarbanes. It will be included in the record.
    Senator Schumer.

             COMMENTS OF SENATOR CHARLES E. SCHUMER

    Senator Schumer. You mean me, Senator Carper?
    [Laughter.]
    Senator Carper. No, I do not.
    [Laughter.]
    Senator Schumer. But I thank you. I know we are trying to 
move along here, so----
    Chairman Sarbanes. Senator Carper did not realize that you 
had arrived.
    [Laughter.]
    Senator Carper. If I had, I would have acknowledged it.
    Senator Schumer. Exactly.
    [Laughter.]
    Anyway, thank you. First, I want to thank you, Mr. 
Chairman, for having this hearing. It is such an important 
issue. It is not a sexy issue, but, boy, oh, boy, is it needed.
    I am so glad that you have made this a major effort of the 
Committee this year and I am thankful that we have such 
distinguished people at the table for the same reason.
    I guess I do not think we have assessed, at any level, what 
our education ought to be. I would like to know, for instance, 
why financial literacy should not be part of the core 
curriculum at all of our high schools.
    Much of the work of this Committee is because people do not 
have financial literacy. The Chairman has been doing a great 
job on predatory lending. The deeper and deeper you get into 
predatory lending, a lot of the problem is that people just are 
so afraid to deal with the bank on a mortgage, that they go to 
some scoundrel who says, I will package the whole thing for 
you. And they do not even realize the higher interest rates and 
all the other problems that occur.
    Credit card borrowing--again, same problem. People just do 
not realize it. And this affects their lives daily. Our 
financial world has gotten so complicated, not just for 
mathematicians or economists, but for average folks. And our 
school curriculum has done nothing to catch up with it.
    I would like to know why this course is not required either 
in addition to the high school curriculum, or tell me, if they 
do not have room, is it more important to know trigonometry or 
know financial literacy? I remember side, angle, side, or 
cosigns and tangents. And it has not affected my life much, I 
do not think.

    [Laughter.]
    At least as best I know.

    [Laughter.]
    And you know, a general broad education is important for 
everybody. But there is such a crying need for this kind of 
education, that I think we ought to do a real assessment.
    It seems to me that in our pantheon of values and what we 
want our high schools to teach, this is left out and lots of 
other things are put in that may be important, but seem to me 
not to be close to as important as this.
    It is probably not the role of our Committee or even 
Washington, except in certain ways to prod. I am not sure of 
that. But I would just like to urge all of our high schools to 
consider making financial literacy a mandatory course.
    With that, Mr. Chairman, I yield back my time.

    Chairman Sarbanes. Thank you very much, Senator Schumer.

    Chairman Greenspan, we would be happy to hear from you.

             STATEMENT OF ALAN GREENSPAN, CHAIRMAN

           BOARD OF GOVERNORS OF THE FEDERAL RESERVE

    Chairman Greenspan. Thank you very much, Mr. Chairman and 
Members of the Committee.
    I am pleased to be here this morning to discuss the 
importance of improving financial literacy and learning for 
consumers.

    Chairman Sarbanes. Mr. Chairman, I think if you could draw 
that microphone in a little closer, it would be helpful.

    Chairman Greenspan. Throughout our banking history, we have 
seen significant adjustments to enable markets to respond to 
the demand for services. Structural changes in recent years 
have heightened competition, encouraging market efficiencies 
that continue to help drive down costs and foster the emergence 
of increasingly diverse and highly specialized organizations. 
These organizations provide consumers with increased access to 
a variety of credit and saving instruments.
    For an increasingly complex financial system to function 
ef-
fectively, widespread dissemination of timely financial and 
other 
relevant information among educated market participants is 
essen-
tial if they are to make the type of informed judgments that 
pro-
mote their own well-being and foster the most efficient 
allocation of capital.
    Indeed, surveys repeatedly demonstrate a strong link 
between education and the use of new financial technologies. 
For example, data from the Federal Reserve's Survey of Consumer 
Finances suggest that a higher level of education significantly 
increases the chances that a household will use an electronic 
banking product. Specifically, in 1998, the typical user of an 
electronic source of information for savings or borrowing 
decisions had a college degree, a level of education currently 
achieved by only about a third of American households.
    Overall, the most recent data from the Survey of Consumer 
Finances exhibit a mixed picture of the financial status of 
households, providing evidence that we need to reach out to 
those who have not been able to participate fully. For example, 
while the 
median real net worth for all families increased 17\1/2\ 
percent between 1995 and 1998, this trend did not hold where 
the head of the household had a high school level of education 
or less, family earnings were less than $25,000 annually, or 
the ethnicity of the respondent was nonwhite or Hispanic. 
Through 1998, we found that families with incomes below $25,000 
did increase their direct or indirect holdings of stock, and 
more reported that they had a transactions account. However, 
they were less likely to hold nonfinancial assets, particularly 
homes, which constitute the bulk of the assets for those below 
the top quintile according to income.
    In considering means to improve the financial status of 
families, education can play a critical role by equipping 
consumers with the knowledge required to make wise decisions 
when choosing among the myriad of products. This is especially 
the case for populations that have traditionally been 
underserved by our financial system. In particular, financial 
literacy education may help to prevent vulnerable consumers 
from becoming entangled in financially devastating credit 
arrangements. In the quest to stem the occurrence of abusive, 
and at times illegal, lending practices, regulators, consumer 
advocates, and policymakers all agree that consumer education 
is essential to combating predatory lending. An informed 
borrower is simply less vulnerable to fraud and abuse. 
Financial literacy can empower consumers to be better shoppers, 
allowing them to obtain goods and services at lower cost. This 
effectively increases their household budgets, providing more 
opportunity to consume or save and invest. In addition, 
comprehensive education can help provide individuals with the 
financial knowledge necessary to create household budgets, 
initiate savings plans, manage debt, and make strategic 
investment decisions for their retirement or their children's 
education.
    While data to measure the efficacy of financial education 
are not plentiful, the limited research is encouraging. A 
recent study by Freddie Mac finds that homebuyers who obtain 
structured homeownership education have reduced rates of loan 
delinquency. Similarly, an evaluation conducted by the National 
Endowment for 
Financial Education on its high-school-based programs found 
that participation in financial planning programs improved 
students' knowledge, behavior, and confidence with respect to 
personal finance, with nearly half of participants beginning to 
save more as a result of the program.
    These findings underscore the importance of beginning the 
learning process as early as possible. Indeed, in many 
respects, improving basic financial education at the elementary 
and secondary school level is essential to providing a 
foundation for financial literacy that can help prevent younger 
people from making poor financial decisions that can take years 
to overcome. In particular, it has been my experience that 
competency in mathematics--both in numerical manipulation and 
in understanding its conceptual foundations--enhances a 
person's ability to handle the more ambiguous and qualitative 
relationships that dominate our day-to-day financial 
decisionmaking. For example, through an understanding of 
compounding interest, one can appreciate the cumulative benefit 
of routine saving.
    Some school systems have introduced financial management 
classes as part of their high school curricula and many 
employers are taking up the challenge as well. At the Federal 
Reserve Board, for example, interest in financial education 
prompted an employee committee to hold a seminar on financial 
planning strategies, and our Consumer and Community Affairs 
staff hosted educational programs for Federal Reserve 
employees, providing information on qualifying for a mortgage, 
managing debt, and budgeting.
    Both individually and through longstanding partnerships 
with a variety of local, regional, and national organizations, 
each of the 12 Federal Reserve Banks and the Board provide 
extensive information on these topics to a wide range of 
audiences, including school-age children, low- and moderate-
income families, and minority and immigrant populations. The 
scope of these activities ranges from the sponsorship of 
competitions on economic principles for high school students 
and workshops on wealth-building strategies to the development 
of computer-based tools for understanding the underlying 
considerations for mortgage loans and creating household 
budgets and savings plans.
    The Federal Reserve, thus, has a continuing interest in 
measur-
ing the effectiveness of financial literacy approaches. For 
example, we hosted a forum highlighting best practices in 
credit education and we have included studies that evaluate the 
impact of such training initiatives in our call for papers for 
the Community Affairs Research Conference scheduled for the 
spring of 2003.
    Additionally, our Community Affairs and Public Information 
Offices have embarked on a national initiative to highlight the 
importance of financial literacy and heighten the visibility of 
economic education programs.
    In closing, Mr. Chairman, let me simply reiterate that the 
pace of technological change and competitive pressures can only 
increase. Building bridges between community organizations and 
our educational institutions and private business will be an 
essential aspect of our efforts to increase familiarity with 
new technological and financial tools that are fundamental to 
improving individual economic well-being. And the success of 
such efforts will have a 
significant bearing on how well prepared we are to meet the 
challenges of an increasingly knowledge-based economy.
    Thank you, Mr. Chairman. I would appreciate it if my full 
remarks are included in the record.
    Chairman Sarbanes. Your full statement will be included in 
the record. We very much appreciate it and we appreciate your 
own efforts and leadership on this issue. It has been quite 
important.
    I would point out to my colleagues, we only have a few 
minutes left on this vote. I am going to recess the Committee 
briefly, so we can go and vote and then we will hear from you, 
Chairman Pitt.
    [Recess.]
    Senator Dodd [presiding]. The Committee will come to order.
    Senator Sarbanes asked if we could continue to move along 
so we will not hold people up here. Let me ask staff, where are 
we at this point?
    [Pause.]
    Chairman Pitt, I do not know if you are in the middle of 
your statement or just about to give it?
    Chairman Pitt. I was just about to give it.
    Senator Dodd. Before I do that, I know my colleague from 
South Dakota was here--here he is, Tim Johnson. He just wanted 
to make a few brief comments before we turn to Chairman Pitt.

                COMMENTS OF SENATOR TIM JOHNSON

    Senator Johnson. Thank you, Mr. Chairman. I apologize for 
juggling several Committees simultaneously this morning, 
complicating things.
    I have a formal statement. But rather than sharing my 
fabulous insights on financial literacy with you and taking up 
some time here, I think we are better off to return to the 
panel for their testimony. But I would like to submit my full 
statement for the record, and I look forward to the testimony 
here, which I think is, indeed, going to be very valuable for 
the Congress this year.
    Senator Dodd. Thank you very much, Senator.
    Chairman Pitt, we welcome you to the Committee. We know you 
are busy. You have been on the job a couple of months. Are you 
having fun yet, Mr. Chairman?
    [Laughter.]
    Chairman Pitt. Almost. We are almost there.
    [Laughter.]
    Senator Dodd. Thank you for being here today. Obviously, 
your statement and all related documents that you think are 
worthwhile, will be included in the record. And with that, we 
would appreciate hearing from you.

             STATEMENT OF HARVEY L. PITT, CHAIRMAN

            U.S. SECURITIES AND EXCHANGE COMMISSION

    Chairman Pitt. Thank you, Senator Dodd.
    I am pleased to appear before the Committee on behalf of 
the 
Securities and Exchange Commission to testify about financial 
literacy and education in today's securities markets.
    At the outset, I would like to commend the Chairman of the 
Committee, Senator Sarbanes, for his perseverance in scheduling 
these hearings at the beginning of this legislative session, 
and for his prudence in waiting to hold them until an 
appropriate time following the events of September 11. I am 
especially gratified that Chairman Sarbanes and the Committee 
have taken the initiative to raise the visibility of this 
important issue.
    As the events of last September demonstrated, our capital 
markets are the world's strongest and most resilient. As the 
events of last November demonstrated, even the best system can 
be gamed. These events demonstrate that financial literacy is a 
crucial foundation for partnership in our capital markets. 
People need to be able to read, write, and speak basic 
financial concepts in order to make informed investment 
decisions.
    The SEC's goal is to protect investors and we will pursue 
securities law violations and financial fraud aggressively. But 
an educated investor is the best defense against fraud.
    There is no magic bullet that will accomplish our Nation's 
financial literacy goals. No one program can reach all groups. 
Educating people about how to manage their money effectively 
and achieve 
retirement security demands cooperation and partnership on all 
levels--public and private, national and grassroots. The 
Federal Government can play an important role in achieving 
financial literacy, both by working with localities in the 
private sector to initiate financial education, and by creating 
and making freely available neutral, unbiased information on 
saving and investing.
    The Commission partners with a number of public and private 
organizations. We give presentations to schools, investor 
clubs, and religious organizations. We host investor town 
meetings across the United States. We produce and distribute an 
extensive array of free educational material. This information 
is on our website--www.sec.gov. And our website also has 
interactive tools. For example, we created a mutual fund cost 
calculator which allows investors to compare the costs of 
holding different mutual funds. We also have an extensive 
tutorial on the uses of margin. But even the best educational 
materials will not do any good if people either do not know 
about them or fail to use them.
    For example, people looking for investment tips on the 
Internet do not necessarily look at our website first and 
review our educational materials. To try to reach this 
audience, we recently created a fake scam website--
www.mcwhortle.com--which was based on actual Internet scams 
that we have investigated and shut down. This site promises 
unbelievable investment returns--400 percent in 3 months.
    Unfortunately, there are real scams out there that make 
similar promises and real people who fall for them. A visitor 
to this site who tries to invest receives a message explaining 
the warning signs of Internet fraud and links to educational 
materials.
    I have included sample pages from the McWhortle site as an 
attachment to my written testimony. The McWhortle site 
graphically illustrates what we have been telling investors for 
years--if it sounds too good to be true, it probably is. 
Guaranteed returns are not. Check out the company before you 
invest. If you are being pressured to invest, especially in a 
once-in-a-lifetime deal ``that just cannot miss,'' just say no.
    Understand your investments. If you do not understand an 
investment, do not buy it. Beauty is not everything. Do not be 
fooled by a pretty website. They are remarkably easy to create.
    This project cost taxpayers very little. It cost us $50. 
But it is paying huge dividends. Already, we have had more than 
a million hits on the McWhortle site. The McWhortle site is an 
excellent example of how we partner with others for better 
results. Cosponsors of our site are the Federal Trade 
Commission, the National Association of Securities Dealers, and 
the North American Securities Administrators Association.
    I have included in my written materials some of the 
hundreds of favorable e-mails we are receiving from investors 
who have visited our fake scam.
    We have other scam sites out there as well, including one 
where we have partnered with the Treasury Department. Crooks 
figured out a long time ago how best to separate people from 
their money and it is about time that we used the same tactics 
to fight back.
    Beyond educating investors, we are also looking to improve 
the quality of information they receive. Confidence in our 
markets begins with the quality of the financial information 
investors use to decide where to invest their hard-earned 
dollars. Comprehensible and reliable information is the 
lifeblood of strong, vibrant markets.
    In his State of the Union address, the President called for 
more strict accounting standards and tougher disclosure 
requirements. He wants corporate America to be made more 
accountable to employees and shareholders and to be held to the 
highest standards of conduct. We share and embrace these 
principles. We are firmly committed to making disclosures more 
meaningful and intelligible to average investors.
    To that end, this spring, we will hold our first-ever 
Investor Summit to solicit investor input. To the extent that 
we can improve the clarity and integrity of what investors 
read, we will succeed in improving financial literacy in 
America. We look forward to continuing to work closely with 
this Committee, as well as others, to advance financial 
literacy in America.
    I will be happy to try to respond to any questions the 
Members of the Committee may have.
    Chairman Sarbanes. Thank you very much, Chairman Pitt. I 
will yield to Senator Dodd and I will do my questioning a 
little later.
    Senator Dodd. Thank you, Mr. Chairman.
    Thank you both again for your participation today. I think 
the benefit of having some of the comments made by some of our 
colleagues here earlier indicate the broad-based support for 
the subject matter at hand and how we can deal with it.
    Let me say, Chairman Pitt, to you, I think the idea of a 
summit this spring, this is something that your predecessor did 
around the country on various occasions. I know he did one in 
Connecticut we participated in where we had an open forum for 
people in the Stanford, Connecticut area, and we had, I think, 
300 or 400 people who showed up for it, just a discussion on 
what the SEC was doing, a variety of questions. It was an open-
ended forum.
    I think he did those around the country, at least a number 
of them. So, I think those are very sound ideas for getting out 
and listening to people around the country.
    Chairman Pitt. I agree with that, sir.
    Senator Dodd. I commend you for it and I think it will help 
a great deal.
    I wanted to raise, if I could, the issue of your budget. I 
listened to you yesterday testify for a while anyway in the 
House Committee. And one of the issues you raised was the pay 
parity issue.
    I was surprised to read Mitch Daniels, the Director of the 
Office of Management and Budget, say that the pay parity was 
not warranted. You get a 4 percent increase in this budget. I 
know the budget was only submitted yesterday, but, obviously, 
news of events of the last several weeks, one might have 
thought that there might have been some readjusting of the 
numbers to put some additional resources.
    I know you asked for about $500 million for the agency. 
This present budget is around $440, I think is the number. 
Correct me if I am wrong on some of these figures. So there is 
a modest increase. Yet, obviously, there is going to be greater 
demands placed on your agency and the ability to attract and 
keep people is going to be very important.
    And I realize that you have a responsibility. There are 
overall budget issues. But this is just too important, in my 
view. We are going to be asking you, I suspect in the coming 
weeks, you are going to be on your own initiative through the 
regulatory process, I think taking some additional initiatives, 
if I heard you correctly yesterday.
    To what extent can you comment on whether or not this 4 
percent is going to be adequate, just based on what you would 
like to do. Forget what we may ask you to do. In addition, for 
instance, I was stunned to know that there are only 25 or 26 
people in the Accounting Enforcement Division. Correct me if I 
am wrong on that number as well.
    Senator Corzine and I suggested maybe doubling that number. 
Maybe it is not needed to go that high. But it seems to me that 
if you just did that alone, that is going to put additional 
pressures on your existing budget.
    So, I realize that it is a little awkward to ask this 
question of you, knowing that you have been appointed by the 
Administration. But I do not know how in the world we are ever 
going to deal with these issues if your budget is so 
restrained, that you either lose people, cannot attract people, 
or cannot do what you would like to do, let alone what Congress 
may ask the SEC to do, in light of the Enron situation.
    Chairman Pitt. Well, let me say that I do not feel any 
awkwardness in responding to your question.
    When I was before this Committee for my confirmation 
hearing, both you and the Chairman raised the question of 
whether I would be forthcoming with the Committee and tell you 
what my views were in terms of personnel. And I assured you 
that I would do that, and I intend to live up to that 
commitment, as well as every other.
    When I first got to the SEC, and I have been there 
approximately 5 months, but when I first got to the SEC, my 
thought was that we would submit basically a no-growth budget 
providing for normal inflation plus an additional $76 million 
to fund pay parity, in the expectation that we would get it.
    I thought that after I spent 2 or 3 or 4 months seeing how 
the agency operated, I could come back and give you an 
intelligent view about whether we had needs or not.
    Now, in the interim, unfortunately, first we had September 
11, and now Enron. And the fact is that focusing on our 
manpower needs has been deferred. I start from the proposition 
that we should use the people and monies we have efficiently 
before we come back and ask for more.
    On the pay parity aspect of it, I will say that we were 
disap-
pointed with the decision of the Office of Management and 
Budget. 
We made that known to them, that we thought that that was a 
mistake. I intend to work with them and try to persuade them as 
we go forward that, at a minimum, funding pay parity is 
absolutely critical to the agency. If not, the efforts of this 
Committee and of the Congress in adopting pay parity will in 
effect have created a worse problem for us. If there were no 
pay parity, no one would have expected to receive it. But now 
that we have a statute, not funding it creates a significant 
problem for me in retaining personnel. But I believe that we 
will be able to work with both the Administration and the 
Congress and reach a successful resolution of this issue.
    Senator Dodd. I thank you for your candor and your comments 
on that. I think that you can count on many of us up here to 
assist you in that effort.
    Let me ask you about the accounting enforcement area 
because I raised the issue with you. First of all, am I correct 
in my numbers? Is that about the number of people you have?
    Chairman Pitt. I do not have the numbers in front of me, 
Senator, but I believe you are right. That is the approximate 
number of accountants at Headquarters in the Enforcement 
Division. In the Regional and District offices approximately 50 
accountants work on enforcement matters.
    Senator Dodd. That is about the size of a Congressional 
office, a House office. I think maybe they have more employees 
than 25, to put it in some context here. Can you give us some 
idea of what you think about that? Do you believe at this 
juncture there is a need for more personnel? Or do you believe 
it is just a question of focusing the attention of the existing 
personnel on the problem?
    Chairman Pitt. One of the issues I think that has arisen 
since Enron has occurred is the fact that there seems to be a 
great deal more focus by corporations on the validity of their 
accounting procedures. It is unfortunate that it took something 
like Enron to achieve this result. But I would say that our 
Enforcement Division over the last 3 or 4 months has opened up 
an enormous number of major investigations.
    I believe that we are staffing what we have now and 
staffing it adequately. But as the workload increases, and 
assuming it does, and if we are to take on additional 
responsibilities in response to Enron, either by our own 
regulations or by legislation from this Committee, it may well 
be that we either have to divert manpower from other areas or 
we may have to suggest that we need additional manpower. We are 
not at that point yet, but I want to make certain that the 
public is confident that if there are any incidents of improper 
behavior, we will go after them with great vigor.
    Senator Dodd. I thank you. And as I said, you might want to 
talk to Arthur Levitt and some of the people who organized 
those summits or mini-summits that he had around the country, 
going back to the literacy issue, which I think were very, very 
successful. I think he enjoyed them, as well as learned a lot 
from the average small investor. So the summit this spring I 
think is a good idea, but you may want to incorporate that as a 
regular series of activities for you as Chairman of the SEC.
    Chairman Pitt. I think that the town hall meetings that 
former Chairman Levitt came up with were an excellent idea. It 
is something that we intend to continue and maintain.
    The Investor Summit is a somewhat different concept because 
the people who invest as individuals and particularly people in 
middle- and lower-income levels, have no lobbying groups. They 
have no organized representation. They cannot even respond to 
our rule proposals because often they do not know about them. 
This is a way to give them a forum to come to us, and they can 
do it either on the Internet or in person, so that we hear 
first-hand what their concerns are.
    In addition, with respect to the specific problems of 
Enron, we have put forth the bare bones of a suggested 
methodology to respond to these issues and we will be holding a 
series of roundtables specifically designed to deal with those 
issues, and those will be in locations other than Washington.
    Senator Dodd. Thank you, Chairman Pitt.
    Mr. Chairman, I thank you.
    Chairman Sarbanes. Before I yield to Senator Shelby, I just 
want to note, the pay parity was part of a package that reduced 
significantly the fees that were being levied. It never 
occurred to me, I have to say, that we should make the 
reduction in the fees contingent upon giving the pay parity. 
But, obviously, we should have done that.
    My own view is that--I went down there when the President 
signed that bill. But it seems to me that the OMB has, in 
effect, broken the spirit, obviously, of the package. The 
argument for doing it was very strong at the time. It is even 
stronger now, having been, as you noted, held out to people, 
and then snatched away. And I think, actually, that we, in a 
sense, have just been done in on it. Who would have thought 
that in order to get, the package implemented, that we should 
have linked it and established a contingency. It is not your 
problem. We will address it down the line.
    Chairman Pitt. I do want to say this, though, that we have 
had very encouraging conversations with OMB, and my hope is 
that working with them, we will be able to reach an appropriate 
resolution of the problem. But they have been responsive, at 
least, to our reaching out to them and having discussions.
    Chairman Sarbanes. White House Budget Director Mitchell 
Daniels, Jr. said in an interview Friday that the 
Administration does not consider the SEC's request for pay 
parity justified. The removal of fees was in the amounts----
    Senator Dodd. It is huge.
    Chairman Sarbanes. Yes, billions.
    Senator Dodd. Many of us had some real reluctance about 
that for the very reasons, that it was going to create this 
kind of a problem. I voted for it reluctantly.
    Chairman Sarbanes. Fourteen billion dollars over 10 years, 
about $1\1/2\ billion a year, $14 billion over 10 years. The 
pay parity was an important part of that package, at least for 
many of us. I think it is just breaking faith. But, 
nevertheless, Senator Shelby.
    Senator Shelby. Thank you.
    Chairman Greenspan, isn't accurate information essential to 
every economic decisionmaker, from you, as Chairman of the 
Board of Governors of the Federal Reserve, to the consumer 
doing his or her grocery shopping?
    Chairman Greenspan. It certainly is, Senator, largely 
because when you are dealing with an essentially voluntary 
system, which is what our society is, people make judgments. 
They exchange values amongst themselves, all based on 
information in some form or another. And for the system to work 
properly, you need a pricing system which reflects the value 
judgments of consumers. If you do not have that, the system 
will be suboptimal. This means that accurate information 
readily available is essential for the system to function. To 
be sure, it is not a sufficient condition, but it is certainly 
a necessary condition.
    Senator Shelby. Chairman Pitt, if consumers and investors 
believe that others have access to information which they do 
not, it is going to affect their buying and investment 
activities, isn't it? Couldn't this have serious consequences 
for the overall economy?
    Chairman Pitt. Absolutely.
    Senator Shelby. They will have no confidence in the market, 
the capital markets.
    Chairman Pitt. The essential factor here is confidence in 
our markets and the notion that nobody has an unfair advantage. 
One of the things in light of Enron that we are committed to 
doing and doing quickly is to restore confidence in our system. 
It is a good system. It has flaws. They need to be fixed. And 
we are going to fix them.
    Senator Shelby. If accurate information, honest 
information, matters so much, which we all agree it does, 
shouldn't we find ways to strongly discourage those who impede 
the flow of information or would disclose outright false 
information which you see from time to time, and we have seen a 
lot of lately?
    Chairman Pitt. The answer is yes, but there is at least a 
slight caveat that I would add to that.
    One of the things that we are proposing is a rule that 
would 
require companies to disclose on a current basis unquestionably 

significant information.
    Under the law, the way it is now, or the way that the 
Federal 
securities laws have been written, a company can avoid 
liability by telling no one significant information. In fact, 
that is the whole predicate of Regulation FD. You can satisfy 
it by telling nothing to anyone. We want to establish an 
affirmative disclosure requirement so that companies are 
required to make meaningful disclosures at the time they occur.
    Senator Shelby. Is it going to take legislation, us working 
with you, to do that? Or can you do that in the SEC?
    Chairman Pitt. I believe we need to work together because I 
do not want to make far-ranging changes without this 
Committee's concurrence. But I believe we have all the 
authority we need to make these changes.
    Senator Shelby. It seems to me like we are constantly 
hearing about restatements, audit failures, and buy-stock 
analysis. This is just endless.
    For instance, I imagine some pretty smart and sophisticated 
people took the time to research companies like Waste 
Management, Sendit, Microstrategies, Enron, and Global 
Crossing, and then got taken for a big ride.
    What does it take to survive in the marketplace? Does it 
take a PhD in finance? We are talking about education, 
financial education. I think it first takes honesty in the 
markets because if there is fraud and shark dealing or 
something close to that, people will have no confidence in the 
capital markets, will they?
    Chairman Pitt. Senator, I agree with you. And if it takes a 
PhD for people to be able to invest, we have failed. I believe 
that there are a number of things that need to be done in 
addition to making disclosure much more comprehensible.
    Financial statements cause one's eyes to glaze over. We 
want to have plain-English financial statements. We want to 
have accounting principles that deal with the concepts rather 
than trying to 
create a cookbook list of things that auditors can look at and 
then paint a picture of the company that is not accurate.
    Senator Shelby. I know my time is gone, but how do you as 
Chairman of the SEC, and perhaps we in the Congress, deal with 
the honesty situation in the reporting of financial statements?
    In other words, if things are off the balance sheet, 
partnerships and so forth, they are put off there to keep them 
off. It is intentionally off the balance sheets, debt and so 
forth. That is obviously to an ordinary person misleading of 
the financial condition of a given company. And yet, the 
average person would not know that.
    Chairman Pitt. That is absolutely correct. Part of the 
problem is that more than a decade ago, a request was made to 
the Financial Accounting Standards Board to deal with these 
SPE's or Special Purpose Entities. And with some modest 
exceptions, they are still not resolved as to how to come out 
on those issues.
    Senator Shelby. Can you resolve it? Obviously, they are not 
going to be able to resolve it. Can you resolve it as the 
Chairman of the SEC, to where these instruments will be part of 
the overall financial statement, where people can read them and 
know what the true liabilities of a company are?
    Chairman Pitt. Several weeks ago, I went up to the FASB and 
I met with them. We indicated that the process was not working, 
that we were not satisfied with it, and that we needed a 
response on this particular issue before the end of the year, 
which they have committed to do.
    I believe that the SEC has authority to do it directly. But 
I think having a private sector standard-setter is the right 
way to go as long as it actually sets standards. If it does not 
function, that is a problem.
    Senator Shelby. It has broken and it has failed. The 
private accounting system has failed in all these instances that 
we are talking about.
    Chairman Pitt. Let me say, I believe that for about the 
last 8 to 10 years, the tardiness of the FASB has been 
transparent, but nothing has been done to fix the problem. We 
intend to fix it and we intend to fix it quickly.
    My own view is, if you can have the private sector set the 
standards, that is ideal. But if they won't set the standards, 
we will 
either find another body that will, or we will do it ourselves.
    Senator Shelby. Why don't you do it yourself, because it 
has shown to everybody that they have not had the standards? 
They have not done it. It is the fox watching the henhouse. We 
have known that.
    Chairman Pitt. It is not supposed to be the fox watching 
the henhouse.
    Senator Shelby. We are talking about reality here.
    Chairman Pitt. Yes. It is not supposed to be the fox 
watching the henhouse. But you raise another important problem 
with respect to the FASB.
    It gets all of its financing from the accounting 
profession. We have said that we are not satisfied with that. 
We do not want the accounting profession to directly finance 
the FASB.
    But having in place a group of people who are 
knowledgeable, who are expert, and whose only mission is to 
promulgate comprehensible accounting standards is the most 
efficient and effective way to have better financial 
statements. If we cannot rely on this process, then there will 
be no alternative. The SEC will have to take it on. I think 
that is decidedly less desirable.
    Senator Shelby. Thank you, Mr. Chairman.
    Chairman Sarbanes. Senator Bennett.
    Senator Bennett. Thank you, Mr. Chairman.
    Chairman Greenspan, I am impressed by the example you gave 
of education for your own employees. I think every corporation 
ought to think in those terms. That is, protecting your 
employees from the personal devastation of debt is a legitimate 
productivity issue because an employee who is constantly being 
badgered by collection calls, worried about losing mortgages, 
et cetera, is not as productive on the job.
    Now, you are a regulator. You regulate banks. One of the 
most contentious issues within this Committee--I know the 
Chairman and the Ranking Member have very strong differing 
views about it--is the question of CRA and what banks do to 
meet their CRA requirements.
    Senator Gramm and Senator Shelby have both been targets of 
groups that have come to their homes, demonstrated, trampled 
down the flowers, what have you, because they were afraid that 
the position that Senator Gramm and Senator Shelby would take 
might interfere with the flow of CRA funds to their groups. 
Many of them are in the education business.
    Is it a legitimate activity for the Fed to think about the 
regulatory oversight, to say that groups or banks could fulfill 
their CRA requirements by doing educational outreach efforts in 
the field we have been talking about this morning? Or is that a 
total disconnect that I ought to forget, with some polite 
language from you because you are always polite? Is that 
something that might have some value to it?
    Chairman Greenspan. First, I better ask our General Counsel 
whether it is in our statutory authority under CRA?
    [Pause.]
    This is Dolores Smith, one of our excellent staff, 
knowledgeable about everything.
    Ms. Smith. There are some educational initiatives that are 
being sponsored by banking organizations. And to my knowledge, 
they probably are receiving credit and probably rightly so.
    Senator Bennett. So somebody smarter than I has already 
thought of it. The next question is, does it make any sense to 
think about expanding it?
    Chairman Greenspan. Well, my judgment about the whole 
question of CRA financial education and all of the relevant 
issues that surround it, is that we underestimate the 
importance of financial education in reaching the goals which 
CRA and the whole array of consumer regulatory structures 
endeavors to achieve.
    Ideally, if everybody were fully rational and looked after 
their own self-interest, the banks would not be leaving money 
on the table, so to speak, in not granting loans to a number of 
neighborhoods from which significant profits could be achieved. 
And what we have found, as a number of people have begun to 
understand, is that lending throughout the area of a bank's 
community will maximize earnings.
    Similarly, we find that a number of people have absolutely 
no insights into numbers per se, and you will get effects of 
that, for example, in all the areas where the Chairman has been 
focusing with respect to predatory lending. Predatory lending 
is not something which would happen if everybody knew what they 
were signing and knew, indeed, what they were doing.
    Senator Bennett. That is correct.
    Chairman Greenspan. Here education is critical. So my view 
is that if there is one area in the whole consumer affairs 
lexicon that has been grossly underserved in this discussion 
that we have been having over the years, it is how do we get 
people to understand what it is that they are being confronted 
with?
    The only way to do that is to enhance the educational 
capability in areas related to finance. And that is, basically, 
simple mathematics, whether it is, as Senator Schumer was 
saying, that trigonometry may not be relevant, but compound 
interest is, and that presupposes a fairly sophisticated 
knowledge of arithmetical relationships.
    People may look at a 400 percent interest rate which is in 
the document that they are about to sign, and they sign it. And 
you have to ask yourself, why are they doing that? Well, the 
obvious answer is, they do not know what they are doing. And it 
is crucially important, to the extent that we can do it, to 
enhance the educational capability of the American people 
because, as this financial system becomes ever more complex, 
the issues are going to become far more difficult to deal with 
and we need education to keep up with the complexity of the 
system.
    Senator Bennett. Thank you. I just had a memory as you 
talk, I learned how to write out a check, which I had never 
done before and suddenly had to have a checking account, from 
the bank that gave me the checkbook. The bank official sat down 
and could tell that I really did not have a clue as to how to 
deal with this and he explained to me how to write out a check.
    Now that is something that I could have learned in 6th 
grade. It is not that difficult. But it was the financial 
institution I was dealing with that gave me that information 
and how to write it out and how to keep the checkbook balanced 
and so on.
    So, I agree with you that it is to the bank's self-
interest, that is, the legitimate bank as opposed to some of 
the predatory institutions that we have been talking about, 
self-interest that their customers be as informed as possible. 
And CRA is something that banks are always looking for ways to 
qualify in, and I would just encourage you to see what you can 
do to expand that activity on the part of the banks you 
regulate.
    Chairman Greenspan. I think that is a very thoughtful 
suggestion, Senator. I thank you.
    Chairman Sarbanes. How do we establish this financial 
literacy 101 that we would like everyone to go through in terms 
of trying to educate them?
    Where should that happen? Who should do it? Should someone 
amongst the Government agencies put out a pamphlet that states, 
what you should know about credit cards that everyone would be 
induced to read before they took out a credit card? If you want 
to take it to an extreme, I guess you could say, well, you 
cannot get a credit card if you do not pass the credit card 
test. Like you cannot get a driver's license if you do not pass 
the driver's license test. I am just using credit cards as one 
example. You could take other examples as well. And you say, 
you have to pass this minimum standard of knowledge before you 
can assume these obligations.
    We have figures that 78 percent of college students have at 
least one credit card. Many have four or more. The average 
credit card debt among undergraduates in 2000 was $2,748. Nine 
percent of students carried a balance exceeding $7,000.
    The number of young Americans between the ages of 18 and 25 
who declared bankruptcy in the 1990's nearly doubled from 
60,000 to 118,000. Two thousand young people accounted for 
about 7 percent of the Nation's personal bankruptcies.
    Where do we put the finger? I was interested. Senator 
Carper said, that he was the State Treasurer and his State has 
undertaken this responsibility of conducting, I gather, a full-
scale financial literacy educational program. I would be 
interested in your thoughts on this.
    Chairman Greenspan. Senator, we try ourselves to do a lot 
of it in the sense that we do have booklets on a number of 
different issues, including credit cards, trying to enhance the 
financial 
education.
    Chairman Sarbanes. If I am a parent, can I write to the Fed 
and get a package of those booklets and give them to my son or 
my daughter? I was going to say as a Christmas present, but a 
lot of people would not think it is much of a Christmas 
present.
    [Laughter.]
    Give it to them under some rubric.
    Senator Dodd. Eighteenth birthday.
    Chairman Sarbanes. Yes, or something, as required reading.
    [Laughter.]
    You cannot get your driver's license until you work through 
these booklets and take the test in the back, for which I have 
the answers, before I am going to allow you to move ahead and 
get your driver's license. It sounds funny, but it is really 
serious. We have people out there taking on these obligations 
and they have no idea what they are doing.
    Chairman Greenspan. I agree with that. You do not need to 
get a package for Christmas. One of the great advantages of 
technological advance in recent years is it is all online. And 
people are going to our websites--I guess the regional bank's, 
as well as the Fed's website, have a very large quantity of 
such material.
    But let me be more responsive, Mr. Chairman, to the 
substance of your question.
    Financial information and financial understanding is 
derived from simple arithmetic and primarily one must start at 
the base. If you do not understand arithmetic, if you do not 
understand how to multiply, divide, you are not going to 
understand finance, period.
    So it is crucially important that at a very early age, that 
people understand numbers. I find that a very significant part 
of the problems that very well-educated people have, when they 
look at the type of literature we are just discussing, is that 
they do not understand it.
    More importantly, they are embarrassed to suggest to you 
that they do not understand it. And the reason they do not is 
they are not used to dealing with numbers, per se. I learned 
fractions very young because I had to calculate baseball 
averages.
    [Laughter.]
    You have to have an incentive to do it, and by the time I 
got to fractions in school, I was a whiz, provided it had 
something to do with ratios, usually under point four, because 
I did not know anybody with batting averages over point four.
    [Laughter.]
    But the point is that you have to have a numerical base. 
And I would suggest that it is crucially important--and this prob-
ably goes back to grade school and high school--to make 
financial education even in the simplest form sort of the class 
right above arithmetic.
    In other words, have people actually engage in doing 
interest, compound interest, know what it is. Indeed, my 
recollection is that they do that. And I think it develops at 
the high school level and is really where it has to be because 
by the time you get to college, if you cannot handle a credit 
card, it implies a state of knowledge which is really quite 
inferior to what one should have by that point.
    Chairman Sarbanes. I do not recall. Is it you or the SEC 
who has those kits that you send to the middle school math 
teachers?
    Ms. Bair. Treasury does.
    Chairman Sarbanes. Is it Treasury that does that?
    Ms. Bair. The Bureau of Public Debt, yes.
    Chairman Sarbanes. What?
    Ms. Bair. The Bureau of Public Debt.
    Chairman Sarbanes. What is it called?
    Ms. Bair. Money Math.
    Chairman Sarbanes. That is it. So it is Treasury that does 
that.
    Ms. Bair. It is Treasury, yes.
    Chairman Sarbanes. And you send them out?
    Ms. Bair. Yes, sir, I think over 100,000.
    Chairman Sarbanes. Why don't you describe that for us, just 
briefly.
    Ms. Bair. It is a math program for grades 7 to 9 that 
focuses on money skills. It has been very successful. We have 
sent out kits to over 110,000 middle schools at this point. It 
is very much in demand and pretty pervasively used.
    Chairman Sarbanes. Can we get that? Why don't we get copies 
of it?
    Ms. Bair. Sure. Absolutely.
    Chairman Sarbanes. Just so we see what you are doing with 
the middle school students, so we do not get embarrassed, as 
Chairman Greenspan says, by admitting that we do not know.
    [Laughter.]
    But it may be very helpful to us. So we would like to see 
what you are doing in that regard.
    Ms. Bair. If I could build on what Chairman Greenspan said.
    I think there is a prime opportunity pursuant to 
implementation of the President's education program, which 
requires that standards be developed at the State and local 
level in both reading and math, and that there be measures for 
assessing progress in the standards.
    School districts throughout the country right now are 
dealing with developing those standards. And what we would like 
to do is encourage them as part of developing the standards and 
building the curriculum to support the standards, to interweave 
financial education into that process.
    It is good for separate personal finance courses to be 
offered. But we think, as Chairman Greenspan said, these are 
fairly complex skills that need to be built upon and offered 
year after year. And if they can be integrated into courses 
that are already required in reading and math, we think that 
that would be an immediate way that school districts can 
respond to this need for greater financial literacy in a 
process that they are required to do right now pursuant to the 
President's education bill.
    Chairman Sarbanes. Senator Dodd.
    Senator Dodd. Thank you, Mr. Chairman. Just a few 
questions.
    Just picking up on that, there are some very creative ideas 
out there. In Lyme, Connecticut, a little town neighboring my 
town, they have a bank at the grade school where people 
actually take on responsibilities. It is a very creative, fun 
thing to do, a lot like what the Chairman was talking about in 
keeping baseball data.
    I know John Henry, the new owner of the Red Sox, describes 
in detail, I have read stories about it, where as a kid growing 
up on a farm in Illinois, he would try and figure out the 
baseball percentages, the percentages of the players, before 
the papers came out in the morning. It is exactly the same 
thing he did that developed his interest.
    So there are wonderful ways in which people become more 
knowledgeable about it. I think weaving it into the curriculum 
as well. Math is an obvious one and reading. But there are 
other disciplines as well in which understanding financial 
institutions and history and so forth, the role they played in 
our history as a Nation can be very, very important as well. 
Just the paucity of it I think contributes to what we have had.
    I just wanted to make a couple of points and a question, if 
I could, Mr. Chairman.
    One is, FASB is located in my State, in Norwalk, and I hear 
my friend from Alabama and I hear the Chairman. I think Ed 
Jenkins, for instance, has done a terrific job at FASB. I do 
not disagree with my colleague from Alabama, either, about the 
idea of possibly making it a Federal agency.
    I want to point out that in a lot of circumstances, and I 
recall some of them here, when I watched Ed Jenkins sitting at 
the very table you are, getting blistered by people over 
pooling and purchasing practices in the accounting area. And he 
stood his ground, despite the fact that, as my colleague 
properly points out, these are paid for on a SRO status.
    These are very, very good people and they work very hard 
and have a lot of integrity. There clearly is a need here to 
improve the accounting standards for how it works and operates. 
But I did not want this hearing to end on a note where there 
was the impression that these people were in the tank when it 
came to the accounting profession because I do not think that 
is the case at all. Nor do I think, Chairman Pitt, that is the 
impression you wanted to leave.
    Chairman Pitt. No, I appreciate your making that point. 
That is not the impression I want to leave. I actually would 
place the fault with our agency. I think we have a 
responsibility to oversee the process and I think we have not 
done that. That is one of the reasons that it is a high 
priority on my list when I came into the job.
    Senator Dodd. I thank you. I want to point out, the 
Chairman made the point on some of the education efforts that 
are going on. The State of Wisconsin, I am told, has a very 
good program and it includes personal finance instruction in 
the school curriculum, according to the Wisconsin Director of 
the Office of Financial Education for the State Department of 
Financial Institutions.
    States that include such finance classes in their schools 
tend to have lower rates of bankruptcy throughout the State. So 
maybe there are other States that are taking the lead on an 
individual basis, Mr. Chairman, but I think it is worth noting.
    I wanted to ask you, Chairman Greenspan, if I could, I know 
we are going to have hearings that the Chairman has laid out, a 
very thorough set of hearings on the Enron issue.
    But I wanted to raise an issue for you, Chairman Greenspan, 
about the pension issue. There has been a lot of discussion 
about how this ought to be handled. There have been some 
suggestions. Two of our colleagues, Senators Bingaman and 
Collins would require employers to make available independent 
qualified investment advisors to provide financial advice to 
employees interested in investing in 401(k) plans and the like.
    Would you mind just sharing with us some of your thoughts 
on this issue? This is a very complex issue and one that really 
has to be handled very carefully, in my view.
    Some of the ideas are very tempting because of what you 
heard happened to these folks at Enron. But I want to be sure 
that in addressing that issue, we are not going to in some way 
do real damage to people's ability to invest in their own 
companies and their pension plans. And I would be interested 
just as a generic comment what your thoughts might be on the 
issue.
    Chairman Greenspan. Well, first of all, Senator, the 
pension industry in the most general sense is really a 
relatively recent phenomenon. Aggregate amounts of pension 
funds invested 30, 40, 50 years ago, were quite small.
    It has become an extraordinarily important part of the 
American economy in the sense that you have people making 
judgments as to the value of existing assets in the economy, 
and that is what governs what generates real new plant and 
equipment, and it creates the overall economic system that we 
have. So that financial intermediation, which is what it is, 
has become one of the crucial aspects of the overall American 
economy, which moves savings into investment.
    It is crucially important that that be done efficiently and 
be done in a way in which not only do individuals put aside 
monies for their retirement and understand what they need, and 
this clearly is a crucial issue, but also that it is invested 
in a manner which optimizes the structure of the real 
investments which we create in this country.
    And I think the issue you raise is very important. That is, 
to be sure, there are changes which clearly have to be made and 
I think the President is moving in the right direction on that. 
But as you make them, it is very crucial to continuously ask 
the question, what are the secondary unintended consequences of 
the actions you are taking? Because the system in general has 
certain obvious flaws, and I guess Chairman Pitt and I could go 
through a number of them that we perceive that need to be 
corrected, and I trust that they will be, but even granted 
those flaws, it is really quite an 
impressive system and it has carried this country to a very 
high standard of living. We ought to be very careful about how 
we approach changes.
    Senator Dodd. I thank you for that and it is very 
worthwhile. And I presume that we are going to have a chance to 
maybe come back and ask you to participate in this discussion 
with us. Obviously, Chairman Pitt will be here, but it will be 
very worthwhile to have your thoughts as well.
    Mr. Chairman, I just have a couple other questions. Do you 
mind if I ask them?
    Chairman Sarbanes. Senator Shelby was next.
    Senator Dodd. I am sorry. I apologize.
    Senator Shelby. I will yield to him if he wants to finish.
    Senator Dodd. Well, there were two very interesting 
articles, going back now to the subject of literacy, that I 
thought was important, that relate to it, anyway.
    One was in The Wall Street Journal on January 2. It noted 
that consumer debt is at record levels. We have all talked 
about that already. And it raised what I thought was a rather 
critical question. I just want to read to you very briefly from 
the article. It says, and I am quoting here:

    In the short- term, consumer spending stimulates the economy. But 
the usual growth in consumer borrowing during the current recession 
also poses a danger that at some point consumers will have to divert 
more and more of their income away from spending on goods and services 
and toward repaying their debts. Such a shift would slow the economy, 
reducing the chances of a speedy recovery. That is of course unless 
consumers defaulted under the weight of all their debt, packing the 
bankruptcy courts and spreading financial distress among their 
creditors. Either way, many economists argue that the current mountain 
of consumer debt is likely to mean trouble.

    So, I would like to ask both Chairman Greenspan and Ms. 
Bair how we might better educate obviously about the issue of 
consumer debt. And then relate that, if you could, to the 
second article which appeared in The New York Times on January 
13. It says here:

    When it comes to saving for retirement, Americans are not rational. 
They know that they do not put enough away, surveys show. Over a 
lifetime, people rationally save an optimal amount, mainstream 
economics holds. Confronted with the reality that people do not save 
enough, the mainstream has no solutions except to reiterate that people 
are rational. So whatever they save must be enough. I wonder if you 
think that people are currently not saving enough for retirement and 
that this behavior defies economic interpretations under the rubric of 
rational behavior.

    I wonder if you might comment on both of those and what we 
might do, and what ideas that we have discussed here to try and 
convince people that savings--why can't they see that as an 
attractive alternative to them right now?
    Chairman Sarbanes. I understand that one out of every seven 
dollars of disposable income now has to be committed to paying 
debt, and that is at a very high level historically, that that 
is 
a spike up in the debt burden that people have to service and 
in 
the amount of their current income that they have to commit, of 

their current disposable income that they have to commit for 
that purpose.
    Chairman Greenspan. Mr. Chairman, I am planning to devote 
some time to that issue, hopefully, at the Committee hearing 
that you are going to have on monetary policy oversight because 
it is a very important question as a global economic issue.
    But getting to the microquestion which Senator Dodd raises, 
economists may argue that if people act rationally, they will 
do such and such. But there is a premise that is missing in 
that re-
lationship, that they have to know what to do. The issue of 
try-
ing to make a judgment given your current level of income, what 

you expect it to be, what you expect your family obligations to 
be, 
and what you would like your post-retirement standard of living 

to be, are very complex issues to determine no matter how 
rational 
you are.
    Then you begin to put into that mix, the question of what 
interest rates you expect, what do you expect in equity price 
values, and it is an extraordinarily complex calculation.
    People who are in the business to do it well, if they come 
off even remotely forecasting what happens in the future at 
all, are pleased.
    So it is a very complex and difficult issue and it is at 
the root of the notion of financial literacy. Indeed, all of 
the tools that we talk about with respect to financial literacy 
converge on the question of how one saves for retirement, in 
what form and in what manner.
    And I should think that the general thrust of where we 
ought to go, if we did nothing but say how should people 
effectively save for retirement, what they would learn in the 
process of making those judgments would serve them well in 
virtually every other activity relative to finance that they 
are apt to confront in their lifetimes.
    Senator Dodd. I just wondered, too, in the first statement 
about the danger where people, instead of investing in goods 
and services, the debt becomes such that they are just paying 
off debt and economists arguing that this is, of course, the 
opposite effect.
    Chairman Greenspan. Well, first of all, let me just say 
that you could be perfectly knowledgeable, you could be 
perfectly rational, and decide to build up a very large credit 
card debt at the age of 20, in the expectation that you are 
going to be earning some extraordinary amount of money and be 
able to pay it off within 2 years.
    Now, you may be right. You may be wrong. But you can do 
that rationally. The issue is, people do not understand the 
risks that they confront. And I think part of financial 
education is a very healthy examination of history. History 
suggests that caution is often a very useful activity.
    Ms. Bair. If I could just add, I think that a lot of 
people, in Senator Bennett's example earlier, in the course he 
taught, a lot of people do not understand that it costs money 
to borrow money, and the longer you take to pay it back, the 
more it is going to cost you. Again, it goes back to 
fundamental lack of understanding of compound interest, how it 
works for you if you are saving, how it works against you if 
you are borrowing.
    Again, the problem comes back to financial literacy. We 
think in the long-term, the best way--it is a problem of 
epidemic proportions, as those numbers indicate. In the long-
term, getting more financial education in the schools we think 
is going to be cheated a solution because it is the best thing 
we can think of to reach a very broad segment of society.
    In the short-term, for the adult population that currently 
lacks adequate financial skills, we think workplace education 
programs hold a lot of promise. DOL has done a lot of good work 
in that area.
    There is a tremendous amount of resources currently 
available. Chairman Greenspan and the Fed have a fabulous 
website, but people are not using it. Or if they are trying to 
use it, they do not understand. They do not even have the basic 
skills to absorb the resources that can be provided.
    I would also like to add, I think that this has been 
overlooked in the press accounts of the President's retirement 
security proposals that he unveiled last week. The financial 
education is a key component of that. One of the proposals is 
to require that all plans provide quarterly earnings statements 
so that there is better and more timely information about your 
assets values in your individual accounts. We are also going to 
be requiring specific disclosures about the value of 
diversification, the dangers if you do not have a diversified 
portfolio. And again, providing that kind of information 
through the workplace where your employee is kind of a captive 
audience to be able to disseminate the information, we think is 
going to be effective.
    Senator Dodd. That is a good idea. Senator Sarbanes, I 
recall, and Senator Shelby as well, back years now, but when we 
had some of the truth-in-lending proposals and the credit card 
legislation. Just even getting on the solicitations to let 
people know what annual fees would be, what interest rates 
would be and so forth, in clear, bold lettering, even putting 
examples of what would happen if you borrowed a certain amount 
and you only paid the minimum each month, what you are 
ultimately going to be paying. Just letting people know in 
those simple examples, I have to tell you, it wasn't easy. 
There were huge battles over this.
    So there is a long history here, unfortunately, of 
financial institutions resisting things as simple as just 
putting people on notice as to what their obligations were in 
the solicitation, period. So, I just mention that as 
background. But, anyway, thank you very much.
    Chairman Sarbanes. Senator Shelby.
    Senator Shelby. I am not here to assault the accounting 
profession, per se, but I am here to call into question a lot 
of practices that have brought about the payment of billions of 
dollars because of accounting failures and flawed accounting 
and so forth. I think that is part of our obligation. I also 
believe that is part of the SEC's obligation, and I know he 
will do the job because he is well prepared for the job that he 
holds now.
    Who is in the tank here? Obviously, it is the investors 
that are in the tank if they do not have accurate information, 
notwithstanding how educated they are on financial dealings. If 
they do not have accurate information, something is wrong. Who 
else is in the tank? Pension holders. We can go on and on. But 
who is really at risk? The capital markets are at risk because 
people will shun them because the average person will not have 
confidence in them.
    And I think there is a lot of people in America and the 
world looking at our markets today. We have always been told by 
your predecessors and others that the SEC was on top of things. 
They root out the evil in it, the fraud in it. But I think we 
cannot have business as usual in the accounting profession that 
we know and have relied on for a long time. I believe that 
there has to be a resolution to it, a strong resolution, not 
just move on to the next story. I believe either the SEC will 
have to step in here with higher standards or something, or we 
will have to step in in some way. Sometimes it calls for that.
    The SEC, as I understand it, is the watchdog, to use a 
term, over the capital markets. And you have a lot of power 
ultimately over the accounting profession, as we know.
    I think the facts, Mr. Chairman, call for a resolution. I 
know you will have hearings on this and other hearings. But I 
think the bottom line, you will ask, is can the accounting 
profession police themselves? That is going to be one argument 
and say, gosh, these are great people and a lot of them are. 
But can they police themselves, or will they have to be 
policed? I do not think today it has shown that they can police 
themselves. I will have to be shown.
    So, we know something is wrong. I also believe you cannot 
mandate honesty. You cannot legislate honesty. But you can set 
the standard so high at the SEC and the accounting, legal 
profession, medical profession, that when people really try to 
game the system, beat the system, or bordering on fraud, if not 
perpetrating fraud, that if they are made examples of, it sends 
a notice to everybody else. I believe, to say the least, the 
accounting profession is on trial in a big way right now.
    Thank you, Mr. Chairman.
    Chairman Sarbanes. Thank you very much, Senator Shelby.
    In drawing to a close, let me note that the Committee will 
continue examining this subject tomorrow with a panel of 
witnesses, including representatives from the Americans for 
Consumer Education and Competition, from the Consumer 
Federation of America, from the American Savings Education 
Council, from the American Association of Retired Persons, and 
from the National Council of La Raza and additional witnesses.
    On Thursday, we will look at the Superior Bank failure. We 
asked at the time for the Treasury Inspector General, the FDIC 
Inspector General, and the GAO to examine that situation. They 
have prepared a report. So, we will receive their reports on 
Thursday of this week.
    Beginning next Tuesday, the Committee will start a series 
of hearings on the various issues that have arisen out of Enron 
and similar situations that have occurred, which will continue 
on through the rest of the month and into the month of March. 
And we hope or intend through those hearings to lay a 
comprehensive basis to examine the situation with an eye toward 
what systemic or structural changes are necessary in order to 
either prevent or at least substantially minimize the chances 
of similar reoccurrences in the future.
    Now lots of people are running around pointing fingers at 
lots of other people. It is interesting to watch. But we hope 
through this set of hearings, a really very thorough and 
careful set of hearings, to develop the substantive basis for 
making these judgments in terms of what ought to be done about 
the future to give the public some confidence and assurance 
about the workings of our financial markets.
    It is an important strength of the American economy and if 
that confidence erodes, it has not only the consequences, the 
very tragic, human consequences that we are seeing every day, 
but in my opinion, it also has severe implications for the 
overall workings of the economic system. So, we need to 
obviously move on this matter and move in a way that really 
puts in place important remedies.
    I want to thank the panel very much for coming. It has been 
very helpful.
    The hearing stands adjourned.
    [Whereupon, at 12:00 noon, the hearing was adjourned.]
    [Prepared statements, response to written questions, and 
additional material supplied for the record follow:]

             PREPARED STATEMENT OF SENATOR PAUL S. SARBANES

    Today, we hold the first of two hearings on the state of financial 
literacy and education in the United States. We are especially pleased 
to have as our distinguished witnesses Secretary of the Treasury 
O'Neill, Chairman of the Federal Reserve Greenspan and Securities and 
Exchange Commission Chairman Pitt, all with significant expertise on 
this subject.
    This is the first time that our three witnesses have joined in 
testifying before the Committee since September 20. As many of you may 
remember, the Committee had scheduled a first hearing on financial 
literacy for that day, but in the wake of the terrible assaults of 
September 11 we asked our witnesses instead to discuss with us the 
state of our financial markets and the measures taken to assure the 
timely reopening and normal functioning of the markets. That market 
operations resumed after only the briefest interruption, and that on 
the day trading resumed the New York Stock Exchange handled the largest 
volume of transactions in its history reflect the highest levels of 
commitment and expert coordination on the part of dedicated public 
servants, and we are all grateful for their efforts.
    I do not want to suggest that financial literacy is a magic 
solution that will solve all the problems consumers face in making 
financial decisions. It will mean little without a framework that also 
includes strong legal protections, vigorous enforcement, and best 
industry practices with responsible credit availability. Here I agree 
with the three-pronged approach outlined to the Committee last year by 
Roger 
Ferguson, the Vice Chairman of the Federal Reserve Board: 
``Legislation, careful regulation, and education are all components of 
the response to these emerging consumer concerns.''
    Indeed, there is substantial evidence that Americans do not have an 
adequate basis for making sound decisions about their personal and 
household finances, especially given the myriad choices they face. A 
number of organizations have sought to assess the level of Americans' 
grasp of financial matters, and their survey evidence consistently 
shows gaps.
    We know what some of the costly consequences of financial 
illiteracy are:

 Increasing reliance on the high-cost fringe-banking sector by 
    men, women, and families.
 Accumulation of dangerous amounts of credit-card and household 
    debt.
 Inability to save, to build a nest egg.
 Inability to plan for a secure retirement.

    I am particularly concerned about the consequences for American 
consumers of inadequate financial education. These include:

 Millions of people in this country without bank accounts. 
    These people are, in 
    effect, ``unbanked,'' a status which carries with it a heavy 
    financial penalty. To conduct even the most essential transactions, 
    like paying bills or cashing paychecks, unbanked Americans must 
    rely on financial operations which have large and often hidden 
    fees. Furthermore, without access to banking facilities they face 
    serious obstacles to saving and accumulating assets, and to 
    building credit.

 The growth of various predatory lending practices such as 
    yield spread premiums, single premium credit insurance, and payday 
    lending. Financial under-education contributes to an environment in 
    which consumers are vulnerable to unscrupulous lenders who 
    overcharge and hide the costs.

 The exploitation of remittances. Millions of Hispanic and 
    other workers support families in their home countries by sending a 
    portion of their earnings home in the form of remittances. This has 
    long been a common practice among newly-
    arrived Americans. Today's workers must pay high fees for the 
    service, as much 
    as 20 percent in some cases, and they are given an exchange rate 
    which is both 
    highly disadvantageous and often not disclosed.

    If financial literacy is important in the short-term, as we go 
about the business of our daily lives, it is critical to our future. It 
is constantly asserted that Americans are too often spending for 
consumption now, with little thought to the years ahead. America's 
personal savings rate has averaged an anemic 1.6 percent for the last 
year, while consumer debt has grown at a much faster rate.
    While some may note that asset growth, particularly in the stock 
market, has made up the difference, recent events demonstrate that 
constant growth is by no means certain. Increasingly Americans are 
highly leveraged, borrowing to spend 
beyond their incomes, without a cushion to fall back upon. In uncertain 
economic times or a downturn, like the present, the problem becomes 
especially acute.
    We also know that the largest generation in this Nation's history 
is approaching retirement. One example of the challenges facing us with 
respect to retirement is the status of women who face particular 
financial challenges as they grow older. Millions of women through 
widowhood or divorce find themselves in charge of their household's 
finances at or near retirement age, without having received any 
financial education. These women are then expected to make complex 
financial choices which will affect them throughout their retirement.
    These hearings, which have long been in the planning stage, take on 
a special 
urgency in the context of our present circumstances. The economy is in 
recession, 
and its future course remains unclear. Recent events in the markets 
threaten to 
undermine the confidence on which the functioning of the markets 
depends.
    Higher levels of financial literacy will help Americans approach 
the decisions they must make in a responsible and productive manner; 
they will also reinforce the efficiency of the economy. The time has 
come to bring the public and private sectors together in a national 
strategy to raise the level of financial education in the Nation. Our 
hearing is a first step in that direction.
    We are fortunate that a number of organizations have been working 
toward this end, and we will hear from many of them tomorrow. We begin, 
however, with our three public-sector witnesses who are uniquely 
qualified to assist us in examining the question of financial literacy. 
We will hear from Secretary O'Neill, whose testimony reflects his 
strong commitment to improving the level of financial education in 
America. Next, we will turn to Chairman Greenspan, who has highlighted 
the importance of this issue on many occasions. For example, in an 
address to the Fed's Consumer Affairs Research Conference last year he 
stated that:

          Efforts to increase awareness of, and access to, information 
        that pro-
        motes financial literacy are increasingly seen as necessary to 
        ensure that 
        consumers can meet their immediate obligations, as well as 
        achieve their 
        broader goals of buying a home, funding higher education for 
        themselves or their children, and preparing for retirement.

    Finally, we will hear from Chairman Pitt, whose agency oversees 
transactions in our capital markets. The SEC bears a unique 
responsibility now, when, for the first time in our history, more than 
half of our population qualify as investors, either 
directly or indirectly. Many of these Americans have had little 
preparation for the weighty responsibilities that have been placed 
before them.
    I thank them for their willingness to appear this morning, and I 
look forward to their testimony.
                               ----------

              PREPARED STATEMENT OF SENATOR JON S. CORZINE

    Mr. Chairman, I want to thank you for holding this important 
hearing on the issue of financial literacy. It is an issue that was a 
concern of mine long before I became a Member of the Senate, and I 
applaud you for making this issue a priority.
    I would be remiss if I did not take this opportunity to thank my 
colleagues, Senators Akaka and Enzi--who cosponsored a financial 
literacy amendment I authored that was included in ESEA (``The 
Elementary and Secondary Education Act''), the education reform bill 
that the President recently signed into law.
    Providing financial education to our Nation's young people must be 
a priority. Indeed, it is time for our schools to make a more concerted 
effort to prepare our children for success in new ways--including their 
future financial decisionmaking.
    Today, it is as important for young people to learn about staying 
out of debt, maintaining good credit and building up their savings as 
it is for them to learn about geography, science, and history. I might 
add that I personally was never too good at the latter.
    While we have taken an important step in getting financial literacy 
included in ESEA, we still have a long way to go. Despite our best 
efforts, the divide between those who lack basic financial literacy 
skills and the ``financially savvy'' continues to grow. We can, and 
must, do more.
    A recent nationwide survey by the Jump$tart Coalition for Personal 
Financial Literacy found that a mere 36 percent of surveyed high school 
students could correctly answer basic personal finance questions--and 
only 33 percent of these students viewed financial issues as strongly 
affecting their lives. These responses demonstrate the need for us to 
continue to encourage financial education in both the elementary and 
secondary schools.
    The amendment we included in the ESEA bill will help toward that 
end by allowing elementary and secondary schools to apply for Federal 
funds to promote financial education as part of the basic educational 
curriculum. But Mr. Chairman, as you seek to make clear through these 
hearings, financial literacy is not just an issue for our youth. 
Financial literacy should be a lifelong goal.
    It is essential for families, and it is crucial to the success of 
families moving off of welfare and into work. If we truly expect to 
move these families to financial independence, we must give them the 
tools they will need to make that transition. We must address financial 
education on a national level, but help to make it a priority locally.
    While our Federal welfare Temporary Aid to Needy Families (TANF) 
focuses on moving families off cash assistance and into work, it fails 
to provide recipients with the tools they need to maximize their 
earnings and manage their expenses in order to achieve financial 
stability.
    I plan to introduce legislation that would do just that, by 
requiring States to provide financial education as part of their 
welfare programs. In fact, I would echo remarks recently made by 
Chairman Greenspan, who said:

          Educational and training programs may be the most critical 
        service 
        offered by community-based organizations to enhance the ability 
        of lower-
        income households to accumulate assets.

    In addition to the needs I have previously outlined, we must also 
seek to expand on programs like the First Accounts Initiative, a 
program established by Former President Clinton that is geared toward 
reducing the number of unbanked families in America. Today, 
approximately 12 million households remain outside the financial 
mainstream.
    We need to emphasize financial education, and more specifically 
consumer education, for our seniors, who are often targeted by scam 
artists and others who seek to profiteer from their life's work. It is 
unconscionable that financial exploitation is the largest single 
category of abuse against older Americans. Education can help reverse 
this alarming trend.
    And I hope that my colleagues will join me in support of 
legislation I am developing that will focus on consumer and retirement 
education for our seniors. This will particularly help senior women, 
who have substantially lower Social Security and pension benefits than 
men do because of the work years they lose serving as primary 
caregivers, according to the Older Women's League (OWL). And there is 
more to do.
    We must seek to provide financial education for those who are the 
targets of unscrupulous predatory lenders. These individuals seek to 
strip the equity from the unsuspecting homeowner and also seek to take 
advantage of many first-time homebuyers.
    Finally, Mr. Chairman, one of the things that the Enron debacle has 
crystallized is the need for better investment education for our 
workers. The freefall of the company's stock hurt thousands of the 
company's employees by financially devastating their 401(k) accounts. 
Many of these individuals lost their entire life savings. If Congress 
is to address the issue of pension reform, we must ensure that these 
accounts are properly diversified, and provide investment education for 
workers where the adviser does is independent and free of conflict.
    As I said earlier Mr. Chairman, we have done a great deal. But a 
great deal more needs to be done. I want to thank you again for holding 
these hearings and for your commitment to ensuring that financial 
literacy becomes a national priority.

                               ----------
             PREPARED STATEMENT OF SENATOR MICHAEL B. ENZI

    Thank you, Mr. Chairman, for holding this hearing. I would also 
like to thank our very distinguished panel. I know you all have very 
busy schedules, and I appreciate your taking the time to offer your 
insights on this subject. I think the fact that you have taken the time 
to come here today highlights the importance of this issue.
    It is imperative that we focus on financial literacy. While we 
continue to provide incentives for additional education, I believe 
financial education is an area where we lack focus.
    However, we have seen improvements. I am encouraged to see the 
increase in public-private partnerships. For instance in my home State 
the Wyoming Community Development Authority and Fannie Mae have joined 
to educate on first-time homebuying. In fact, they are about to service 
their 1,000th customer in Wyoming. In addition, UNIWYO, a credit union 
in Laramie, Wyoming, has begun a program through the National Endowment 
for Financial Education to educate their membership. These types of 
programs have proven very effective in educating the public 
in the areas of finance. I applaud all of the financial institutions 
who have taken 
it upon themselves to reach out in their communities to provide 
financial literacy 
programs.
    I am proud that Wyoming acknowledges the need for financial 
literacy. Wyoming has requirements that students must demonstrate 
proficiency in financial management skills before graduating from high 
school. This is compared to a national survey in which 82 percent of 
high school seniors failed a personal finance quiz.
    The Enron situation has raised the profile of financial literacy. 
With so many employees losing their retirements through their 401(k) 
plans, we need to remind employees and emphasize to them not to put all 
of their eggs in one basket. Those employees needed to diversify their retirements, but unfortunately they trusted the same executives who were 
over-inflating the company's profits while paying themselves millions of dollars in compensation. These employees would be in much 
better financial condition had they moved some of their stock into 
safer, long-term investments.
    I do believe that the Federal, State, and local governments can and 
should do more to assist in this endeavor. Last year, during the 
Elementary and Secondary Education Authorization legislation, Senator 
Corzine and I offered legislation that allowed financial literacy 
programs an allowable expense under the Local Innovative Education 
Programs. I am happy to say that this amendment was accepted and was 
signed into law last year by President Bush.
    Financial literacy is something that is needed over a broad range 
of income levels. No matter how much one earns, money management is a 
necessity. It is something we need to begin emphasizing in grade school 
and continue all of the way through high school. It should not stop 
there. Financial education should be something we continue to 
concentrate on for our entire lives.
    Again, Mr. Chairman, I want to thank you for holding a hearing on 
this most 
important topic. I look forward to hearing from our distinguished 
panel, and I look 
forward to working with you on this in the future.

                               ----------

             PREPARED STATEMENT OF SENATOR DEBBIE STABENOW

    Thank you, Mr. Chairman. I am glad that you have called this 
hearing. As you have pointed out, financial literacy is so critical. It 
is as necessary in today's world as basic reading and math skills. 
Unfortunately, it often does not get the attention it deserves.
    Last December, back in my home State of Michigan, I attended an 
event at Eastern High School in Lansing where the Michigan Jump$tart 
Coalition for Personal Financial Literacy released the findings of a 
statewide survey in conjunction with the National Institute for 
Consumer Education.
    What we learned was disturbing. Michigan's high school seniors 
generally did not have a strong grasp on basic personal finance 
concepts related to saving and investing, money management, and credit.
    I doubt our students are much different from students around the 
country.
    One interesting finding in the study was that students who 
participated in the Stock Market Game, a national investment game, did 
better in the survey than students who completed an entire course in 
money management or even an entire course in economics. This seems to 
indicate that reality-based, interactive learning 
curriculum is critical to instilling basic financial literacy concepts 
in our students. This finding is a lesson that I hope that educators 
and other policymakers will explore more thoroughly.
    Mr. Chairman, if we are to improve financial literacy, then we must 
make it a priority in our schools. The education bill that we passed 
not too long ago establishes a national financial literacy 
clearinghouse and I hope that will help us to streamline our education 
efforts.
    In addition, I am happy to note that, in my State, the legislature 
is moving forward, in a bipartisan way, to make financial literacy a 
priority. The State House of Representatives, last month, 
overwhelmingly passed a bill to ensure that the State Department of 
Education establishes model programs in financial education. The bill 
also makes it clear that Michigan schools should set aside Federal 
education funds specifically for financial education programs. I hope 
the State Senate will act quickly on this proposal.
    Consistent with this emphasis on financial literacy, in Michigan, 
we test our students on economic concepts in the 5th, 8th, and 11th 
grade as part of the Michigan Educational Assessment Program. It is so 
important that we continue to do this throughout elementary and 
secondary school. Economics should be an integral part of the 
curriculum at every age level in every part of our country.
    Mr. Chairman, while the kindergarten through 12th grade period is 
an important time to educate the public, we in Michigan and around the 
country need to look at improving financial literacy among adults as 
well. The financial illiteracy of adults in this country is both 
startling and troubling. And it makes too many in our society 
vulnerable to predatory lending practices. That is why I was so pleased 
to join with Freddie Mac last year in launching the antipredatory 
lending campaign ``Don't Borrow Trouble'' in Southeast Michigan. 
Freddie Mac is a real leader in educating our public about their rights 
and responsibilities when buying a home.
    I hope that Freddie Mac, and its counterpart, Fannie Mae, will 
continue to be leaders in tackling abusive lending--especially as the 
two companies move increasingly into the subprime market.
    Mr. Chairman, I look forward to hearing from our witnesses today. I 
hope that this set of hearings is just the beginning. I want to work 
with my colleagues, community groups, financial services companies, and 
consumer groups to make financial education an on-going effort.
    We need more campaigns like ``Don't Borrow Trouble.''
    Campaigns for managing credit card debt and for keeping a good 
credit rating. And it must be done in a sustained and coordinated way. 
That is the way we did it in Detroit. We brought everyone to the table, 
assessed the community's needs, and implemented a program.
    Furthermore, we need the financial services community to step up 
and reach out to the ``unbanked'' and ``underbanked'' even when it is 
not their most profitable 
demographic group.
    We need to improve financial literacy to help my generation, as 
well as our children and their children better understand saving and 
investment needs and to help plan appropriately so that retirement 
years are comfortable times--not a time when people have to choose 
between necessities like food and prescription drugs.
    All of this is possible and I hope today will be an important step 
forward.
    Thank you, Mr. Chairman.

                               ----------

             PREPARED STATEMENT OF SENATOR DANIEL K. AKAKA

    Thank you, Mr. Chairman, for convening this first hearing on the 
state of financial literacy and education. I welcome Secretary O'Neill, 
Chairman Greenspan, and Chairman Pitt to this morning's hearing. I look 
forward to your views on this important subject. I also eagerly 
anticipate tomorrow's hearing where we will hear from seven witnesses 
from organizations working in the field of financial literacy and 
education.
    Mr. Chairman, I became actively involved in this issue in 1999, 
after reading an article in Parade Magazine featuring the study on 
financial literacy conducted by the National Council on Economic 
Education. The disturbing results of that study caught my attention. In 
a basic economics test, half of the adults and two-thirds of the high 
school students received failing scores. More than half of the students 
and adults did not have a basic understanding of economic concepts such 
as money, interest rates, and inflation. Also, a majority of the adults 
and students did not know that a budget deficit occurs when the Federal 
Government's expenditures exceed its revenue for the year. After 
reviewing these test results, I investigated further the lack of 
financial literacy in our society.
    Americans of all ages and backgrounds face increasingly complex 
financial decisions as members of the Nation's workforce, managers of 
their families' resources, and voting citizens. Many find these 
decisions confusing and frustrating because they lack the tools 
necessary that would enable them to make wise, personal choices about 
their finances.
    Increased education about basic economic concepts will help people 
to make better financial decisions and increase opportunities for 
participation in today's global economy. All citizens need to be 
prepared, starting from youth, to make informed decisions regarding 
fundamental undertakings such as purchasing a first home, 
financing a college education, and saving for a comfortable retirement. 
Arming 
citizens with basic economic knowledge and the ability to find the 
specialized information they need has the potential to increase the 
chance that citizens can realize their financial goals. According to 
Mr. Lewis Mandell, Dean of the State University of New York at Buffalo, 
if we fail to provide children with a sound understanding of personal 
finance, we can expect them as adults to make financial missteps, 
misjudgments, and errors which can lead to poor retirement planning, 
clumsy investing, debilitating debt, and even bankruptcy.
    Increasing the financial literacy of citizens can provide numerous 
benefits. For example, a greater understanding and familiarity with 
financial markets and institutions will lead to increased economic 
activity and growth. A greater citizen awareness of economic issues 
will lead to expanded participation in our political system. Most 
importantly, financial literacy empowers individuals to make wise 
financial decisions and reduce the confusion of an increasingly complex 
economic society.
    The reauthorization of the Elementary and Secondary Education Act 
included the Excellence in Economic Education Act as an amendment, 
which I introduced along with my colleagues Senator Corzine and Senator 
Enzi. This legislation will significantly improve the knowledge of 
fundamental, yet critical, economic principles among our country's 
young people. The measure aims to increase student knowledge of, and 
achievement in economics by providing our Nation's teachers with the 
tools to enhance teaching methods of economics. The legislation 
authorizes funding for teacher training programs and increased 
resources to States for the purpose of incorporating economics into the 
K-12 curricula. This legislation encourages economics-related research 
and development, dissemination of instructional materials, and 
replication of best practices and programs. It also increases private 
and public support for economic education partnerships between schools 
and local businesses and private industry.
    I was also pleased to support another financial literacy amendment 
sponsored by Senator Corzine that was also included in the legislation. 
Today's hearing is the 
beginning of a national dialogue on financial literacy and education. I 
applaud the 
efforts of Secretary O'Neill, Chairman Greenspan, and Chairman Pitt to 
bring 
attention to this issue, and I look forward to your recommendations on 
how to increase financial literacy.
    Thank you, Mr. Chairman, for convening these hearings on financial 
literacy.

                               ----------

             PREPARED STATEMENT OF SENATOR THOMAS R. CARPER

    I would like to thank Chairman Sarbanes for scheduling this hearing 
on this important topic. I believe that financial literacy is essential 
for consumers in the new economy.
    I would like to commend Delaware's State Treasurer Jack Markell for 
the remarkable job he has done in our State to promote financial 
literacy. He has created the Delaware Money School, which provides 
community-based financial education. 
Financial professionals volunteer to teach classes on subjects that 
include money management and debt reduction, investing, retirement 
planning, and managing life changes. This winter alone the Delaware 
Money School will offer over 80 classes throughout the State, most of 
which are free. The Money School also has a website, 
www.delawaremoneyschool.com, which offers online registration for the 
Money School, and useful financial literacy links to governmental, 
educational, and private organizations.
    Last November, State Treasurer Markell hosted a free money 
conference for kids and their parents at the University of Delaware. On 
a Saturday morning, approximately 500 people, including children in 
grades 4-7 and their parents, attended the conference. Treasurer 
Markell is committed to teaching the children of Delaware the three S's 
(saving, spending, and sharing or giving to charity).
    Also in Delaware, local banks have partnered with 21 elementary 
schools to promote and teach the importance of saving. The program, 
called Bank at School, is sponsored by the University of Delaware's 
Center for Economic Education and Entrepreneurship and the Delaware 
Chamber of Commerce. It allows students to open and manage savings 
accounts while at school, and includes a teaching program developed by 
the University of Delaware. The program is very successful with over 
2,500 children participating.
    It is clear that financial literacy is important. However, recent 
events have shown that literacy is not enough. Even the most 
sophisticated investor cannot be expected to divine the truth from 
false financial statements and disclosures, nor can the ordinary 
investor be expected to know that some analysts recommendations are 
based not on objective analysis, but on a willingness to bend the truth 
to attract investment banking business. These issues are not new, and 
recent events merely bring them front and center. I know that the 
Committee will be holding hearings on the issues raised by the collapse 
of Enron, and I look forward to exploring these issues at those 
hearings.
    Thank you, again, Mr. Chairman, for holding today's hearing.

               PREPARED STATEMENT OF SENATOR TIM JOHNSON

    Mr. Chairman, thank you for holding this hearing into the 
importance of financial literacy. It is clear from the distinguished 
panel before us today, including Secretary O'Neill, Chairman Greenspan, 
and Chairman Pitt, that you have identified an issue that merits the 
attention of our Nation's top policymakers. Thank you all for joining 
us today.
    Mr. Chairman, America is a great country. And part of what makes 
our Nation great is the opportunity that we all have to make something 
of ourselves. Americans love rags-to-riches stories, because they 
represent the best of what this country has to offer--opportunity for 
all.
    But opportunities are limited for those who have not had access to 
education. Just as basic illiteracy limits the professional and 
personal opportunities for far too many Americans, financial illiteracy 
has limited the economic success of an even larger group. In fact, 
financial illiteracy of a surprisingly large segment of our population 
has in all likelihood impaired the success of our marketplace, and not 
just of those individuals. That is why we should all be concerned, and 
so many players in the industry have stepped forward with valuable 
educational programs. Yet clearly, more needs to be done.
    As the terrorists responsible for September 11 recognized, 
America's free markets are a central driver of this Nation's economic 
prosperity. Yet as a student in a first year economics classroom will 
tell you, markets function smoothly if, and only if, full information 
is both freely available and able processed correctly.
    On the consumer side, if a person lacks basic financial literacy, 
no amount of information will help him or her make a good financial 
decision, whether it be the choice between a fixed-rate or adjustable-
rate mortgage, or whether to buy or lease a new car, if that person 
lacks the basic skills to analyze the information. Of course, we need 
to be ever-vigilant to make sure that information is conveyed in plain 
English. But we face a great challenge to make sure that all Americans, 
starting with our children, are taught how to make sound financial 
decisions.
    Of course, for information to be useful even to the most 
sophisticated consumer, it must be accurate. And as we are all very 
much aware, recent events have called into question the accuracy of 
publicly-available information. Without moving too far afield from 
today's subject, I would urge that we in Government put our heads 
together to figure out a way to ensure that our public companies and 
accounting firms, most of which are upstanding corporate citizens, 
comply with our laws.
    As Chairman Pitt knows better than any of us, the SEC plays a 
critical role in overseeing the information that keeps our markets 
functioning smoothly. And I am sure he shares my disappointment that, 
despite the Senate's action in passing H.R. 1088 in late December, 
President Bush chose not to set aside money in this year's budget to 
bring SEC salaries to parity with the other Federal banking agencies.
    We passed that bill in large measure because we were concerned that 
in the past 3 years, more than one third of all SEC employees have left 
the agency. There is simply no question that without qualified 
employees, who have experience and institutional knowledge, the SEC 
will falter. In fact, it is not an overstatement to say that a strong 
SEC is an integral part of our Homeland Security. And money should be 
made available to ensure that the guardians of our markets are not paid 
less than those minding our banks.
    Mr. Chairman, we are here today because we recognize that America's 
economic well-being is a topic that should command the attention of our 
top policymakers. 
I thank you for calling attention to the role that financial literacy 
plays in our 
economic and social success. I look forward to hearing from our very 
distinguished witnesses.

                               ----------

                 PREPARED STATEMENT OF PAUL H. O'NEILL

               Secretary, U.S. Department of the Treasury
                            February 5, 2002

Introduction
    Chairman Sarbanes, Senator Gramm, distinguished Members of the 
Committee. Thank you for the opportunity to appear before you this 
morning to talk about the vital importance of financial education. I am 
especially pleased to do so in the company of Chairman Greenspan and 
Chairman Pitt. Mr. Chairman, I commend you for focusing a national 
spotlight on this critical topic, which is so closely linked to our 
economic future. It is one, I might add, in which I have a deep and 
longstanding personal interest.
    In his inaugural address, the President stated ``[t]he ambitions of 
some Americans are limited by failing schools and hidden prejudice and 
the circumstances of their birth. We do not accept this, and we will 
not allow it.'' Ownership, independ-
ence, and access to wealth should not be the privilege of a few. They 
should be the 
hope of every American. Financial literacy is an essential tool to make 
that hope 
a reality.

Need for Improved Financial Education
    The U.S. financial system commands the respect and admiration of 
the world in large part because of the widespread availability of low-
cost, high-quality financial services. Technology and innovation have 
made possible a rich diversity of finan-
cial products to meet the individual needs of millions of American 
households and 
businesses.
    Today's expansive menu of financial product offerings, however, has 
added complexity to the decisions Americans must make in choosing the 
financial products that best serve their needs. I recall a time not so 
long ago when, for a large number of Americans, mortgage rates were 
fixed, savings went into a bank passbook 
account, consumer goods were bought on a cash-only basis, and pensions 
all had 
defined benefits for retirement. Today, mortgage financing comes in a 
variety of packages, credit card use is universal, and savings 
investment vehicles range from CD's to mutual funds to individual 
stocks to annuities. Moreover, the importance of knowing how to invest 
savings wisely has risen exponentially with the decline in popularity 
of defined benefit retirement plans.
    To be sure, the evolution of our Nation's financial system has 
created wonderful new opportunities for Americans to meet their needs 
as consumers, while at the same time, building wealth and security for 
their and their families' economic futures. However, Americans need to 
be fully prepared and financially educated to take advantage of these 
opportunities. If we do not understand the most important concepts of 
personal finance, such as how to budget, save, invest, and use credit 
wisely, then we are missing our full potential as individuals, as well 
as our potential as a country.
    We have significant room for improvement in the area of financial 
education. Recent studies illuminate this fact. In one test of 
financial basics given to high school students, the average score was a 
disappointing 51 percent, with only one-tenth of students scoring above 
70 percent on the exam. Remarkably, only 50 percent of high school 
students understood the concept of compound interest. Results were 
similarly disappointing when adults were tested: their average score 
was only 57 percent.
    There is a tragic human and personal cost that our society pays for 
this lack of financial knowledge. All of us know family or friends who 
have had money problems at some stage in their life. We all know the 
terrible price in suffering, stress, and humiliation that is faced by 
those in financial trouble. Four in ten Americans admit they are living 
beyond their means, primarily because of the misuse and 
misunderstanding of credit. Between 1990 and 2000, personal 
bankruptcies rose by 69 percent, again stemming primarily from credit 
misuse.
    A lack of financial knowledge is especially problematic for the 
most vulnerable members of our society. The poor, the elderly, and 
minority groups can be victims of fraud and deception, predatory 
lending, and other such abuses. Financial education is a crucial weapon 
in our arsenal to protect our citizens from these types of attack. 
Understanding personal finance is a consumer's first line of defense 
against financial rip-offs and scams. Those most vulnerable to these 
attacks are precisely the people who have the most to gain by a 
concerted nationwide effort to raise Americans' level of financial 
knowledge.

Current Efforts to Address the Problem
    Considerable efforts are being made in the private and public 
sector to promote financial education. Our staff has completed a list 
of financial educational resources offered by the various Federal 
departments and agencies that is attached to my testimony for inclusion 
in the record.
    As the attached document shows, no fewer than 10 Federal 
departments and agencies, including the Treasury Department, offer a 
wide variety of financial education programs and resources. In 
addition, many States, Wisconsin, Maryland, and California, to name a 
few, have taken initiatives to raise the level of their residents' 
financial knowledge. Similarly, financial service providers have made 
extensive efforts in the banking, securities, and insurance industries 
to teach the public how to properly use their products.
    Faith-based organizations and community groups have also promoted 
financial education. As we all know, talking about money, and 
especially about the state of one's own finances, can be difficult. 
Faith-based and community organizations tend to foster the trust 
necessary for their members to discuss these personal matters with 
them. Such groups can encourage people who have never saved before to 
begin saving; to think twice about making an impulse purchase; or to 
consider more deeply the need to focus not only on short-term consumption, 
but also on long-term investment.

A Focus on the Schools
    These current efforts are important, yet much more needs to be done 
if we are to significantly raise the ability of Americans to more 
effectively master their financial lives. To be sure, our national 
strategy must address the financial educational needs of Americans in 
all walks of life. This morning, however, I would like to focus in 
particular on the need for more financial education in our Nation's 
schools.
    No better venue exists for us to reach such a large segment of the 
population than through our schools. No better mechanism exists for 
providing our Nation's youth with the educational building blocks they 
will need to become competent consumers and managers of household 
wealth. By beginning the financial education process early, we can 
equip our youth with a foundation for making sound financial decisions 
throughout their lives. Indeed, in those States that have begun 
requiring personal financial education in high school, research shows 
that high school graduates have higher savings rates and higher levels 
of net-worth.
    Of course, financial education must begin with basic literacy. A 
child with insufficient reading skills will never be able to comprehend 
a credit card application or a Truth in Lending disclosure. A child 
lacking basic math skills will never be able to balance a checkbook or 
compare credit card interest rates. Financial education programs will 
be successful only for those children who have mastered basic academic 
skills. This is one of the reasons why it was so important for the 
Congress to pass the President's education bill--the No Child Left 
Behind Act of 2001--signed into law on January 8.
    This landmark legislation provides the most sweeping reforms of the 
Elementary and Secondary Education Act since it first became law in 
1965. Included among the bill's provisions are requirements that States 
set high standards for achievement in reading and math and that they 
test every child in grades 3 through 8 to ensure that students are 
making progress in achieving those standards. The bill also includes 
specific language recognizing the importance of financial education 
efforts by local schools.
    State and local educators are now undertaking the process of 
developing standards in math and reading, and the educational curricula 
that will help their students achieve those standards. In collaboration 
with Secretary Paige, I would like to take the opportunity of this 
hearing to call upon schools to integrate financial education into 
those standards and curricula--not as a separate discipline, but as a 
means of exposing children to basic financial and economic principles 
at the same time they acquire core reading and mathematical skills.
    Teaching a child how to balance a checkbook reinforces basic 
addition and subtraction. Learning how to calculate compound interest 
provides an excellent way to exercise knowledge of percentages. Reading 
lessons can include stories about children saving money to buy 
something special, or getting their first after-school job. For older 
children, assignments in English literature can easily be structured to 

include novels that not only build reading comprehension, but also help 
students 
explore and analyze principles of economic behavior.
    Successfully interweaving financial education into math and reading 
standards 
required by the President's education program would be a giant leap 
forward in helping prepare our Nation's youth to become financially 
literate adults. In the short run, building financial education into 
courses that are already required by all schools may be the most 
expeditious and least expensive way to make our educational system more 
responsive to students' financial educational needs.
    At the same time, such efforts would complement initiatives already 
underway in several States to incorporate personal finance courses into 
school curriculums. Mississippi, Illinois, Idaho, and New York have 
been leaders in assuring that personal finance is at least offered to 
all students before they graduate from high school. I would also note 
that legislation or resolutions have now been passed in Tennessee, 
Delaware, Louisiana, Michigan, and Wisconsin to provide personal 
finance education courses. And Delaware and Wisconsin have established 
task forces to review the issue and make recommendations.

A Financial/Educational Alliance
    In 1996, I had the privilege of cochairing the Pennsylvania 
Advisory Commission on Academic Standards. This was a 17 member panel 
of noneducators, charged by then Governor Tom Ridge with the job of 
reviewing education standards being developed for Pennsylvania. Our 
goal was two-fold: to ensure that the concerns of students, parents, 
and local businesses were considered in developing the standards; and 
to serve as a reality check, if you will, so that the standards 
reflected the real-world needs of students once they graduated and 
entered the workforce. The effort was highly successful and today 
Pennsylvania is recognized as having one of the highest quality 
education standards for its children.
    Just as Governor Ridge called upon noneducators in Pennsylvania to 
partner with educators in the successful development of ``real world'' 
education standards, I believe the financial services sector can just 
as effectively partner with State and local educators in the 
development of financial education standards. For instance State 
banking superintendents, insurance commissioners, and securities 
administrators all possess a wealth of expertise and experience to 
contribute to the development of financial education guidelines. 
Private financial institutions also have much to offer in terms of 
expertise, as well as providing a source of additional resources to 
support teacher training and the establishment of financial education 
curricula and programs.
    At the national level, the Treasury Department is focusing much of 
its existing financial education programs on youth. Just last year, we 
launched the Money Math program, a personal finance education kit for 
young people in grades 7 through 9. More than 110,000 middle school 
math teachers in 16,000 school districts nationwide received the kits 
free of charge.
    In terms of new initiatives, I am pleased to announce that our 
Treasurer, Rosario Marin, has agreed to organize an effort to recruit 
the support of State Treasurers in pressing for more financial 
education in the schools.
    In addition, we are working to find a suitable way in which we can 
recognize, in conjunction with the U.S. Department of Education, local 
schools that have exhibited high distinction in the area of financial 
education. By providing a national spotlight for innovative educators 
who have developed successful programs for teaching personal finance, 
we hope to motivate their colleagues in other schools to follow suit.
    In partnership with the Department of Education, I am willing to do 
whatever I can to promote financial education in the schools. As all of 
us know, education forms one of the most important bases of our free 
and prosperous society, and financial education skills figure 
prominently in the success with which we exercise our economic 
freedoms. As a grandfather of twelve wonderful grandchildren, I know 
well that children are America's future, and I would like to see an 
educational system that provides all American children with these vital 
life skills.

Other Areas of Focus
    Youth education will not, of course, help the legions of adult 
Americans whose financial education skills fall short. Let me mention 
some of the policy issues where we have identified financial education 
as key to protecting and promoting the financial health of the adult 
population.
    We should extend our efforts on financial education to retirement 
security. As you know, the President requested that I, along with Labor 
Secretary Chao and Commerce Secretary Evans examine retirement savings 
laws to determine whether any reforms are necessary to promote the 
ability of all Americans to plan for a secure retirement. Last week, 
the President announced our recommendations, which include proposals to 
increase the freedom of American workers to choose how they wish to 
invest their 401(k) assets, as well as to prevent corporate officers 
from 
selling company stock during a so-called ``blackout'' when workers are 
prohibited 
from trading in their 401(k) plans. A key feature of our 
recommendations is to 
expand workers' access to financial educational resources and 
professional invest-
ment advice, so that they can have the tools they need to make informed 
investment decisions.
    Moreover, investors cannot learn what companies do not disclose. 
Recognizing that the Nation's corporate disclosure system is not 
working as well as it should, the President has asked his Working Group 
on Financial Markets to take a hard look at what we can do to fix it. 
Chairman Greenspan, Chairman Pitt, CFTC Chairman James Newsome, and I 
are looking for ways to realign our corporate disclosure and accounting 
system with its basic purpose--to provide investors with the 
information they need to make informed decisions about public 
corporations' financial positions and prospects. Clear, accurate, and 
comprehensive disclosures are essential to all Americans' ability to 
invest and save. The key is accountability and responsibility for 
corporate officers and directors, accountants and auditors. We are 
committed to the President's call to hold corporate America to ``the 
highest standards of conduct.'' I am confident that the Working Group's 
recommendations to the President will point the way to strengthening 
our disclosure regime.
    Financial education is also a centerpiece of First Accounts, a 
program in which Senator Sarbanes has a major interest. First Accounts 
is a grant program administered by the Treasury Department and designed 
to move a maximum number of ``unbanked'' low- and moderate-income 
individuals to ``banked'' status with insured depository institutions. 
Without basic financial services, low- and moderate-income individuals 
may have a reduced ability to manage their finances and may be limited 
in planning and saving for the future.
    We issued a Notice of Funding Availability on December 27, 2001, 
and are providing applicants until March 20, 2002 to respond. In 
addition, we sent hundreds of copies of this Notice to community 
groups, faith-based organizations, labor unions in all 50 States, and 
dozens of financial institutions and their trade associations. We 
expect to use the First Accounts program to fund replicable model 
projects that develop financial products and services for these 
individuals without the need for ongoing public subsidies. In seeking 
applications, we have recognized that financial education can be a key 
component in persuading more Americans to open bank 
accounts. We will also undertake research to evaluate the success of 
the funded projects and to understand what products, services, 
educational initiatives, marketing techniques, or incentives are 
needed.
    Finally, I think it is important to make this observation: unwise 
financial decisions do not always stem from a lack of financial 
education. All too often, bad choices stem from economic despair. No 
amount of financial education will help individuals build their 
retirement nest eggs if their incomes barely cover their families' 
living expenses. No amount of financial education will help individuals 
escape the high fees charged on short-term, unsecured loans if their 
families are in need of food or medicine, and there is no other place 
to go for the funds. With more money in their pockets, people will be 
better positioned to make sound economic choices and provide for their 
and their families' economic futures. As we aggressively promote 
financial education, we must not lose sight of the larger goal to 
promote economic prosperity through the President's economic program.

Conclusion
    The importance of high quality education to the future of our 
society and to our Nation's economy can never be underestimated. I am 
reminded of a saying from the gentleman who graces the one hundred 
dollar bill--Benjamin Franklin, ``If a man empties his purse into his 
head, no man can take it away from him.'' Those words written at the 
dawn of this great Nation's history are as true today.
    Financial education can be compared to a road map to the American 
Dream. I believe that we need to teach all Americans the necessary 
tools to read that map, so that they can reach the Dream.

             *          *          *          *          *

                WHAT THE FEDERAL GOVERNMENT IS DOING TO
                      IMPROVE FINANCIAL EDUCATION
U.S. Treasury Efforts
Bureau of Public Debt (BPD)
 MoneyMath: BPD launched the MoneyMath program to teach the 
    importance 
    of savings and financial literacy. MoneyMath is an education kit 
    for grades 
    7 through 9, which includes lesson plans and supplemental learning 
    activities 
    focused on savings and investing, money management, and spending 
    and credit. The kits were provided, free of charge, to over 110,000 
    middle school math teachers in 16,000 school districts nationwide. 
    MoneyMath was kicked off at the Nasdaq Market Site in New York City 
    on May 7, 2001. The Securities Industry Foundation for Economic 
    Education, sponsor of the Stock Market Game, agreed to incorporate 
    the MoneyMath kit into their distribution system. Partners for the 
    MoneyMath program include the Jump$tart Coalition, the Center for 
    Economic Education, Merrill Lynch, the Fannie Mae Foundation, the 
    MetLife Foundation, the Nasdaq Stock Market, and many others.
Office of the Comptroller of the Currency
 In its Advisory Letter on Financial Literacy (AL 2001-1) 
    published in January 2001, the OCC encourages national banks to 
    develop and refine their financial education activities. The 
    advisory described characteristics of successful financial literacy 
    programs and noted that involvement in these programs has helped 
    national banks develop new customers while enhancing their 
    visibility in the communities they serve.

 In conjunction with the Advisory Letter, the OCC published an 
    online Financial Literacy Resource Directory. This Directory 
    provides an online listing of financial literacy resources, 
    including national and local organizations that offer financial 
    literacy programs. The OCC updates this directory on a regular 
    basis.

 OCC staff participate in the National Forum to promote Low-
    Income Savings, an effort directed by the Consumer Federation of 
    America to increase the savings rate in local communities. An OCC 
    staff member chairs the forum's Hispanic Advisory Committee, an 
    advisory group that helps the larger forum incorporate strategies 
    for reaching the Hispanic community.

 Through Community Developments, a quarterly newsletter 
    produced by the Community Affairs Division, the OCC provides 
    ongoing education about financial literacy programs, through 
    articles that highlight financial literacy programs in which banks 
    are involved. The newsletter is widely distributed to banks and 
    community and consumer organizations, and is available on the OCC 
    website.

 OCC has been a national partner of the National Academy 
    Foundation since 1997. The National Academy Foundation sponsors the 
    Academy of Finance, a school-to-career curriculum operating in 40 
    States and 300 high schools. The OCC is now partnering with schools 
    or school districts in 28 locations across the country to support 
    academies of finance and provides summer internships for Academy of 

    Finance students.

 Under regulations promulgated by the OCC and the other Federal 
    banking regulators, bank participation in financial literacy 
    programs targeted to low- and moderate-income individuals may be 
    eligible for consideration under the Community Reinvestment Act.
Office of Thrift Supervision
 Since 1998, Office of Thrift Supervision (OTS) employees have 
    participated as tutors in financial education programs in local 
    schools and in the community as part of the agency's Community 
    Service Program. Examples of financial education programs that the 
    agency has participated in over the past 3 years include Operation 
    Hope's Banking on the Future Day in Los Angeles and New York, the 
    NHS of New York Financial Life Skills Course, Junior Achievement, 
    American Bankers Association's National Teach Children to Save Day, 
    Seahawks Academy Financial Literacy Training and the Central City 
    Lutheran Mission Financial Literacy Training.

 OTS has produced several articles dealing with financial 
    literacy issues. Primarily through the Community Liaison, a 
    quarterly newsletter edited and produced by the Community Affairs 
    staff, OTS works to inform and educate the thrift industry and 
    others about financial literacy issues and to highlight best 
    practices and 
    financial education programs that the thrift industry is involved 
    in.

 The OTS plays a role in financial literacy initiatives through 
    a number of regional activities. For example, OTS is a partner in a 
    campaign targeted to the primarily Latino neighborhood called Back 
    of the Yards in West Chicago to get more people who qualify for the 
    ``Earned Income Tax Credit'' (EITC) to file and deposit these 
    refunds in a bank account. Local financial institutions open these 
    new bank accounts and provide basic financial education to these 
    individuals as well. The staff in each regional office participates 
    in a number of antipredatory lending activities designed to educate 
    consumers about predatory lending and avoid abusive lending 
    practices.

 OTS is currently working on the development of an industry 
    bulletin on the issue of financial abuse of the elderly. They are 
    also working with the Federal Reserve Bank of San Francisco to 
    produce an educational video addressing the financial 
    abuse of the elderly and dependent adults and will take part in a 
    public service 
    campaign.

Bureau of the Mint

 The mission of the Mint includes providing marketing, 
    education, and advertising for U.S. coinage. The Mint, while not 
    directly engaged in financial literacy efforts, supports a 
    Treasury-led financial literacy initiative, and will use its 
    resources to promote a national financial literacy initiative. The 
    Mint has worked with the National Education Association (NEA) to 
    educate young people about U.S. currency. The Mint also uses its 
    website, www.usmint.gov and other media to educate the public on 
    coinage and to promote its 50 State Quarters and H.I.P. Pocket 
    Change programs--both of which leverage our youth's interest in 
    American coinage to promote their knowledge of money's role in 
    financial transactions. Additionally, the Mint is working with 
    Congress to obtain final approvals necessary to move forward on its 
    plans to open a Mint Museum at its Washington, DC, Headquarters, 
    which will serve as an interactive forum to better educate the 
    public on the heritage of our Nation's coinage.

Office of the Treasurer

 The Treasurer serves as an effective venue to communicate the 
    importance of 
    financial literacy.

Other Federal Efforts

 Social Security Administration: The Social Security 
    Administration (SSA) is engaged in a number of initiatives to 
    educate people about the importance of planning for their financial 
    future. SSA produces nationally broadcast public service 
    announcements that explain the importance of saving for retirement. 
    In addition, by law, SSA mails all workers copies of their Social 
    Security Statement that includes customized benefit estimates. SSA 
    mails statements to half a million Americans each day. The purpose 
    is to allow workers to ensure that their earnings are credited for 
    benefit purposes and to convey to the public the need for financial 
    resources in addition to Social Security for retirement.

 Housing and Urban Development: In conjunction with the 
    Treasury Department, the Department of Housing and Urban 
    Development (HUD) published a 2000 report on predatory lending, 
    which listed the need for greater financial literacy as a tool to 
    curb predatory lending practices. Financial education is an 
    eligible activity in a number of HUD programs, including 
    Youthbuild; Resident Opportunity and Self-Sufficiency and Housing 
    Counseling. The President's 2003 Budget proposes to increase 
    funding for the housing counseling program by 75 percent. The HUD 
    website provides the names of local financial education and housing 
    counselors throughout the country.

 Department of Labor: For over 6 years, the Department of 
    Labor's Pension and Welfare Benefits Administration has maintained 
    a retirement savings education and outreach program through its 
    Savings Matters Campaign. The Campaign is designed to promote 
    retirement savings and security for the 21st century workforce. 
    DOL's efforts are mandated under the Savings Are Vital to 
    Everyone's 
    Retirement Act (SAVER) of 1997. DOL has developed a variety of free 
    informa-
    tional tools, which are distributed through a toll-free telephone 
    line and on the 
    Internet and highlighted through radio, television, and print 
    public services 
    announcements. These tools include a publication, ``Savings 
    Fitness: A Guide to 
    Your Financial Future,'' developed jointly with the Certified 
    Financial Planner 
    Board of Standards and an interactive website for small employers, 
    selectaretirementplan.org, developed in partnership with the U.S. 
    Chamber of Commerce and the Small Business Administration. In 
    addition, the Department, in conjunction with the Federal Deposit 
    Insurance Corporation, credited Money Smart, a financial literacy 
    curriculum that is available through more than 600 One-Stop Career 
    Centers across the country.\1\ The second National Summit on 
    Retirement Savings, cohosted by President Bush and the 
    Congressional leadership and planned by Secretary of Labor Elaine 
    L. Chao, is scheduled for February 27-March 1, 2002.
---------------------------------------------------------------------------
    \1\ The Workforce Investment Act established a State and local 
administered system of ``One-Stop Career Centers,'' throughout the 
country that provide access to labor market information, job training 
courses, financial education, child care, and other services.

 Department of Agriculture: The U.S. Department of Agriculture 
    (USDA), through its Cooperative State Research, Education, and 
    Extension Service makes financial literacy materials available 
    throughout rural and agricultural areas. USDA is also launching a 
    significant financial literacy initiative entitled ``Financial 
    Security in Later Life.'' The initiative's goal is to provide 
    senior Americans with financial literacy information most relevant 
    for them. In addition, the USDA is able to draw on the resources of 
    academic professionals found throughout the United States in the 
    Land Grant University System. Financial literacy courses are taught 
    at many land grant universities, which pool together teaching plans 
---------------------------------------------------------------------------
    and other educational materials intended for adults.

 General Services Administration: The General Services 
    Administration places financial literacy information from various 
    governmental sources on its website. For example, the DOL's 
    ``Savings Fitness: A Guide to Your Money and Your Financial 
    Future'' can be found there.

 Federal Trade Commission: In 1998, the Federal Trade 
    Commission (FTC) joined with the Securities and Exchange 
    Commission, the North American Securities 
    Administrators Association, and a number of public and private 
    organizations including Government, industry associations, and 
    consumer organizations to launch a campaign to educate consumers 
    about investing and saving. The FTC has an entire webpage dedicated 
    to consumer credit issues, investments, and abusive lending. In 
    addition, the FTC continues to publish reports on personal finance 
    issues such as ``Avoiding Home Equity Scams,'' ``Cancellation of 
    Private Mortgage Insurance: Federal Law May Save You Hundreds of 
    Dollars Each Year,'' and ``Credit Repair, Help Yourself First.''

 Federal Reserve Board: The Federal Reserve Board (FRB) 
    provides consumer and financial information through such means as 
    the Federal Reserve website, and a number of publications. The 
    website features informational pages such as ``Building Wealth, A 
    Beginner's Guide to Securing Your Financial Future.'' Many of the 
    FRB's publications are provided in Spanish, as well as English. 
    Publications include ``Understanding the Process and Your Right to 
    Fair Lending,'' ``Looking for the Best Mortgage: Shop, Compare, 
    Negotiate,'' and ``Keys to Vehicle Leasing: A Consumer Guide.'' 
    Chairman Greenspan has publicly expressed his support for financial 
    education. In January 2002, he gave an address that focused on the 
    need for increased personal financial education at the Ninth Annual 
    Economic Development Summit held by the Greenlining Institute.

 Federal Deposit Insurance Corporation: In September 2000, the 
    Federal Deposit Insurance Corporation (FDIC) initiated a national 
    financial education campaign by developing Money Smart, a 
    comprehensive financial education curriculum designed to help 
    adults outside the financial mainstream develop financial skills 
    and positive banking relationships. The curriculum, which is built 
    on the foundation of delivering quality education at the local 
    level, is available free to banks and others interested in 
    sponsoring financial education workshops. Money Smart contains 
    everything necessary to begin teaching the program right away and 
    includes take-home booklets and other resources for participants. 
    FDIC has worked with the Department of Labor (DOL) to connect 
    financial institutions with locally-based employment service 
    centers (One Stop Centers) around the country and encourage joint 
    efforts establishing financial education as a service regularly 
    available to the public. FDIC began providing the Money Smart 
    curriculum to banks, One Stop Centers and other interested parties 
    in July 2001. By the end of 2001, the FDIC had received nearly 
    5,000 orders for Money Smart, including nearly 2,000 from banks and 
    over 400 from credit unions.
    The FDIC Consumer News, which is published quarterly, features a 
    range of articles on personal finance topics, such as credit card 
    use and identity theft. This publication is disseminated widely to 
    approximately 60,000 subscribers. In addition, the FDIC has 
    arranged to make copies of articles of interest that may have broad 
    national appeal available through the Consumer Information Center 
    in Pueblo, Colorado.
    As part of the Financial Services Education Coalition, the FDIC 
    helped write and publish ``A Comprehensive Guide for Community 
    Educators.'' The guide, which was issued in 1999, is used by 
    community educators with a variety of audiences who do not have 
    accounts with financial institutions or who need basic 
    information about how to use accounts.

 The Securities and Exchange Commission: The Securities and 
    Exchange Commission (SEC) provides public information on the 
    fundamentals of investing and 
    investment products. The SEC provides information that is balanced 
    and neutral 
    regarding securities markets and the types of investment products 
    available to 
    average investors. In addition, the SEC works to ensure that its 
    documents 
    and the documents of the companies that it regulates are easily 
    readable by typical investors.

 Department of Defense: Many military credit unions work with 
    local commanders to provide personal financial education for 
    military personnel.

 Neighborhood Reinvestment Corporation: Neighborhood 
    Reinvestment has developed a financial education program that is 
    implemented around the country by a network of local nonprofit 
    organizations as part of their community education efforts. The 
    program consists of 10 hours of workshops followed by individual 
    counseling to help participants learn and practice money management 
    skills; the program also includes a component for training 
    trainers. Six private sector partners have been recruited to 
    support the program. In the 12 months ending on 
    December 31, 2001, more than 1,600 participants graduated from the 
    program. Neighborhood Reinvestment and the FDIC are negotiating a 
    partnership to use their Money Smart curriculum.

                  PREPARED STATEMENT OF ALAN GREENSPAN

          Chairman, Board of Governors of the Federal Reserve
                            February 5, 2002

    I am pleased to be here this morning to discuss the importance of 
improving 
financial literacy and learning for consumers.
    Given the importance of accurate and timely information in the 
financial services industry, it is not surprising that this sector has 
benefited enormously from the innovative application of new 
technologies that have facilitated the development of a wide range of 
new financial providers and products. For consumers of household and 
business credit, computer and telecommunications technologies have 
lowered the cost and broadened the scope of financial services. As a 
consequence, we have seen a proliferation of specialized lenders and 
new financial products that are tailored to meet very specific market 
needs. At the same time, the development of credit-scoring tools and 
the securitization of loan pools holds the potential for opening doors 
to national credit markets for both consumers and businesses. In 
addition to technological advancement, deregulation has created 
important structural changes in the financial services industry and 
contributed significantly to creating a marketplace that is 
increasingly competitive and highly innovative as a result of the entry 
or expansion of new players.
    Throughout our banking history, we have seen significant 
adjustments made to existing policies to enable markets to respond to 
the demand for services. These structural changes have heightened 
competition, resulting in market efficiencies that continue to help 
drive down costs and foster the emergence of increasingly 
diverse and highly specialized organizations. Through these entities, 
which range from banks and brokerage firms that offer their services 
exclusively through electronically-based delivery mechanisms to 
locally-based public-private partnerships that provide counseling and 
financing arrangements to facilitate access to mortgage credit for low- 
and moderate-income families, consumers have increased access to a 
variety of credit and savings instruments. Corporations, for example, 
often allow employees to self-direct their investments in pension and 
other benefit plans, whereas employers dictated such decisions 20 years 
ago, and the advent of online brokerage firms has enabled individual 
investors to directly conduct stock transactions.
    For an increasingly complex financial system to function 
effectively, widespread dissemination of timely financial and other 
relevant information among educated market participants is essential if 
they are to make the type of informed judgments that promote their own 
well-being and foster the most efficient allocation of capital.
    However beneficial, constant change, of course, can be unsettling, 
and one challenge we face is overcoming such anxieties. But just as the 
rapid adoption of new information technologies has expanded the scope 
and utility of our financial products, so has it increased our means 
for addressing some of the challenges these changes pose. For example, 
just as universities provide remote learning options to allow students 
to pursue continuing education via the Internet, consumers can utilize 
software to create customized budgets to develop long-term savings 
strategies for retirement or their children's college education. In 
both scenarios, technological advances represent the opportunity for 
achieving efficiencies and exercising preferences, but only when the 
end users possess the knowledge of how to access pertinent information 
and how to capitalize on those choices.
    As in the workplace, fostering education that will enable 
individuals to overcome their reluctance or inability to take full 
advantage of technological advances and product innovation in the 
financial sector can be a means of increasing economic opportunity. As 
market forces continue to expand the range of providers of financial 
services, consumers will have more choice and flexibility in how they 
manage their financial matters. They will also need to accumulate the 
appropriate knowledge about how to use new technologies and how to make 
financial decisions in an informed manner.
    Indeed, surveys repeatedly demonstrate a strong link between 
education and the use of new financial technologies. For example, data 
from the Federal Reserve's 
Survey of Consumer Finances (SCF) suggest that a higher level of 
education significantly increases the chances that a household will use 
an electronic banking product. In particular, in 1998, the typical user 
of an electronic source of information for savings or borrowing 
decisions had a college degree--a level of education currently achieved 
by only about one-third of U.S. households.
    These most recent data from the SCF exhibit a mixed picture of the 
financial status of households, providing evidence that we need to 
reach out to those who have not been able to participate fully. For 
example, while the median real net worth for all families increased 
17\1/2\ percent between 1995 and 1998, this trend did not hold where 
the head of the household had a high school level of education or less, 
family earnings were less than $25,000 annually, or the ethnicity of 
the respondent was nonwhite or Hispanic. That families with low-to-
moderate incomes and minorities did not appear to fully benefit from 
the highly favorable economic developments of the mid-1990's is, of 
course, troubling, and the data from the 2001 survey that will be 
available later this year will warrant a detailed look. Through 1998 we 
found that families with incomes below $25,000 did increase their 
direct or indirect holdings of stock, and more reported that they had a 
transactions account. However, they were less likely to hold 
nonfinancial assets--particularly homes, which constitute the bulk of 
the value of assets for those below the top quintile according to 
income. At the same time, one encouraging finding from the survey is 
that the homeownership rate among minorities rose from 44 percent to 47 
percent between 1995 and 1998, and according to the Census surveys, the 
rate edged above 48 percent as of the fourth quarter of 2001. This 
trend may be a sign of improved access to credit for minorities.
    Other findings of the SCF through 1998 include the rise in 
families' median level of debt burden, financial stress (defined as 
debt payments that represent more than 40 percent of income), and 
incidence of late debt repayment. The findings showed increases in each 
of these categories across all income and age groups, with the highest 
levels of financial stress among households headed by people 65 and 
older and earning less than $25,000 annually. The recent evident rise 
in subprime loan delinquencies is of some concern in this regard.
    In considering means to improve the financial status of families, 
education can play a critical role by equipping consumers with the 
knowledge required to make wise decisions when choosing among the 
myriad of financial products and providers. This is especially the case 
for populations that have traditionally been underserved by our 
financial system. In particular, financial literacy education may help 
to 
prevent vulnerable consumers from becoming entangled in financially 
devastating 
credit arrangements. In the quest to stem the occurrence of abusive, 
and at times illegal, lending practices, regulators, consumer 
advocates, and policymakers all agree that consumer education is 
essential to combating predatory lending. An informed borrower is 
simply less vulnerable to fraud and abuse. Financial literacy can 
empower consumers to be better shoppers, allowing them to obtain goods 
and services at lower cost. This effectively increases their household 
budgets, providing more opportunity to consume and save or invest. In 
addition, comprehensive education can help provide individuals with the 
financial knowledge necessary to create household budgets, initiate 
savings plans, manage debt, and make strategic investment decisions for 
their retirement or their children's education. Having these basic 
financial planning skills can help families to meet their near-term 
obligations and to maximize their longer-term financial well-being.
    While data to measure the efficacy of financial education are not 
plentiful, the limited research is encouraging. For example, a recent 
study by Freddie Mac, one of the Nation's largest purchasers of home 
mortgages, finds that homebuyers who obtain structured homeownership 
education have reduced rates of loan delinquency. Similarly, an 
evaluation conducted by the National Endowment for Financial Education 
on its high school-based programs found that participation in financial 
planning programs improved students' knowledge, behavior, and 
confidence with respect to personal finance, with nearly half of 
participants beginning to save more as a result of the program. Another 
Freddie Mac study of the relationship between financial behavior and 
financial outcomes revealed that comprehension of the general 
principles of sound financial behavior, such as budgeting and saving, 
is actually more beneficial in producing successful financial results 
over time than specific and detailed information on financial 
transactions.
    These findings underscore the importance of beginning the learning 
process as early as possible. Indeed, in many respects, improving basic 
financial education at the elementary and secondary school level is 
essential to providing a foundation for financial literacy that can 
help prevent younger people from making poor financial decisions that 
can take years to overcome. In particular, it has been my experience 
that competency in mathematics--both in numerical manipulation and in 
understanding its conceptual foundations--enhances a person's ability 
to handle the more ambiguous and qualitative relationships that 
dominate our day-to-day financial decisionmaking. For example, through 
an understanding of compounding interest, one can appreciate the 
cumulative benefit of routine saving. Similarly, learning how to 
conduct research in a library or on the Internet helps one find 
information to evaluate decisions. Focusing on improving fundamental 
mathematics and problem-solving skills can develop knowledgeable 
consumers who can take full advantage of the 
sophisticated financial services offered in an ever-changing 
marketplace.
    As I noted earlier, we have seen the marketplace respond to an 
increased demand for conceptual job skills by increasing the range of 
educational options available to individuals. We are also beginning to 
see similar efforts to provide consumers with information and training 
that will improve their knowledge about financial matters throughout 
their lives. For example, the U.S. military, in response to surveys 
that revealed that nearly one-third of enlisted service members 
reported moderate-to-
severe difficulty in paying bills, has mandated that all incoming 
enlisted personnel 
receive financial education.
    Some school systems have introduced financial management classes as 
part of their high school curricula and many employers are taking up 
the challenge as well. At the Federal Reserve Board, for example, 
interest in financial education prompted an employee committee to host 
a seminar on financial planning strategies, and our Consumer and 
Community Affairs staff recently hosted several well-attended 
educational programs for Federal Reserve employees, providing 
information on qualifying for a mortgage and managing debt. In fact, in 
conjunction with National Consumers' Week, today an additional employee 
seminar on budgeting is underway.
    Despite the existence and proliferation of numerous training 
programs offered by a wide variety of public, private, and nonprofit 
organizations, evaluation of the efficacy of such programs has just 
recently begun. A study commissioned and published by the Fannie Mae 
Foundation recommended that financial education programs equip 
consumers of all ages and across all socioeconomic groups with the 
ability to know when they need information, where they can find it, and 
how to apply it.
    The Federal Reserve also has a keen interest in measuring the 
effectiveness of financial literacy programs. For example, we hosted a 
forum highlighting best practices in credit education focusing on 
effective tools and techniques and identifying programmatic challenges 
and issues. More recently, we have included studies that evaluate the 
impact of such training initiatives in our call for papers for the 
Community Affairs Research Conference scheduled for the spring of 2003. 
Additionally, our Community Affairs and Public Information Offices have 
embarked on a national initiative to highlight the importance of 
financial literacy and heighten the visibility of economic education 
programs. Quantitative study of the quality and long-term success of 
education and training will be of particular interest to the Federal 
Reserve System, as we develop and distribute a wide variety of 
financial and economic literacy products.
    Both individually and through longstanding partnerships with a 
variety of local, regional, and national organizations, each of the 12 
Federal Reserve Banks and the Board provide extensive information on 
these topics to a wide range of audiences, including school-age 
children, low- and moderate-income families, and minority and immigrant 
populations. The scope of these activities ranges from the sponsorship 
of competitions on economic principles for high school students and 
workshops on homeownership and wealth-building strategies to the 
development of computer-based tools for understanding mortgage 
borrowing and creating household budgets and savings plans. The 
economic educators of the Federal Reserve System launched an 
interactive website offering students, educators, and the general 
public an introduction to the workings of the Fed and the Nation's 
banking system. The goal is to offer consumers a clearer picture of, 
for example, how the Federal Reserve's decisions influence the economy 
and consequently affect their monetary choices.
    In closing, let me simply reiterate that the pace of technological 
change and competitive pressures can only increase. These changes are 
affecting both financial and nonfinancial institutions around the 
world. We cannot know the precise directions in which technological 
change will take us, but as in recent years, the role of banks and 
other providers of financial services will surely be significantly 
affected by the same basic forces that guide the real economy. Building 
bridges between community organizations, our educational institutions, 
and private business will be an essential aspect of our efforts to 
increase familiarity with new technological and financial tools that 
are fundamental to improving individual economic well-being. And the 
success of such efforts will have a significant bearing on how well 
prepared we are to meet the challenges of an increasingly knowledge-
based economy.

                               ----------

                  PREPARED STATEMENT OF HARVEY L. PITT

           Chairman, U.S. Securities and Exchange Commission
                            February 5, 2002

    Chairman Sarbanes, Senator Gramm, and Members of the Committee, I 
am pleased to be here this morning to offer the Securities and Exchange 
Commission's perspective on financial literacy and education in today's 
securities markets. I am especially gratified, Chairman Sarbanes, that 
you and the Committee have taken the initiative to raise the visibility 
of this important issue that has only become more significant in light 
of recent events.
    Achieving financial literacy for all Americans has always been an 
important goal. With so many individuals and employees invested in our 
securities markets today, financial literacy is now not only important 
but also an essential goal. In my testimony today, I would like to 
offer some observations on the landscape of financial literacy and 
education from the SEC's perspective.
    As the events of last September demonstrated, our capital markets 
are the world's strongest and most resilient. Our markets are not 
located in any one building or city or place. Rather, they are networks 
of people and ideas and freedom. Thus, they are emblematic of our great 
Nation. Precisely for these reasons, all Americans should have the 
opportunity to participate in our markets. Financial literacy is a 
crucial foundation for participation. People need to be able to ``read, 
write, and speak'' basic financial concepts in order to make informed 
investment decisions.
    Beyond basic fairness issues, there are significant economic and 
social benefits of financial education. People of even modest means can 
realize financial security and all that it promises--such as buying a 
home and pursuing educational opportunities. As a society, we should 
want all Americans to have the opportunity and the ability to invest in 
our markets. Historically, investing in the market has resulted in 
returns superior to other savings strategies. Investment dollars help 
our Nation's businesses and economy grow stronger, and ensure that new 
and creative technologies have a chance to develop and flourish. Saving 
and investing enrich and bring stability to individuals and families. 
With the decline in defined benefit retirement plans and the concurrent 
rise in defined contribution plans, workers increasingly need to be 
able to evaluate investment options thoughtfully, in order to provide 
for their retirement security.
    We learned, in the wake of the Great Depression, when world 
economic forces caused precipitous and calamitous declines in equity 
market values, that investors are willing to commit their capital to 
our markets only if they have confidence that those markets are fairly 
and honestly run, are fully transparent, and affirmatively minimize the 
risk of loss from selective disclosure, fraud, and manipulation. The 
trust and faith investors place in our capital markets have fueled 
incredible economic growth, improved our collective standard of living, 
and made it possible for innovators to see their ideas come to 
fruition. The success of our markets has been due not just to their 
depth and breadth, but also to their quality and integrity.
    Our markets must be transparent and hospitable to all investors. 
Ours is a disclosure-based system. And it is our job to promote clear, accurate, and timely disclosures--proactively. Once investors are fully informed, we leave it to them to evaluate the merits of an investment. Of course, when investors are not fully informed--when they are misled--it 
is our job to prosecute the wrongdoers. The Federal securities laws police fraudulent, deceptive, and manipulative conduct. Vigorous and timely enforcement of these provisions plays a critical role in ensuring market transparency. Where investor interests are being disserved or abused, we 
seek to take immediate action to halt violative conduct and then undo its effects. Aggressive enforcement helps prevent continued fleecing of the 
investing public. It publicly identifies wrongdoing, which helps 
educate investors about that particular fraud, as well as raise public 
awareness of the kinds of schemes and pitfalls out there. Vigorous 
enforcement punishes wrongdoers, stamps out recidivism, and deters 
future misconduct. It also prevents the dissipation of investor assets. 
Our goal is to protect investors and we will pursue securities law 
violations and financial fraud aggressively. But an educated investor 
is the first defense against fraud.
    Educating people about how to manage their money effectively and 
achieve retirement security demands participation on all levels: local, 
State, and national. Public-private partnership is essential. This is 
the same approach that our country has taken to promote literacy, 
itself the first step toward achieving financial literacy. The Federal 
Government can play an important role in achieving financial literacy. 
First, it can stimulate localities and the private sector to initiate 
financial education. People learn locally--through schools, workplaces, 
newspapers and other media, and religious organizations.
    The Commission works with numerous public and private organizations 
to foster educational programs. For example, we have provided 
curriculum material for the Department of Agriculture's Cooperative 
Extensive Service to include in their financial education course--which 
is widely distributed. We are an active member of the ``Jump$tart 
Coalition,'' a public-private partnership that seeks to foster youth 
financial literacy education. We also partner with the American Savings 
Education Council (ASEC), a public-private partnership devoted to 
increasing investor education. Our staff has given presentations to 
countless schools, religious organizations, and investor clubs, 
explaining basic investing concepts and answering questions. Our staff 
also hosts ``Investor Town Meetings'' across the United States, 
bringing together industry, Federal and local government officials to 
educate investors on basic financial concepts.
    Government can play a second critical role in the national 
initiative of financial literacy by providing investors and potential 
investors with neutral, unbiased information on saving and investing. 
We have worked with industry trade groups and other Federal and State 
regulators to produce an extensive array of educational material 
directed at helping people make wise investment choices and avoid 
fraud. We hand out and mail brochures on how to interact with financial 
professionals, on Internet investing, and many other topics. We do not 
copyright our materials. In fact, we encourage the private sector and 
other Federal and State regulators to copy and use them. Private 
entities frequently ask us for bulk shipments to hand out to customers. 
Many foreign regulators have, with our active encouragement, taken our 
material and adapted it for their investing audiences.
    One example of the many informational brochures we compile to 
educate investors is called ``Analyzing Analyst Recommendations.'' Our 
alert discusses the potential conflicts of interest analysts face and 
provides tips for researching investments. 
Analysts often use a variety of terms--buy, strong buy, near-term or 
long-term accumulate, near-term or long-term over-perform or under-
perform, neutral, hold--to describe their recommendations. But they 
rarely urge investors directly to sell the stocks they cover. Working 
with the Congress and the securities industry, we are on the threshold 
of new rules that will create more transparency for analyst 
recommendations. As a general matter, investors should not rely solely 
on an analyst's recommendation when deciding whether to buy, hold, or 
sell a stock. Instead, they should also do their own research--such as 
reading the prospectus for new companies or for public companies, the 
quarterly and annual reports filed with the SEC--to confirm whether a 
particular investment is appropriate for them in light of their 
individual financial circumstances.
    We post all of our educational material on our website, and we have 
taken advantage of the Internet to create interactive tools to help 
inform people's investment decisions. For example, we created a mutual 
fund cost calculator, which allows investors to compare the costs of 
holding different mutual funds over a period of time that they specify. 
We also have an extensive tutorial on the use of margin, which includes 
a calculator for assessing the true costs associated with a margin 
account. We have an interactive quiz to ``test your money smarts,'' and 
an interactive question-and-answer database, through which investors e-
mail us questions. We generally reply to these e-mails within two 
business days.
    The Internet has emerged as a major source of investment leads for 
many Americans, rivaling the old ``water cooler'' chats of a different 
era. We have all witnessed the willingness of otherwise thoughtful 
people to believe what they read on unverified websites, in unregulated 
chat rooms, and through claims of sure things by individuals who 
probably were (or could have been) snake oil salesmen in prior lives. 
Investors become easy prey for cyberspace sharpshooters who spread 
disinformation, or use their virtual pulpits to promote their ability 
to sell their own holdings at a profit. Unfortunately, there always 
will be people who allow dreams of untold wealth to distort their 
better judgment. So, we have redoubled our efforts to arm investors 
with the information they need to invest wisely.
    Recently, we began a major new initiative to post fake scams on the 
Internet similar to those that fraudsters successfully use to separate 
investors from their hard-earned money. We took this step in order to 
bring our educational information to the screens of Internet users who 
have not tapped the wealth of educational material located on our 
website. The fake scams are all modeled on ``real'' scams from cases we 
have brought. In this initiative we are working with State securities 
regulators, foreign regulators, other U.S. Government agencies such as 
the Treasury and the Federal Trade Commission, the National Association 
of Securities Dealers and trade associations to bring educational 
messages to those investors who click on our sites in search of 
unrealistically high returns.
    Last week, we announced that we had created the fake scam site, 
www.mcwhortle.com. The McWhortle site graphically illustrates what we 
have been telling investors for years:

 If it sounds too good to be true, it is.

 ``Guaranteed returns'' aren't. Most fraudsters spend a lot of 
    time trying to convince investors that extremely high returns are 
    ``guaranteed'' or ``cannot miss.''

 Check out the company before you invest. Look at financial 
    statements. Find out if the company has ever made any money. And by 
    the way--if a supposedly upright firm only lists a P.O. box, as 
    McWhortle did, you will want to do a lot of work before sending 
    your money!

 If it is that good, it will wait. Scam artists usually try to 
    create a sense of 
    urgency--implying that if you do not act now, you will miss out on 
    a fabulous opportunity. But if you are being pressured to invest, 
    especially if it is a once-in-a-lifetime, too-good-to-be-true 
    opportunity that ``just cannot miss,'' just say ``no.''

 Understand your investments. Fraudsters frequently use a lot 
    of big words and technical-sounding phrases to impress you. But 
    have faith in yourself ! If you do not understand an investment, do 
    not buy it.

 Beauty is not everything. Do not be fooled by a pretty 
    website--they are remarkably easy to create.

    The sole out-of-pocket cost of this educational project was $50 we 
spent to register the McWhortle domain name. We have had more than a 
million hits on the site thus far. We think this is a low-cost, high-
impact way to reach potential investors. Crooks figured out a long time 
ago how to best separate people from their money. Our website 
graphically illustrates fraud to investors, so that the next time they 
encounter a ``real'' scam, they will know what it is they are dealing 
with. We have always thought that an educated investor is our best 
defense against fraud. This initiative is helping educate investors.
    The response from the public has been overwhelming. These are 
representative responses that we have received about the site:

    ----------------------------------------
        Fantastic!!! This is an excellent idea for reaching exactly the 
        audience that needs this warning. Congratulations are in order 
        for the individuals responsible for this imaginative 
        communications concept.
    ----------------------------------------
        WELL DONE!
        VERY NECESSARY AND VERY WELL DONE!
        Thank you for your efforts, I have forwarded the initial link 
        to all of my e-mail friends.
        NICE TO SEE TAX DOLLARS WELL SPENT!!!
        YOU SHOULD CONTINUE WITH OTHER TYPES/VERSIONS OF THE SAME UNTIL 
        YOUR MESSAGE IS RECEIVED BY ALL
    ----------------------------------------
        This is an excellent idea. Kudos for creative thinking.
    ----------------------------------------
        Dear SEC,

        Thank you for this clever exercise in public education. I was 
        alerted to your site from an author on Realmoney.com . . . just 
        wanted to see how effective it might be in attracting gullible 
        investors.

        Good luck with all that confronts you; I appreciate your 
        efforts in attempting to protect the public from unscrupulous 
        scoundrels.
    ----------------------------------------
        Very clever and helpful--I know there are a ton of people whose 
        eyes will be opened by this.
    ----------------------------------------
        Great site, great lesson--I saw the story on Reuters about how 
        the site was created to educate investors. I hope you keep the 
        site up as I would like to point to it in a business class I 
        talk at each quarter.
    ----------------------------------------

    The McWhortle site was launched with the assistance and support of 
the Federal Trade Commission, the National Association of Securities 
Dealers, and the North American Securities Administrators Association. 
We have other fake scams out there as well. The Treasury Department has 
partnered with us on one of them, a ``Prime Bank'' fraud. Scotland Yard 
has also joined forces with us.
    Beyond educating investors, we are also looking to improve the 
quality of information they receive. Confidence in our markets begins 
with the quality of the financial information investors use to decide 
where to invest their hard-earned dollars. Comprehensible information 
is the lifeblood of strong, vibrant markets. Our current disclosure 
system is the best in the world. However, as more and more Americans 
are entering our markets and making increasingly difficult investment 
decisions that 
affect their lives, savings goals, and retirement security, we need to 
ask whether we have done the best job possible in making financial 
statements and other disclosures timely and understandable to all 
investors. Are we meeting investors' needs?
    In his State of the Union Address, the President appropriately 
demanded ``stricter accounting standards and tougher disclosure 
requirements.'' He wants corporate America to ``be made more 
accountable to employees and shareholders and held to the highest 
standard of conduct.'' The SEC shares and embraces these principles, 
and we are firmly committed to making them a reality. As part of the 
President's Working Group on Financial Markets, we are working with 
Secretary O'Neill and Chairman Greenspan, as well as Chairman Newsome 
of the Commodity Futures Trading Commission, to conduct a full review 
of corporate disclosure rules. The SEC is ready to develop and 
implement reforms. We are firmly committed to improving corporate 
disclosure and assuring that the accounting profession functions 
properly, fairly, and in the public interest.
    In all of our investor education materials, we advise people to 
``do their homework,'' by which we mean primarily looking at the SEC 
filings of a company in order to evaluate whether it is a good 
investment. It is tremendously important for investors to be able to 
understand and evaluate the information that the SEC requires issuers 
to make available. A critical step toward enhancing national financial 
literacy is to make more intelligible and more timely the financial 
data we require issuers to file. We need to rethink our financial 
disclosure model, with an eye toward simplifying it so that everyone can understand the fundamentals of every company and find absolute 
comparability from firm to firm. This task has become increasingly 
critical as more and more individuals become direct participants in our markets and face increasingly difficult investment decisions that affect 
their lives, savings goals, and retirement security.
    Our existing disclosure system must be strengthened, and 
supplemented, in order to put information into investors' hands more 
promptly, and help investors. Several attributes are clearly required 
if we are to enable all of our citizens to identify the opportunities 
that abound in our marketplace, and to avoid the pitfalls that lurk 
behind every opportunity.

 Supplementing periodic disclosure with ``current disclosure.'' 
    In the system we envision, public companies will be required 
    affirmatively to disclose unquestionably significant information 
    when it arises and becomes available, even if the information is 
    learned between scheduled periodic reports.

 Making use of technology to simplify disclosure documents 
    without sacrificing the wealth of information companies are 
    accustomed to supplying, and without unduly disadvantaging those 
    investors who lack Internet access.

 Encouraging the use of so-called ``trend'' information, to 
    give investors the same kind of view of the companies in which they 
    invest as is available to the managers of those companies.

 Making financial information comprehensible to the average 
    investor.

    We are committed to making disclosures more meaningful, and 
intelligible, to average investors. We are soliciting broad input. This 
May, the Commission will hold its first ever ``Investor Summit'' to 
solicit investor input on the policy issues that confront us as we 
begin reforming our disclosure and financial reporting process.
    The SEC in essence has a two-fold task ahead of us: first, 
improving corporate disclosure and strengthening financial accounting 
and reporting standards; and, second, raising our national 
consciousness so that investors fully understand the importance of 
researching investments before buying. Firefighters drill into school 
children the mantra of ``stop, drop, and roll.'' We need to convince 
people to ``stop, read, and think.'' To the extent that we can improve 
the clarity of what investors read, we will succeed in improving 
financial literacy in America.
    There is no magic ``bullet'' that will accomplish our financial 
literacy goals. No one program will reach all groups. No one 
organization can do it all. Financial literacy for all can be 
accomplished only with enthusiastic cooperation by all. We look forward 
to continuing to work closely with this Committee and others to advance 
financial literacy in America.
    I am happy to try to respond to any questions the Committee may 
have.








        RESPONSE TO WRITTEN QUESTIONS OF SENATOR AKAKA 
                      FROM ALAN GREENSPAN

Q.1. Chairman Greenspan, in your statement, you mentioned the 
need for building bridges between our educational institutions, 
private businesses, and community organizations to increase 
familiarity with new technological and financial tools that are 
fundamental to improving individual economic well-being. What 
are your recommendations to facilitate the building of such 
bridges?

A.1. Dialogue among educational institutions, private 
businesses, and community organizations to identify shared 
objectives is an important first step. It can facilitate the 
building of bridges among parties interested in promoting 
financial literacy and in increasing consumers' familiarity 
with new technological and financial tools. Successful 
partnerships and cross-sector collaborations can in turn offer 
an effective means for addressing what often are complex 
issues, by helping the parties to leverage resources, bring 
different perspectives together, and expand the reach of the 
initiative's participants.
    The Federal Reserve System both participates in and 
convenes such partnerships and collaborations through the 
System's Community Affairs Offices, which regularly sponsor 
meetings for and conduct outreach to a broad base of groups. 
These activities foster information sharing and have resulted 
in the formation of important linkages that have led to the 
development and implementation of effective strategies.
    The Federal Reserve System has played a role, for example, 
in a number of partnerships that address financial literacy. In 
Cleveland, the Federal Reserve Bank was a key player in 
developing and implementing ``Cleveland Saves,'' a pilot 
program for the Consumer Federation of America's ``America 
Saves'' campaign. This initiative, which is being replicated in 
Kansas City, Charlotte, and Philadelphia, enlisted the help of 
local business, sports, government, religious, and community 
leaders to increase financial literacy and savings on a city-
wide basis.

Q.2. I have had several constituents contact me inquiring how 
changes in the Federal funds rate relates to the interest rates 
that they pay on their credit cards and mortgages. Although I 
have been pleased that they have contacted me for information 
and I have provided them with an explanation, this reveals to 
me a need for a greater understanding of the real life 
implications of the activities of the Federal Reserve. How can 
we better educate the general public about the activities and 
significance of the Federal Reserve?

A.2. The Federal Reserve System has actively promoted economic 
education and better public understanding of the roles of the 
Federal Reserve System for many years, utilizing a variety of 
vehicles. Most recently, the economic educators of the Federal 
Reserve System developed and launched (in September 2001) an 
interactive website, www.FederalReserveEducation.org, that 
offers students, educators, and the general public an 
introduction to the workings of the Federal Reserve System. The 
site's tutorial, FED101, covers a wide array of topics 
including the Federal Reserve's history, its structure, and its 
functions in the areas of monetary policy, banking supervision, 
and financial services. Interactive graphics and a series of 
quizzes and self-tests make it easy for visitors to the site to 
understand the Federal Reserve's role in the U.S. economy and 
how it carries out its many duties. The website links to a 
multitude of other resources on the Federal Reserve and to 
general economic education materials offered by the System (as 
well as linking to other relevant external organizations). One 
such linkage is to In Plain English, an easy-to-read guide to 
the structure and functions of the Federal Reserve System 
developed by the Federal Reserve Bank of St. Louis. This 
brochure can be accessed on the Bank's website, 
www.stls.frb.org, and is also available in print form.
    Other resources include the Board's publication, Purposes 
and Functions of the Federal Reserve System. It provides an 
overview of the Federal Reserve System, including a discussion 
on the goals and implementation of monetary policy and on the 
international and domestic roles of the Federal Reserve. The 
publication is accessible at www.federalreserve.gov. That 
website also features a Publications and Education Resources 
section that links to other informational tools on the Federal 
Reserve and on general economic concepts.
    In addition, many of the Reserve Banks provide 
instructional material and support to classroom teachers in 
their Districts through conferences and workshops, special 
newsletters, and tours of Reserve Bank facilities. One example 
is ``Fed Challenge,'' a multilevel national competition for 
high school students designed to increase understanding of the 
Federal Reserve's role in setting U.S. monetary policy; to 
develop research, cooperation, presentation, and critical-
thinking skills of students; and to promote economic literacy 
and interest in economics.
    More generally, the Consumer Affairs Offices also provide 
insight into the Federal Reserve's role in fostering community 
economic development through their outreach, technical 
assistance, and other informational activities.

Q.3. As you indicated in your statement, the Federal Reserve is 
interested in measuring the effectiveness of financial literacy 
programs. I look forward to reading the papers that will be 
presented at the Community Affairs Research Conference 
scheduled for the spring of 2003. What has the Federal Reserve 
learned thus far about the effectiveness of financial 
education?

A.3. Available data for measuring the efficacy of financial 
literacy are, regrettably, not plentiful. Some research has 
been conducted by organizations that have been directly engaged 
in offering or funding training for the public. Generally, the 
resulting data show a positive relationship between formal 
financial education and improved financial conditions. For 
example, research by the National Endowment for Financial 
Education among high school students identified a positive 
correlation between participation in basic personal finance 
training and the students' knowledge, behavior, and confidence 
relating to managing finances. Data reported by the Cooperative 
Extension System on its ``Money 2000'' initiative indicate that 
80 percent of respondents affirmed that the program improved 
their financial situation through increased savings or 
decreased debt. A study conducted by Freddie Mac showed that 
prepurchase homeownership counseling contributed to reduction 
of delinquency rates by over a third.
    The Federal Reserve has not conducted research on the 
effectiveness of financial literacy. But the Board does take 
great interest in understanding consumer finances, and conducts 
the Survey of Consumer Finances (a triennial survey) to gain 
insight into the financial and demographic characteristics of 
U.S. families. These data provide an important research tool 
for identifying trends relating to consumers' use of financial 
services. Other survey work that is currently in progress will 
collect data on consumers' learning preferences and information 
sources which may be helpful in designing and marketing 
financial literacy materials.

               STATEMENT OF THE NATIONAL ASSOCIATION OF 
                         FEDERAL CREDIT UNIONS

Introduction
    The National Association of Federal Credit Unions (NAFCU) is the 
only national organization exclusively representing the interests of 
the Nation's Federally chartered credit unions. NAFCU is comprised of 
nearly 1,000 Federal credit unions--
financial cooperatives from across the Nation--that collectively hold 
approximately 62 percent of total Federal credit union assets; NAFCU 
represents the interests of approximately 24 million individual credit 
union members. NAFCU, and the entire credit union community, 
appreciates the opportunity to participate in this important discussion 
about financial illiteracy.

Financial Literacy and Personal Savings are Intertwined
    NAFCU and our member credit unions know that financial illiteracy 
is an issue that touches all Americans--at every age and income level. 
Intertwined with financial literacy is personal savings. The Nation's 
personal savings rate is slumping and personal savings rates are at 
their lowest level in nearly 40 years. Large numbers of Americans 
habitually spend instead of save. Credit unions know that saving is a 
matter of choice and that the most important factor in long-term wealth 
accumulation is the act of saving itself. NAFCU is proud to be 
proactively involved in promoting financial literacy and personal 
savings in America. NAFCU President/CEO Fred Becker's first major 
speech before the credit union community in September 2000 addressed 
the need to increase the personal savings levels of all Americans.
    Many credit unions have special programs to educate their members 
and assist them in achieving their savings goals. These programs not 
only teach their members about saving, but also assist them in becoming 
more financially literate. We want to tell you about just two such 
success stories.

McCoy FCU: Teaching Youth about Money and Savings
    NAFCU member McCoy Federal Credit Union, located in Orlando, 
Florida, is the only community credit union in Central Florida. It has 
assets of $235 million and serves the borrowing and saving needs of 
about 55,000 members. In September 1993, McCoy FCU began a ``Youth 
Savings Program'' to teach young people about saving and to give them 
incentives to encourage them to save. This program reaches future 
generations by establishing at an early age a meaningful relationship 
or ``link'' between them and their financial institution--a credit 
union.
    The Youth Savings Program is set up in two age groups 5-10 years 
and 11-17 years, with appropriate incentives targeting these two very 
distinct age groups. A Youth Savings Brochure, available to credit 
union members and potential members, explains eligibility based on 
McCoy FCU's field of membership. The brochure is often the first 
exposure many young people have to financial terms, providing 
definitions of such terms as saving, deposits, interest, withdrawals, 
and balance, as well as a savings register and I.D. card. It also 
explains savings goals and includes ideas of how students might obtain 
the money to put into their savings accounts, that is piggy bank, 
birthday, allowance, chores, good grades, or jobs.
    When a young person joins McCoy FCU's Youth Savings Program and 
opens an account for $5-$99, they receive several items appropriate to 
their age designed to encourage savings and to help them measure their 
progress in meeting their savings goals. McCoy FCU waives the $5 credit 
union membership fee for the young people who join, and there are no 
fees associated with Youth Savings Program accounts. To encourage their 
active participation and savings, young people earn various gifts when 
they attain savings goals of $100, $250, $500, $750, and $1,000.
    The program continues educating young people as they mature from 
their teenage years to young adulthood. Upon reaching 18 years of age, 
the participants receive a letter telling them that while they are no 
longer eligible for McCoy's Youth Savings Program, as fiscally 
responsible ``graduates'' of the Youth Savings Program they can now 
take full advantage of the many other services that McCoy FCU has to 
offer. The letter then proceeds to introduce them to other services 
that McCoy FCU offers its members, such as Share Draft Accounts.
    In order to effectively reach out to all segments of the community 
and educate its young people about, and get them involved with, the 
Youth Savings Program, McCoy FCU spreads the word in a number of ways:

        1. Various youth organizations (i.e., YMCA).
        2. Partners in Education (Orange County School System).
        3. Presentations at local schools and church youth groups.
        4. Sponsorship of youth programs.
        5. Word of mouth.
        6. McCoy Financial Planner Newsletter.
        7. Brochures in the credit union's lobbies and new accounts 
        areas.

    McCoy FCU's program has successfully prepared thousands of young 
people to successfully manager their financial affairs. As of May 31, 
2001, McCoy FCU's Youth Savings Program had 4,589 members representing 
8.3 percent of the credit union's total membership with savings 
totaling $3,176,587.

Promoting Financial Literacy in San Antonio
    San Antonio City Employees Federal Credit Union (SACEFCU), which 
serves government employees in San Antonio, has about 32,000 members 
and $175 million in assets. SACEFCU was asked to prepare and teach 
basic financial courses for the San Antonio's Adult Basic Education and 
GED Preparation Program. The credit union was a logical choice for 
implementing this program because of the depth of financial knowledge 
and experience of its dedicated staff. The credit union, in turn, 
availed itself of information and assistance offered by a resource 
knowledgeable about financial education: the National Endowment for 
Financial Education (NEFE), a nonprofit foundation committed to helping 
Americans gain the skills and knowledge needed to control their 
personal finances.
    SACEFCU adopted an educational curriculum initially developed and 
made available by NEFE. The curriculum includes courses on financial 
planning, cash now, spending and savings, credit and debt management, 
insurance needs, savings and investments, homeownership, and small 
business opportunities. The credit union also made use of instructional 
materials provided by the NEFE without charge. SACEFCU's financial 
literacy program is free, and the knowledge imparted via the curriculum 
is supplemented by guest appearances by area professionals and experts.
    The first class taught by SACEFCU was a pilot program comprised 
primarily of people training to become literacy teachers themselves. 
Twelve trainers and eight students have graduated from the pilot 
course, taught entirely by SACEFCU.
    SACEFCU realized that by committing itself to educating more people 
to become financial literacy trainers and teachers, they could more 
effectively promote financial literacy among its members and the San 
Antonio community at large--spreading the word of financial literacy. 
As a result, SACEFCU hosted a one-day ``train the trainer'' course for 
24 city of San Antonio county agencies and private industry trainers. 
Eventually, with the financial literacy program well developed and 
solidly underway in San Antonio, SACEFCU stepped back with the city 
taking over the 
financial literacy classes.
    Having been well established under the auspices of SACEFCU, the 
financial literacy course is now offered in a number of literacy 
centers in San Antonio throughout the year. Meanwhile, SACEFCU has 
maintained an active role in the advancement of the financial literacy 
program it conceived by periodically monitoring and auditing the 
classes. The city of San Antonio is very willing to share the 
curriculum for this program with others who share their interest so 
that other cities can benefit from San Antonio's experience as they 
develop their own financial literacy courses.
    Realizing that true financial literacy and healthy saving habits 
are best fostered among the young, San Antonio has now enlisted SACEFCU 
to do for the city's children what it has already done for the city's 
adults: develop an age-appropriate financial education course. The 
credit union is now working on creating such a financial information 
program to teach local elementary school children about financial 
literacy and help foster an appropriate awareness of the value of 
money.

Conclusion
    These examples of what credit unions are doing to promote financial 
literacy and savings are just two of many. Credit unions in every State 
regularly work with their members to educate them on financial matters, 
to increase their financial literacy, and to promote their personal 
savings. Credit unions by their nature have a special relationship with 
their members--one that has put credit unions on the front line in 
fighting financial illiteracy for years. Credit unions are in NAFCU's 
view critical partners in implementing any national strategy promoting 
financial literacy and education. NAFCU and the Federal credit union 
community stand ready to work with you as we move forward together.














                  THE STATE OF FINANCIAL LITERACY AND
                          EDUCATION IN AMERICA

                              ----------                              


                      WEDNESDAY, FEBRUARY 6, 2002

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.

    The Committee met at 10:05 a.m. in room SD-538 of the 
Dirksen Senate Office Building, Senator Paul S. Sarbanes 
(Chairman of the Committee) presiding.

         OPENING STATEMENT OF CHAIRMAN PAUL S. SARBANES

    Chairman Sarbanes. Let me call this hearing to order.
    Today, we hold our second hearing on the state of financial 
literacy and education in the United States. We are very 
pleased to have such a distinguished panel of witnesses, all of 
whom bring significant expertise on this subject.
    I think, as most people know, we began our exploration of 
this issue yesterday, when we heard from Treasury Secretary 
O'Neill, Federal Reserve Board Chairman Greenspan, and SEC 
Chairman Pitt. Their testimony underscored the urgent need for 
improved 
financial education in the United States. In fact, one witness 
observed in response to the Committee's questions, the problem 
of financial illiteracy in this country is one of ``epidemic 
proportions.''
    Each of the agencies who testified yesterday are actively 
engaged in efforts to improve Americans' financial 
understanding, and I commend them for their commitment to this 
issue, and they are all developing additional initiatives.
    Of course, as I noted yesterday, financial illiteracy is 
not a magical solution that will solve all the problems 
consumers face in making financial decisions. We obviously need 
a framework within which these activities take place that 
provide strong legal protections, vigorous enforcement, and 
best practices on the part of industry.
    Nonetheless, financial education can go a long way toward 
preparing consumers to make decisions that will be in their 
long-term financial interest. As was noted yesterday, the 
costly consequences that inadequate financial education can 
have, includes such difficulties as: increased reliance on the 
high-cost fringe financial sector by those who find themselves 
closed out of mainstream banking institutions; predatory 
lending, when people are persuaded to borrow on terms they do 
not fully understand and cannot afford; the accumulation of 
dangerous amounts of credit card and household debt; the 
inability for people to save, to build a nest egg; and the 
inability to plan for a secure retirement.
    I indicated yesterday that I think we need a national 
strategy to bring the public and private sectors together to 
address this problem of financial illiteracy. The commitment of 
yesterday's witnesses to improve financial education gives me 
some confidence that we can undertake increased coordination 
and cooperation on this issue at the highest levels of the 
Federal Government.
    Today, we will hear from representatives of the private and 
nonprofit sectors, as well as a from State government. We had 
far more requests to testify than we could accommodate. And 
frankly, I am gratified that there are so many organizations 
and groups working on this issue. It is a testament to the 
growing awareness of the importance that financial literacy 
plays in helping people make the financial choices necessary to 
give them the opportunity to succeed in our society.
    The panel before us today covers a broad spectrum of issues 
related to financial literacy and education, from school-aged 
children to young people who are handling credit for the first 
time, first-time mortgage borrowers, right up to those who are 
trying to save enough for retirement. I believe the testimony 
we will receive this morning will help to inform the 
development of a national strategy to address this issue and we 
look forward to working with each of you in the weeks ahead as 
we try to make progress on this issue.
    Before I turn to our panel of witnesses, I will yield to my 
colleague, Senator Gramm.

                STATEMENT OF SENATOR PHIL GRAMM

    Senator Gramm. Mr. Chairman, let me thank you for these 
hearings. I dedicated 12 years of my life as a college 
professor in trying to deal with economic and financial 
illiteracy. I was blessed to have very good students, but it is 
still an uphill battle. And they were in a position where they 
knew that I was going to ask the material on the test and they 
were going to have to explain to momma if they did not know the 
answer.
    I think this is a very important undertaking. Obviously, 
today, we are talking about the budget in the Budget Committee, 
of which we are both Members. We are talking about tax 
provisions in the budget in the Finance Committee. Both of 
these things are more 
immediate.
    But in terms of the long-term, the functioning of a system 
that is primarily based on individual decisionmaking and the 
freedom of people to do things right or make mistakes needs to 
be conditioned by people who have a certain level of 
understanding about finance.
    I think it is fair to say that, from my mother on back 
probably to Adam and Eve, no one in my family ever owned any 
financial instrument, other than a Government savings bond or a 
savings 
account.
    Today, it is common for young people to have 401(k)'s, 
retirement programs, IRA's, Roth IRA's. There is intense 
competition in the letting of mortgages, a high reward for 
competitive shopping in many areas of financial services. I 
think the better job we can do in getting knowledge and 
developing a knowledge base in society, the better off we will 
be.
    I just want to say that I am very pleased that Denise 
Crawford, who is our Securities Commissioner, is here today 
from Texas. Also, I am very happy today that we have two of my 
favorite colleagues from my service in the House, Susan 
Molinari and David Dreier, with us.
    Mr. Chairman, Senator Miller and I are going to have to go 
over, we are introducing an amendment at 10:30 a.m. So, we are 
going to stay until then and then we will run over. If we can, 
we will come back. But, again, thank you very much for coming.
    Chairman Sarbanes. Thank you.
    Senator Miller.

                 COMMENT OF SENATOR ZELL MILLER

    Senator Miller. I have no statement.
    Chairman Sarbanes. Senator Akaka.

              COMMENTS OF SENATOR DANIEL K. AKAKA

    Senator Akaka. Mr. Chairman, I want to thank you, too, for 
holding this hearing on financial literacy. And I want to thank 
the witnesses for appearing today, and look forward to their 
testimony.
    In the wealthiest country in the world, we must increase 
the ability of citizens of all ages and backgrounds to manage 
their resources, participate in the workforce, make wise 
investments, and become better informed about public policy. 
All Americans need to have the necessary skills and information 
to prepare for a secure financial future.
    The current economic recession highlights the importance of 
financial literacy. American families are now facing an 
enormous amount of financial stress. The Department of Labor 
reports that 7.9 million Americans were unemployed in January. 
These unemployment statistics do not include those whose hours 
and pay have been reduced. In Hawaii, bankruptcy filings for 
the third quarter of 2001 were 20 percent higher than in 2000.
    It is obvious that financial stress is not solely caused by 
lack of financial literacy. There are many factors that can 
cause financial difficulty, including the bankruptcy of an 
employer or a reduction in tourism due to the September 11 
terrorist attacks. However, having or knowing how to acquire 
financial knowledge can prevent or reduce the consequences of a 
difficult financial situation. Increased education about basic 
economic concepts will help people to make better financial 
decisions and increase opportunities for participation in 
today's global economy.
    Today's hearing will feature organizations on the front 
line of financial education. Mr. Chairman, I am looking forward to 
your recommendations, their recommendations, and the Committee's 
recommendations on how we can increase financial literacy.
    Thank you very much, Mr. Chairman.
    Chairman Sarbanes. Thank you, Senator Akaka. We very much 
appreciate your efforts in this area.
    I am first going to recognize Congressman David Dreier, who 
has come over from the House to introduce his former colleague, 
Susan Molinari. We are very pleased to have Congressman Dreier 
with us. He actually has taken the lead on this very issue in 
the House of Representatives. He is the author of H.R. 61, the 
Youth Financial Education Act, which was a comparable piece of 
legislation to the proposal put forward by Senators Corzine, 
Akaka, and Enzi, who have played an important role in this 
area, and others.
    That legislation authorizes grants to support financial 
literacy programs for students in grades K through 12, as well 
as developing a national clearinghouse for model programs and 
best practices. And actually, important aspects of that 
legislation were 
included in the recently-passed education legislation.
    So, we are making some progress step by step here. And 
David, we very much appreciate your being with us. We would be 
happy to hear from you.

                   STATEMENT OF DAVID DREIER

               A U.S. REPRESENTATIVE IN CONGRESS

                  FROM THE STATE OF CALIFORNIA

    Representative Dreier. Thank you very much, Mr. Chairman, 
and Senators Gramm, Miller, and Akaka. Let me say that you are 
right on target, Mr. Chairman, when you said that you have so 
many requests for witnesses. The panel is even spilling over on 
the dais here.
    [Laughter.]
    So this is an issue which I believe is very important and 
you have really covered my testimony in talking about the 
legislation that I, Senators Akaka, Corzine, and Enzi have 
worked on. And also the fact that we were able to include this 
very important language in H.R. 61.
    I think that when Senator Gramm mentioned the fact that 
issues like the budget that we are dealing with are 
extraordinarily timely, I think this is a very timely issue as 
well because with the mention of 401(k)'s, we know that there 
are a couple of hearings taking place on both sides of the 
Rotunda dealing with 401(k)'s. And when you think about the 
fact that we want to ensure that young people are in a position 
that they can make the best decision possible when it comes to 
their retirement and all kinds of other things, looking at 
education in this area is something that is critically 
important.
    I do not know if there were U.S. Savings Bonds when Adam 
and Eve were investing, Phil, but the fact is, if you look at 
the fact that today----
    Senator Gramm. That is big enough, you would think there 
were.
    [Laughter.]
    Representative Dreier. Exactly right. There may have been.
    [Laughter.]
    The fact of the matter is, if you look at the number of 
choices and options that are out there today versus the time 
that your mother was simply investing in those savings bonds, 
it seems to me that the need for this kind of education is even 
more important.
    And that is why I am very pleased that we have seen so many 
organizations step forward and, from my perspective, there is 
no one more important in this effort than Susan Molinari. As 
you said, Phil, she served with us in the House of 
Representatives. But she has also taken a lead role as the 
National Chairperson for the Americans for Consumer Education 
and Competition. And as the mother of two young daughters, she 
wants to ensure that they make all kinds of plans to take care 
of her in retirement, I am sure. So, she wants to make sure----
    Ms. Molinari. As well as that guy I am married to, too.

    [Laughter.]

    Representative Dreier. Yes, exactly, because he has very 
expensive taste, we know, as well.

    [Laughter.]

    So making sure that the kind of education that is out there 
is very important. Susan has done a wonderful job in stepping 
forward and offering the kind of public presentation that is 
needed for this issue. I am very pleased that she has done 
that. I am going to have to go back to the other side of the 
Capitol, but I have taken a look at the testimony and will look 
forward to seeing the testimony of all of you. And I suspect 
that you have other panels as well here that you are offering, 
Paul.
    I really applaud the fact that you have focused on these 
many, many different organizations that are committed to this 
goal, and I thank you for including me.
    Chairman Sarbanes. Thank you very much, Congressman Dreier, 
for coming over, and we look forward to continuing to work 
closely with you on these issues.
    We will hear first from Susan Molinari. I will move across 
the panel. And I think what I will do is introduce each person 
as the time comes for your testimony. That way, we can link the 
introduction with the person, instead of doing it all up front 
in the beginning. As Congressman Dreier said, Susan Molinari is 
the National Chairperson of Americans for Consumer Education 
Competition, which was established 2 years ago to promote 
financial literacy in education among young people, directly 
the subject that we are concerned about, as well as to raise 
awareness among educators and legislators on the importance of 
financial education. The ACEC does a national survey of high 
school seniors, as I understand it, and I guess we will hear a 
bit about what that survey shows, but it is not very 
encouraging news.
    Susan, we are delighted to hear from you. Thank you very 
much for coming today.

                  STATEMENT OF SUSAN MOLINARI

                      NATIONAL CHAIRPERSON

        AMERICANS FOR CONSUMER EDUCATION AND COMPETITION

    Ms. Molinari. Thank you so much, Chairman Sarbanes.
    In his absence, let me begin by thanking Congressman Dreier 
for his kind introduction. I must emphasize that Congressman 
Dreier's efforts to improve financial literacy among our young 
people have gone back many years, including a piece of 
legislation he cosponsored with Congressman Earl Pomeroy, where 
they really got out in front in talking about this problem 
beginning in the 105th Congress, where he introduced a House 
Resolution Expressing Support for Personal Financial Literacy 
Programs and culminating with this year's passage, as you all know, 
with the No Child Left Behind Act.
    Congressman Dreier, as well as everyone sitting with the 
Senators around this distinguished dais were very instrumental 
in ensuring that the No Child Left Behind Act included full 
funding of the financial literacy programs. This legislation 
earmarks $5 million specifically for financial education. And I 
commend all of you for that particular accomplishment.
    Chairman Sarbanes, Ranking Member Gramm, Senators Miller, 
Akaka, as you know, I am Susan Molinari, Chairperson of the 
Americans for Consumer Education and Competition. I want to 
thank you for this opportunity to testify and participate in 
this very important dialogue to improve our Nation's financial 
literacy.
    I would also like to recognize in particular Chairman 
Sarbanes for his leadership in initiating these hearings and 
helping to elevate the dialogue on financial literacy.
    At a time when we do focus on the economic problems of our 
Nation, individually or collectively, I was very excited to 
come forth today and spend some time, not only in examining the 
problems, but also putting forth solutions. Obviously, 
educating the public, as you said, Senator Gramm, to make the 
right decisions or providing them with the best information to 
make their own decisions, is one way that we can make sure that 
some of these mistakes are not made in the future.
    Teaching our young people to manage their finances should 
be as much a part of their curriculum as teaching them math or 
grammar. It is a subject that will affect them throughout their 
lives and will impact their ability to purchase a home, raise a 
family, and prepare for retirement.
    Let me digress just for a minute to say that I am honored 
to be part of this board presentation here today where so many 
people sitting here and sitting in the audience have spent a 
significant portion of their lives working and promoting 
financial literacy.
    And while I am honored to appear always before the U.S. 
Senate, I must admit that I am a little bit nervous because I 
am sitting two seats next to a former president of the college 
that I attended. When I was at the State University of Albany, 
Patrick Swygert was President. And so, one can imagine when you 
are a freshman or sophomore in college, if you ever thought you 
were this close to the president of your university, you were 
about to get kicked out of school.
    [Laughter.]
    So, I am delighted to now be sitting very close to Patrick 
Swygert and to work closely with him and to hear about his 
partnership with Freddie Mac that is also going a long way 
toward improving financial literacy in this country.
    As we said, financial literacy forms the foundation that 
supports such American Dreams as homeownership and secure 
retirement. Sound financial skills are crucial to avoiding the 
pitfalls that result in many of our citizens, but particularly 
young people, getting into financial hot water or becoming 
victims of charlatans who prey 
oftentimes, as you correctly stated, on the financially 
illiterate. Quite simply, being financially literate is 
essential to controlling rather than being controlled by one's 
financial circumstances in life. And as Federal Reserve Board 
officials have pointed out, mastery of these financial ABC's by 
consumers is essential to the smooth and efficient functioning 
of our free market economy.
    These hearings bear witness to the fact that you and your 
colleagues, Mr. Chairman, share the view of many of us in the 
financial community, that the sweeping education bill which 
President Bush recently signed into law is the beginning and an 
important first step, a downpayment, if you will, toward the 
financial education accounts of our Nation's young people.
    Let me at this time also thank and recognize Senator 
Corzine for the leadership that he has taken in making sure 
that this provision was championed in the Senate and passed, 
along with Senators Enzi, Akaka, Jeffords, Harkin, Kennedy, 
and, of course, Senator Sarbanes. Chairman Boehner of the House 
Education Committee, along with Congressmen Dreier and Pomeroy 
led the House.
    Now let me just begin my official testimony by asking the 
five most frequently-asked questions when we talk about 
financial literacy programs for younger people.
    First, how bad is the problem? Well, let's look quickly at 
the bottom line. Here's a study that caught my eye 2 years ago 
when we were first forming ACEC. It was a 1999 study done by 
the National Council of Economics test of basic economic 
principles.
    Adults received a 57 average grade. High school students 
scored 48 percent. Half of the adults and two-thirds of the 
students did not know at that time that the stock market 
provides a venue for people to buy and sell stocks. Now, I bet 
that number has gone up a little bit, but that is kind of an 
amazing statistic to know that occurred in 1999. Less 
surprising is the statistic that says that only 54 percent of 
adults and 23 percent of students knew that when Government 
spending exceeds its revenue, a deficit is created, a test I 
think many on Capitol Hill would not do so well on these days.
    ACEC should add to this data, as you said, and we reported 
last year with a survey in which we surveyed over 800 high 
school seniors and juniors basic economic principles. Eighty-
two percent failed that survey. We tested them on real life 
questions such as interest rates, loans, et cetera. Now that 
plays out in real life because it is not just surveys. 
According to Norton Bankruptcy Law Advisor, over a 10 year 
period, from 1991 to 2001, individuals between the ages of 25 
to 34 declaring bankruptcy rose from 417,000 to 464,000.
    Second, now that we have established that there is a 
problem, why are we suggesting that these problems be solved at 
the blackboard rather than at home by their parents? While we 
may be great parents, ladies and gentlemen, we are not great 
investors and we are not great savers.
    Fifty-six percent of U.S. households have failed to save 
enough for retirement. Fifty-three percent of Americans report 
that they oftentimes live paycheck to paycheck. And remember that 
first Lou Harris poll that I cited--parents, as well as their 
teenagers flunked that test. Moreover, a VISA USA survey 
revealed that 81 percent of parents want their children to get 
solid finances taught in schools because they want their 
children better prepared to manage their finances than they 
were and they are.
    Third, should we ask our teachers to assume one more 
responsibility in preparing our children for the future?
    I would answer that as we raise the next generation to be 
successful don't we have an obligation to train them to deal 
responsibly with that success? For when they are not adequately 
taught, retirement plans are not funded, medical plans are not 
paid, bankruptcies are absorbed by consumers one way or the 
other and our economy is overall negatively impacted.
    Fourth, do financial literacy courses work?
    Students, like those at Woodrow Wilson High School's 
Academy of Finance here in the District of Columbia, offer 
insights into the value of personal financial classroom 
instruction. Whereas just 146 of the 801 seniors taking ACEC's 
2001 personal financial quiz were able to achieve a passing 
grade, all of Woodrow Wilson's 12th graders passed. They did so 
after just one semester of personal finance instruction that 
included everything from borrowing money all the way to estate 
planning.
    Similarly, the National Endowment for Financial Education's 
High School Financial Planning Program made a significant 
difference in the financial skills of students taking that 
course work. A survey of teens who completed this program found 
that nearly half knew more about credit cards and nearly two-
fifths knew more about investments. The knowledge gained also 
brought important behavioral changes in the teens. Nearly two-
fifths improved their skills for tracking spending, and nearly 
half began to save or began saving more. More importantly, 
teens taking the Financial Planning Program retained what was 
taught to them and used their practices in their daily lives.
    Let me also just say on this subject, when we went into 
these classrooms, it not only took the valedictorian and made 
them good financial planners. What it did was it took kids that 
I talked to who said, you know what? They were about to fail 
junior year and senior year math. Then, all of a sudden, their 
teacher said, let's look at that loan you want to take for the 
car of your dreams. Let's start to take the college 
applications that you are going to have to fill out. All those 
people who want to join a gym. Let's look at the financial 
programs that they have for them. The math all of a sudden had 
tremendous relevance to the children that were learning it and 
they picked it up and they ran with it.
    You know what it did? It gave them power. It was no longer 
just a class about math or applied science. It gave them power, 
oftentimes, for children in very powerless situations.
    Teachers can incorporate financial literacy curriculum into 
their applied math or economic courses right now by accessing 
the Internet. The ACEC website contains a course prepared by 
Professor Howard Black who was formerly of Howard University 
and now at the University of Tennessee that can be downloaded 
for use in the classroom.
    I know that Project Jump$tart always has their websites 
filled with curriculum. And the truth is, Senator, when I 
travel, the people that I talk to referring to the public-
private partnerships that you referred to in your opening 
statement, no matter where I go to speak on behalf of financial 
literacy, people who are investment counselors, retired 
bankers, raise their hand and say--I would love to be a part of 
training my community because I have seen what happens to this 
community when the wrong decisions are made. So, you are right. 
There is a wealth of people out there who know the mistakes 
that have been made and are anxious to get into the classrooms 
to help the teachers.
    Fifth, can we afford to teach financial literacy courses? 
Of course the answer is, we cannot afford not to. The poet e.e. 
cummings once said: ``I am living so far beyond my income that 
we may also be said to be living apart.'' That might be funny 
were it not for the fact that too many Americans have the same 
relationships with their financial life, myself included. 
Working together to improve the financial literacy of our young 
people we can reunite consumers and their income so that they 
may live comfortably and productively under the same roof.
    Chairman Sarbanes, thank you for the great honor of giving 
me the opportunity to testify before you all this morning.
    Chairman Sarbanes. Thank you very much, Susan. It is very 
helpful testimony.
    We have been joined by Senator Corzine, who has, of course, 
played a very important role in moving these efforts forward. 
Jon, do you have a statement?

               COMMENTS OF SENATOR JON S. CORZINE

    Senator Corzine. I have one, but I would rather listen to 
the witnesses.
    Chairman Sarbanes. I want the witnesses to know what a 
great deference that is to the witnesses.
    [Laughter.]
    Senator Corzine. I believe that they can make the case that 
we have a lot of work to do here to bring financial literacy to 
our children, to adults in full life experience. And I think it 
is terrific that you all are here and I thank you very much and 
look forward to hearing your testimony.
    Chairman Sarbanes. Very good.
    We will now hear from Steven Brobeck, who is the Executive 
Director of the Consumer Federation of America. CFA has been 
actively involved in educating consumers about financial 
matters. It has been an invaluable resource for anyone with an 
interest in the many ways in which Americans, particularly low-
income Americans, become entangled in unfavorable or abusive 
financial transactions.
    We very much appreciate Mr. Brobeck being with us. 
Actually, Steve, I understand you were on ABC's nightly news 
last night on this issue with reference to yesterday's hearing. 
So, we are trying to raise, obviously, the profile of this 
issue and see if we cannot get a national commitment to it. We 
would be happy to hear from you.

                  STATEMENT OF STEVEN BROBECK

                       EXECUTIVE DIRECTOR

                 CONSUMER FEDERATION OF AMERICA

    Mr. Brobeck. Thank you very much, Mr. Chairman, Members of 
the Committee.
    CFA greatly appreciates the opportunity to discuss the 
financial education needs of lower-income adult Americans, 
effective ways to meet these needs, and the role of the Federal 
Government in this education. These needs are so pressing 
because the poor and near-poor have few financial resources to 
waste, but relatively poor skills in managing these resources. 
Most of some 35 million households with incomes under $25,000 
have net financial assets excluding home equity of less than 
$1,000.
    Yet, they tend to be charged high prices because of their 
economic condition, where they live, and their low literacy 
levels. Because these households often lack basic reading and 
math skills, they frequently have difficulty conducting 
effective product searches and they also tend to be vulnerable 
to seller abuses.
    Individuals who do not understand percentages, for example, 
may have difficulty learning the costs of mortgage and consumer 
loans. Those who read poorly may not be able to check whether 
the oral promises of sales persons are written into contracts. 
And those who do not write fluently are limited in their 
ability to resolve problems by writing to sellers or to 
complaint agencies. And then consumers for whom English is a 
second language face special challenges obtaining good value in 
their purchases.
    Over the past decade, the financial vulnerability of lower-
income Americans has increased simply because of the greater 
availability of credit. During the 1990's, credit card debt 
rose from about $200 billion to more than $600 billion, and 
unused bank card credit lines to more than $2 trillion.
    Just the fact that most recent Chapter 7 bankrupts have 
incomes well under $30,000, and that credit card debts that 
approach these incomes, indicates that the growing availability 
of credit cards to lower-income households confers financial 
risks as well as benefits.
    In the same period, the expansion of subprime mortgage 
lending and high-cost small loans marketed largely to lower-
income households, also increased their financial 
vulnerability. This vulnerability cannot be reduced without 
effective financial education. In our view, there are five 
important characteristics of this education.
    First, it must seek to change behavior, not just improve 
knowledge. Effective financial education must help ensure that 
consumers adequately apply the knowledge that they learn.
    Second, effective financial education must include 
attractive, useful knowledge that is relatively easy to apply. 
The knowledge that can be communicated most easily and 
effectively to large numbers of adults who are unlikely to 
return to the classroom after they leave school takes the form 
of relatively short, simple messages containing built-in 
motivators about how to meet financial needs and attain 
financial wants.
    Third, effective education must address values, as well as 
knowledge. Most importantly, it should raise basic questions 
about the role and value of consumption in people's lives.
    Fourth, this education must provide chances to learn by 
doing, as well as by studying. It should include opportunities 
to participate in the marketplace through actual and simulated 
experiences.
    Fifth, effective financial education should be part of a 
comprehensive national plan for increasing the financial literacy 
of all Americans. Unfortunately, at present, many worthwhile 
financial education programs do not reflect any broad, 
compelling vision and reach only a small minority of the 
population.
    We need a comprehensive plan, in our opinion, with the 
following elements. A rigorous assessment of financial 
education needs. Identification of those populations with 
especially pressing needs. Evaluations of existing programs to 
develop the most promising strategies for meeting these needs. 
A campaign to organize broad social and political support for 
these strategies. And finally, continuous evaluation of the 
successes and failures of these strategies.
    In our view, only the Federal Government has the concern, 
the objectivity, and the resources to effectively lead the 
development and implementation of such a plan. We recommend as 
a first step that it initiate a major study of the Nation's 
financial education needs and the most effective strategies for 
meeting these needs. We also suggest that the study considers 
the feasibility of a separate U.S. Office of Financial 
Education that could undertake new research and test new 
programs.
    In closing, we would echo what you said yesterday, Mr. 
Chairman, that while financial education is needed to reduce 
the financial vulnerability of lower-income Americans, this 
education by itself is not sufficient. It must be coupled with 
effective consumer and investor protections. Only a sensible 
combination of financial education and regulation can help 
ensure that consumers manage, spend, borrow, and save their 
money adequately.
    Thank you.
    Chairman Sarbanes. Thank you very much. We appreciate that 
statement.
    Next, we will hear from Patrick Swygert, President of 
Howard University, who is speaking on behalf of the 
Historically Black Colleges and Universities.
    Yesterday, it was mentioned in our hearing that 78 percent 
of U.S. college students have at least one credit card, and 
many of them graduate with thousands of dollars of credit card 
debt.
    The number of bankruptcies amongst those 18 to 24 years has 
gone up--it has doubled in less than a decade. Recognizing 
students' need for guidance on managing the responsibility that 
comes with having a line of credit, Dr. Swygert and other 
leaders of the Historically Black Colleges and Universities 
have been in the forefront in improving financial literacy 
among college students. So, we are very pleased to hear from 
you, sir.

                STATEMENT OF H. PATRICK SWYGERT

                  PRESIDENT, HOWARD UNIVERSITY

                     APPEARING ON BEHALF OF

          HISTORICALLY BLACK COLLEGES AND UNIVERSITIES

    Mr. Swygert. Chairman Sarbanes, thank you very much for 
this opportunity, and Members of the Committee, Senators Dodd, 
Corzine, and Akaka, thank you so much as well.
    My name is Patrick Swygert and as Chairman Sarbanes has 
indicated, I have the privilege of being President of Howard 
University, and also the privilege of being a former President 
who had the opportunity to share some time at the State 
University of New York at Albany with one of our most 
distinguished graduates, Congresswoman Susan Molinari.
    Chairman Sarbanes. You were certainly a privileged college 
president to have her in your student body.
    Mr. Swygert. Yes, indeed.
    [Laughter.]
    Mr. Chairman, I would like to submit for the record my 
written statement and highlight one or two items that are found 
therein.
    Chairman Sarbanes. Your full statement will be included in 
the record.
    Mr. Swygert. Thank you. Mr. Chairman, as you indicated, 
Howard University and the Consortium of Historically Black 
Schools and Colleges have worked very, very hard and, indeed, I 
believe, are in the forefront of dealing with one of the great 
challenges confronting American college-age students. Namely, 
their use and, far too often, misuse, of credit cards.
    Let me say at the outset, however, Mr. Chairman, that if 
used responsibly, credit cards allow students to build up 
credit histories that facilitate increased access to credit in 
the future.
    However, if college students have not learned financial 
management skills in their secondary education, or from their 
parents, and if they misuse their credit cards or mismanage 
their credit card debt, the disadvantages far outweigh any 
supposed advantages.
    In order to protect students from unnecessary debt 
accumulation, all learning institutions, Mr. Chairman, have an 
obligation to promptly educate such students on credit card 
consumer debt and the dangers of credit card debt.
    Howard University is already addressing the national 
financial literacy problem as it relates to African-Americans 
and to other 
minorities.
    In partnership with Freddie Mac, Howard and four other his-
torically black colleges and universities--Benedict College, 
Clark Atlanta University, Florida A&M University, and St. Augustine's 
College--are participating in the CreditSmart program, which 
seeks to develop a comprehensive, classroom-based consumer 
education curriculum for college students.
    Students are provided with an overview of credit and credit 
management; insight as to how lenders access credit histories; 
and the key steps to achieving financial goals. The 
curriculum's mission is designed to increase financial literacy 
by enhancing successful life-long money management skills.
    This morning, Mr. Chairman, I am accompanied by the 
Director of that program, the CreditSmart Project, Manager and 
Professor of Finance at Howard University, Dr. Debby Lindsey. 
Also, I am accompanied by our Senior Vice President for 
Government Relations, Dr. Hassan Minor, who has been 
instrumental as well, and his staff assistant, Mrs. Andrea 
McIntosh.
    Now, Mr. Chairman, we have found, in cooperation with 
Freddie Mac and our other partners, that what we characterize 
education for financial literacy as indeed, very hard work. No 
one should believe that simply attending a seminar or two, or a 
program or two, or an awareness session or two, will imbue 
students, whether they be middle school students, high school 
students or college students, with the necessary intellectual 
wherewithal to manage their way through the welter of financial 
instruments and opportunities available to them. It is hard and 
intensive work.
    I think these hearings are terribly important inasmuch as 
they underscore both the intensity of the issue and also the 
need for a national strategy to address it.
    We have a number of other strategic partners, Mr. Chairman, 
that I would just like to mention, if I may, before concluding 
my remarks at this phase of the hearing. Namely, we have a 
relationship with our strategic partner, the Fannie Mae 
Foundation, which has developed a personal finance initiative 
that Howard is participating in as well.
    In addition, we are well aware of, and we certainly support 
the National Urban League, the Coalition of Black Investors' 
Investment Education Fund, and the Investment Institute 
Education Foundation, for the role that they are playing in 
seeking to raise awareness of these issues within the African-
American community in particular.
    We also take this opportunity to acknowledge a program 
entitled, ``Are You Credit-Wise?,'' a program funded and 
sponsored by MasterCard which provides a financial education 
program on a peer-to-peer basis. At Howard University, indeed, 
we have two student interns, Ms. Marsha Ann Brown and Ms. 
Stella Stiles, who are involved in this peer-to-peer counseling 
which is also so terribly important.
    Mr. Chairman, again, thank you so very much for this 
opportunity to share these brief remarks with you and I look 
forward to any questions you may have.
    Thank you, sir.
    Chairman Sarbanes. Thank you very much. And your full 
statement will be included in the record.
    We have been joined by Senator Dodd and I will yield to him 
if he has any statement.

            COMMENTS OF SENATOR CHRISTOPHER J. DODD

    Senator Dodd. First of all, Mr. Chairman, just to apologize 
for being a bit late, but we had a hearing on long-term care 
for the elderly, a joint hearing this morning, and I apologize 
for getting up here late.
    Susan, welcome back to familiar territory to you. And to 
all of the witnesses here.
    Thank you all very, very much.
    Chairman Sarbanes. Thank you very much.
    Senator Dodd. Thank you, Mr. Chairman. This is a very 
important set of hearings. As we mentioned yesterday, Senators 
Corzine and Akaka, I know that a lot more attention is being 
paid to a very specific case, the Enron case. But in a sense, 
what we are doing here may have more to do in the long-term--
with addressing some of the underlying problems here than many 
other things we may suggest. So, I am very grateful to the 
Senator from Maryland and Senator Corzine and others who have 
really made education in this area such an important point.
    Chairman Sarbanes. The Committee will turn its attention to 
Enron beginning next week with a series of hearings.
    We had originally scheduled this hearing on financial 
literacy for September 20. We had Chairman Greenspan, Chairman 
Pitt, and Secretary O'Neill as our witnesses. Of course, we had 
the events of September 11. So the focus of that hearing 
shifted off to whether we could get our markets up and 
functioning again and get back into action. We then scheduled 
the hearings for yesterday and today. I was determined we were 
going to carry through with them.
    There is always something, the hot topic of the moment, 
that can divert you off. And we will go to that issue, as I 
said, next week. But we very much wanted to move ahead on this 
schedule. And those on this panel have been very gracious in 
arranging their schedules so that we could bring you all in at 
the same time. This is a long-term issue, but we intend to stay 
with it and see if we can't make a difference.
    Next, we will hear from Don Blandin, who is the President 
of the American Savings Education Council. ASEC is a leader on 
the issue of retirement saving. It has focused on public 
awareness about saving through ads, public events, national 
surveys, such as the 2001 Retirement Confidence Survey. Their 
work actually becomes even more essential when we consider that 
the largest generation in history is set to start retiring at 
the end of this decade.
    Mr. Blandin, thank you for coming. We would be pleased to 
hear from you.

             STATEMENT OF DON M. BLANDIN, PRESIDENT

           AMERICAN SAVINGS EDUCATION COUNCIL (ASEC)

    Mr. Blandin. Thank you, Mr. Chairman. I am pleased to join 
you for your second day of hearings.
    I was in this same building yesterday for your other 
hearings and found it was very interesting and even had an 
opportunity to give a several minute summary on CNN this 
morning, since they seem to be interested in this topic as 
well.
    I am Don Blandin, President of the American Savings 
Education Council, a coalition of public- and private-sector 
organizations that promotes financial education to adults and 
to children. We believe that coalition-building, the public- 
private-sector partnerships, are the key to increasing 
financial literacy in the United States.
    Within ASEC, we are bringing together a large and diverse 
group of institutional representatives from various sectors who 
may not always sit at the same table, but have discovered that 
they share a common goal and can help educate more Americans by 
leveraging each other's networks and resources.
    I will not address the need for financial literacy and 
financial education, since that is well-documented and was 
highlighted during yesterday's hearing with prominent Government 
leaders. Rather, I would like to highlight several examples of best 
practices and encourage others to benefit from and, in some 
cases, replicate these efforts.
    As background, here are some key findings from a national 
field study recently done by the Institute for Socio-Financial 
Studies and commissioned and supported by the Fannie Mae 
Foundation.
    Financial education is most often provided by communities, 
by employers, by faith-based organizations, and within the 
military, the study found. The most recently taught topics are: 
Budget and money management, saving and investing, credit and 
debt, 401(k) investing, and how to pay for school and health 
care, health care being a very important growing issue.
    The biggest challenges that program leaders and managers 
face in these programs are having enough resources to run the 
program, inexperience in reaching out to different cultural 
groups, and being able to attract or expand the program to 
reach even more participants than they currently do, a comment 
that I think echoes the concern of Steven Brobeck. What helps a 
program to be successful?
    The study found that a clear mission statement, targeted 
outreach, adequate resources, successful evaluation and follow-
up, measurable results, essentially, easy access to the 
program, a relevant curriculum, and what they called dynamic 
partnering.
    The issue of retirement savings and financial education has 
long been a policy concern in Congress and some Members of this 
Committee helped to enact the 1997 Savings Are Vital To 
Everyone's Retirement Act, also known as the SAVER Act. As 
mandated by the SAVER legislation, the first White House and 
Congressional summit on retirement savings was held in 1998, 
and the second summit is scheduled later this month on February 
27, here in Washington.
    In my written testimony, you will see the results of a 
Delphi survey conducted to evaluate ideas generated by the 1998 
summit delegates on ways to help Americans better save for 
retirement and become more financially secure.
    The top five financial education ideas that came out of 
that process include:
    Educate people about the benefits of starting to save 
early.
    Educate people about the cost of retirement, including the 
increasing costs of health care.
    Encourage the use of payroll deductions.
    Develop financial curriculum for high schools and colleges.
    Provide simple, easy-to-use information on retirement 
savings.
    These were some of the top recommendations coming out of 
the Delphi study of the first White House and Congressional 
summit.
    The Emmy award-winning Choose To Save' financial 
education campaign was cited in 1998 by summit delegates as the 
type of campaign that should be conducted throughout the 
Nation. Today's national Choose To Save' program, 
underwritten by Fidelity Investments in the Washington, DC 
market, includes ongoing news coverage and special programming 
through our DC media partners, WJLA-TV Channel 7, WGMS radio, 
and WTOP radio.
    In April, 2000, the Choose To Save' program 
hosted a forum on retirement security that brought together key 
representatives in the public, private, and nonprofit sectors 
to share expertise and best practices. The top six initiatives 
ranked by participants included:
    Creating a national media campaign to raise public 
awareness.
    Promote negative election as a default design feature.
    Promote consumer financial literacy in K-12.
    Promote financial planning tools and websites through the 
Social Security Administration's benefit statement mailings.
    Promote preservation/rollover through the use of waivers 
recognizing foregone future accumulations.
    Require automatic rollover of lump sums as a default design 
feature in retirement plans.
    In my written testimony, I go into detail about the 2001 
Parents, Youth & Money Survey, cosponsored by the Employee 
Benefit Research Institute, ASEC, Matthew Greenwald & 
Associates, and underwritten by the TIAA-CREF Institute.
    The findings of this and other studies support the 
important work of such organizations as the Jump$tart Coalition 
for Personal Financial Literacy, whose objective is to 
encourage curriculum in schools to ensure that every student 
graduates from high school with basic personal financial 
management skills.
    According to recent research by the National Conference of 
State Legislatures, only seven States currently include 
personal finance instruction in a required course. But there 
are some exciting new efforts, one of which was mentioned 
yesterday. There is a new learning tool called Money Math: 
Lessons for Life.
    The Treasury Department, the Jump$tart Coalition, and other 
partners have developed four free lesson plans that can be 
included in middle school math curriculum that teaches 
important personal finance skills to students in grades seven 
through nine, essentially those middle school students where I 
think it is very important to start, again, as early as you can 
on basic money management.
    America is the land of opportunities, but many Americans 
are opting out of their opportunity to build personal wealth by 
overspending, carrying excessive credit card debt, and not 
participating in their company's employment-based retirement 
plans.
    I urge employers that have not yet done so to join us in 
our mission to help educate their employees and other Americans 
about personal finance. And I leave you with five lessons I 
have learned over the years about public- and private-sector 
partnerships and coalition-building, as we are beginning down 
this road through these hearings.
    You should emphasize personal relationships.
    You should make sure that any alliance you form is a two-
way street.
    You should have patience.
    You should be flexible.
    And most of all, think big, since the purpose of a 
coalition is to accomplish something that no one entity could 
accomplish alone.
    Mr. Chairman, Members of the Committee, I thank you for the 
opportunity to speak with you today. I request that my full 
testimony be placed in the record and at the appropriate time, 
I would be glad to take questions or answer any written 
questions following the hearing.
    Thank you.
    Chairman Sarbanes. Thank you very much, sir.
    Next, we will hear from Tess Canja, President of the Board 
of Directors of AARP and who has visited with us before. We are 
pleased to have you back before the Committee.
    Many older Americans, particularly older women, are finding 
themselves ill-prepared to make the type of complicated 
financial decisions required of them in their later years. And 
as our hearings last summer demonstrated, the hearings on 
predatory lending, seniors are often targeted as victims for 
abusive loan terms and other devastating financial 
arrangements. We know that this is an issue in which AARP has 
interested itself for quite a period of time, and we would be 
happy to hear from you.
    Ms. Canja.

               STATEMENT OF ESTHER ``TESS'' CANJA

                        PRESIDENT, AARP

    Ms. Canja. It is so very good to be back. Thank you and 
good 
morning, Chairman Sarbanes, and distinguished Members of the 
Committee. I am, as you know, Tess Canja, President of AARP. 
And if I may, I would like to ask that my longer written 
statement be submitted for the record.
    AARP considers the work being undertaken by this Committee 
regarding financial literacy to be critical in its focus and in 
its timing. If there is a positive aspect of the Enron debacle, 
it is that we need to clearly understand the investment process 
and to protect fair play in it.
    The policy debate over the issue of Social Security and its 
benefits has provided additional focus regarding the risks of 
private investment.
    To be certain, developing effective financial literacy and 
services and programs should not be viewed by anyone as a 
substitute for clear and strong oversight and enforcement of 
investor protection laws and regulations. However, we see a 
need for a national strategy for making available well-
esearched and well-evaluated programs for financial literacy.
    AARP has long been active in conducting research and 
providing financial education and counseling services to our 
members. On the one hand, we have learned from an independent 
analysis of 1994 Health and Retirement Study data, prepared for 
AARP that low levels of savings and high levels of personal and 
real estate debt are serious problems for many households 
nearing retirement. On the other hand, there has been a 
sustained trend of great popular participation in the stock 
markets and an increasing reliance on these investments for 
retirement income.
    According to the Census Bureau, more than 28 million 
Americans over the age of 65 rely to some extent on investment 
income to meet their living expenses. Three quarters of older 
persons depend on investment income to meet 25 percent or more 
of their total income. This trend is likely to accelerate as 
the Baby Boomer generation ages and defined contribution 
pension plans replace 
defined benefit pension plans. These findings raise important 
policy questions about how to improve the financial literacy of 
all Americans.
    In 1998, AARP commissioned a national telephone survey of 
1,500 adults aged 18 and older. Four questions were asked to 
provide a general indication of the level of investment 
knowledge possessed by this sample of consumers. The specific 
questions asked are cited in my written statement. Among 
consumers under the age of 65, 12 percent answered all four 
questions correctly, while only 6 percent of the age 65 and 
over could do it.
    The growth in the proportion of Americans investing in the 
stock market appears not to be well supported by a 
corresponding knowledge about fundamental product features, 
charges and risks.
    In April 2001, AARP contracted for a study of persons age 
50 through 59 to gain more information about their interests in 
financial planning and management. Among the key findings of 
this unpublished survey, when asked about their level of 
confidence in a financially secure retirement, only 2 in 10 
respondents say they are either extremely or very confident 
that they will have enough money to live comfortably throughout 
their retirement years.
    When respondents were also asked to rate how important it 
was for them to learn about each of 22 different financial 
topics, more than 6 in 10 say Social Security, that the 
benefits are important to learn about. However, less than half 
as many consider knowing how much money they will need in 
retirement or about sources of retirement income as important 
topics to learn about. And less than 1 in 4 picked any of the 
other topics such as investment, savings, tax strategies, and 
interest in inheritance issues as being among the top five.
    In conclusion, the need and the demand for financial 
literacy programs and services will continue to grow. We look 
forward to working with you, Chairman Sarbanes, and Members of 
the Senate Banking Committee, on both fronts--strengthening 
investor protections and strengthening the investor.
    Thanks for this opportunity to testify today and I would be 
happy to answer any questions that you may have.
    Chairman Sarbanes. Thank you very much. Your full statement 
will be included in the record.
    We have been joined by Senator Stabenow, who has taken a 
keen interest in this issue. Debbie, did you have any comments 
that you wanted to make?

              COMMENTS OF SENATOR DEBBIE STABENOW

    Senator Stabenow. Well, thank you, Mr. Chairman. I would 
just welcome all of our guests that are with us today. And in 
particular, I would welcome Tess Canja, who has been with us 
before, who is a friend from Michigan. We go back some 25 
years, Mr. Chairman. I won't say how old we were then.
    [Laughter.]
    But it is a pleasure to have all of you here. I will have 
an opportunity and do have some questions that I would like to 
ask at the appropriate time.
    Chairman Sarbanes. Well, you both started out at an 
extremely young age in these public policy matters.
    Senator Stabenow. That is correct.
    [Laughter.]
    Chairman Sarbanes. That is my understanding.
    Next, we will hear from Raul Yzaguirre, President and CEO 
of the National Council of La Raza. As part of its campaign to 
improve economic opportunity for Hispanic Americans, La Raza is 

actively engaged in financial education efforts. And through 
its ex-
tensive work with community-based groups, La Raza is raising 
awareness of this critical issue.
    Raul, we are very pleased to have you with us. We would be 
happy to hear from you.

                  STATEMENT OF RAUL YZAGUIRRE

             PRESIDENT AND CHIEF EXECUTIVE OFFICER

                  NATIONAL COUNCIL OF LA RAZA

    Mr. Yzaguirre. Thank you, Mr. Chairman, for that very kind 
introduction and for this opportunity to speak here today on 
behalf of the National Council of La Raza.

    Before I begin, I want to thank you, Chairman Sarbanes, for 
helping make Raoul Campos a prospective nominee to the U.S. 
Securities and Exchange Commission.

    As you know, the National Council of La Raza is the largest 
Hispanic constituency-based organization. We have been working 
for many years in an effort to address the economic issues 
faced by Latino working families. An important element of this 
work is to explore the financial security of Latino families, 
which includes focusing on issues such as savings and 
investment, retirement security, pension coverage, 
homeownership, tax policy, and financial literacy.

    In light of this, I appreciate this opportunity to address 
you about how important financial literacy and education is to 
improving the economic status of Latino families in the United 
States.

    In recent years, it has become clear that the economic 
well-being and financial security of families is not simply 
predicated on one's income from work. Financial security today 
is defined by net worth or wealth of a family or a household. 
Thanks, in large part, to a vibrant financial services market, 
American families have become wealthier and more financially 
secure, even though their incomes have grown at a more modest 
rate.

    Unfortunately, as most Americans benefited from the 
economic boom of the 1990's, Latinos have been left behind. As 
Chairman Alan Greenspan mentioned yesterday, while the median 
family net worth of most families increased, the median Latino 
family net worth decreased in the 1990's. By 1998, the ratio of 
family net worth between Anglo-white families and Latino 
families was 27:1--that is, 27 times larger than the Latino net 
worth. Just as appalling, when home equity it taken out of the 
equation, we find that Hispanic families have a median 
financial wealth of zero. Just remember that this is despite 
increases in income and decreases in poverty for Latino 
families.

    This wealth gap exists due to many factors, including lack 
of knowledge and adequate information about the financial 
services industry and insufficient kinds of financial products 
to meet the distinct needs of Latino families.

    These barriers keep Latino families from becoming active 
participants in the financial market and in turn inhibit them from 
accumulating assets and reaching financial security. They can 
be addressed through financial education, which leads to a 
finally literate community. Improvements in financial literacy and 
financial education opportunities for Hispanic families are critical 
to financial security.

    It is eminently clear that our Nation's current and future 
economic security is increasingly dependent on the Latino 
community. Today, there are more than 35 million Hispanics in 
the United States mainland, and an additional 4 million 
American citizens on the island of Puerto Rico. One in eight 
Americans is Latino. We are more than one in ten workers and 
one in five students.
    The number of Hispanic-owned businesses has continued to 
rise dramatically and Latinos have a purchasing power that 
exceeds $450 billion annually. Latino financial well-being has 
benefits and the lack thereof has consequences for all 
Americans.
    Due to the lack of Latino participation in the financial 
services arena, the enormous potential that Latinos have to 
contribute to this country's economy is untapped.
    According to the Survey of Consumer Finances, in 1995, 
nearly one-third of Latinos did not have a basic checking or 
savings account, compared to just 13 percent of Anglo whites. 
The drawbacks to not owning a transaction account are manyfold. 
Your money is less secure and it does not accrue interest and 
you are subjected to check cashers and predatory lenders that, 
at the very least, charge exorbitant fees for their services. 
In addition, you do not have access to other services or 
products that are necessary for asset accumulation. How do we 
provide information about saving in beneficial ways for Latinos 
to access financial services?
    First, successful financial education programs have to be 
responsive to cultural nuances within the Latino community. 
This means that simply translating all materials into Spanish 
mostly fails to elicit the hoped-for response. Many Hispanics 
that need financial education were born in this country or 
speak fluent English.
    As you cited yesterday, Mr. Chairman, another issue that 
affects various Hispanic communities is remittances. Remitted 
money serves not only as an alternate form of savings, but also 
as a critical source of investment capital for countries that 
are often suffering economically.
    In 1999 alone, over $13 billion was wired from the United 
States to Latin America. However, one of our concerns is that 
those who remit money are paying too much for these services. 
Fortunately, there are increasingly more services available 
from credit unions and even some banks that will wire money 
abroad at a much more reasonable cost than traditional money-
senders. In addition, these services are more frequently being 
linked to savings or checking accounts in the United States, 
further encouraging participation in financial services.
    Second, effective financial education programs for Latinos 
link education to accessing a product or service, which 
provides strong incentives for Latinos to take time to attend 
classes and to ask 
questions.
    Third, successful education programs are delivered by 
groups that the community knows and trusts. Evidence suggests 
that for Latinos, the best vehicles for financial education are 
community-based organizations, or CBO's, that already have 
strong relationships with the community.
    I would like to highlight two noteworthy Federal programs 
that combine these elements: The Individual Development Account 
program, or IDA's, and homeownership counseling programs. The 
IDA program is a Federally-sponsored program that provides 
incentives for savings and asset accumulation among low- and 
moderate-income people by matching participants' savings. As 
part of this program, IDA accountholders must attend mandatory 
financial education classes, often provided by CBO's 
administering the IDA program. Preliminary data has been very 
promising. Latinos are not only getting educated, they are also 
saving more.
    Also, the Federally-sponsored homeownership counseling 
programs offer another model for effective financial education. 
A number of local NCLR affiliates provide prepurchase 
counseling, both to people who are ready to buy a home and to 
those who are just starting the process of saving for their 
first home. The education and assistance provided are effective 
for both groups because they are directly linked to achieving 
the goal of homeownership.
    All that being said, more information is needed about best 
practices and approaches to improving financial literacy. 
However, we do know that such measures are only useful insofar 
as they result in mature improvements in the asset level and 
financial security of Latino families nationwide. That is why 
we must have a national partnership among the Government, 
community-based groups, and advocates in the financial services 
industry. The Federal Government can tap into Latino economic 
potential by taking public policy measures to foster financial 
education efforts.
    The National Council of La Raza recommends expanding the 
existing IDA grant program to $500 million and including a 
clear 
intent to target such programs to serve more Latinos.
    As President Bush proposed in his fiscal year 2003 budget, 
NCLR also recommends expanding the homeownership counseling 
program to at least $35 million this year. Furthermore, 
creating initiatives that entice the financial sector to play a 
bigger role in providing services, education, and opportunities 
for underserved communities would do a great deal to reach 
millions of people and increase the Nation's financial 
literacy.
    Mr. Chairman, we will do our part. We are committed to 
serving the community by providing the financial education that 
under-
scores the importance of financial literacy and the 
opportunities 
it presents.
    Finally, the financial services industry has an important 
role as well. It should become more involved in financial 
education efforts by partnering with community-based groups. 
They should also create new products to meet the needs of 
Latino families. This will benefit Latinos, as well as the 
institutions themselves by building trust in the community and 
shaping future customers to be informed consumers.
    We all have a role to play in increasing financial 
literacy. It is important for the country that all Americans 
understand the financial market and that all Americans 
participate in it fully.
    I thank you for allowing me to speak here today and I look 
forward to working with you in the future to help make all 
American families financially secure.
    Thank you, Mr. Chairman.
    Chairman Sarbanes. Thank you very much.
    Our concluding panelist this morning will be Denise Voigt 
Crawford. Ms. Crawford is a Securities Commissioner for the 
State of Texas. Surveys have consistently shown that most 
Americans do not understand the basics of investing. Ms. 
Crawford has been actively involved in financial literacy 
programs and investor education programs in Texas.

    We are very pleased that she is here with us this morning. 
We would be happy to hear from you.

               STATEMENT OF DENISE VOIGT CRAWFORD

                 TEXAS SECURITIES COMMISSIONER

                  TEXAS STATE SECURITIES BOARD

    Ms. Crawford. Thank you, Mr. Chairman. I am delighted to be 
here among such good company. As I hear the speakers today talk 
about their programs and their goals, I am very impressed with 
what has been done so far.

    Chairman Sarbanes and Members of the Committee, 
unfortunately, despite these incredible efforts that have been 
made, these surveys that Ms. Molinari was discussing earlier 
show that we do continue to have financial and security and 
investment crisis in this country in terms of the level of 
financial literacy. And what does that mean to us?

    What it demonstrates to me is that what we are doing is 
great as far as it goes. But we have to do a better job of 
pinpointing those components of our society that can be reached 
most efficiently and work together to do that and motivate 
people to learn and collaborate and coordinate our efforts 
better.

    And so I commend you, Mr. Chairman, in having these 
hearings because I am hopeful that as we go forward, that is 
exactly what will happen.

    As you are probably aware from the testimony that you heard 
yesterday and your own experiences, everyone is decidedly 
concerned about the absence of financial literacy in the United 
States.

    One of the things that has been very interesting to us in 
Texas is the fact that not only have the securities markets 
grown, but also they have grown at such a tremendous pace. And 
now, the dollar volume in the Texas securities market outstrips 
the combined deposits in all banks, savings and loans, credit 
unions, and thrifts, all of those financial entities. And it 
far outstrips them.

    The Texas experience, to some degree, mirrors what is 
happening all over the United States. We just no longer live in 
the passbook savings community of our childhood. And you have 
heard repeatedly about the complex issues that come before U.S. 
citizens and other persons who are in our country.

    Without a basic financial education, investors are 
obviously less savvy. The securities industry has been very 
concerned about that. We have worked closely with the 
securities industry on joint projects, primarily through the 
North American Securities Administrators Association, of which 
all State securities regulators are members.

    The SIA has done an excellent job in trying to collaborate 
and reach out and it is really in the industry's best interest 
to do so because a savvy investor is much less likely to be 
disappointed in his or her investment. A savvy investor is much 
more appreciative of the inherent risk of the markets and is 
not so quick to assume that there is something about the 
markets that is somehow rigged or not right.

    With regard to other entities with which we have worked, 
the AARP, ASEC, other members of this panel, we have reached 
out to those people and done a great deal of good on a 
collaborative basis.
    I have to say that ASEC, the group that Don Blandin 
represents here today, has elevated public-private partnerships 
to an art. And that is something that I would highly recommend 
that this Committee keep in mind. Government cannot do it all. 
The taxpayers cannot do it all. It is very important for us to 
work with the private sector to make these educational outreach 
efforts work. I wanted to give you just a couple of examples 
from my experience as a securities regulator.
    One of the things that we have found in our cases is that 
when people lose their money, and sometimes they are completely 
wiped out, we are more often than not successful in putting the 
perpetrators in jail, and that is extremely important. However, 
very seldom, if ever, are we able to get restitution for the 
investors. Very seldom. It is a huge problem.
    So what we have analyzed in our office has been a series of 
situations where we brought enforcement cases and we have found 
that some fundamental concept, a financial literacy concept was 
missing. And had this concept been fully appreciated by the 
investors, perhaps they would not have been victims of fraud. 
Let me give you a couple of real-life examples.
    You may have heard of these prime bank debenture schemes. 
They are incredibly huge across the country right now. In fact, 
State securities regulators have brought cases on behalf of 
more than 41,000 people nationwide who have invested in these 
deals. And at the very least, about $470 million has been lost.
    Well, that is just one example. And you know what is really 
interesting about that case, Mr. Chairman, is that there is no 
such thing as a prime bank. There is no such thing. And if 
investors just understood that concept, they would not be 
ripped off, to put it in the vernacular.
    Another situation. We have seen foreign currency frauds 
that are ongoing. We had one in Texas fairly recently, where we 
had about $50 million invested. The financial literacy concept 
that we found in our office as we investigated that case that 
was missing was the fact that the investors did not bother to 
read their account statements. And many times, if they did read 
them, they simply did not understand them.
    Had they read them, or had they understood them, they would 
have seen that the account statements were completely unrelated 
to what was going on in the marketplace. Had they understood 
the basics of investing, it is fair to say that many, if not 
most, of these investors would not have been victims of fraud. 
I am going to give you one more example from real life. And it 
has to do with elderly investors or seniors.
    These days, the senior population in the United States is 
actively seeking out higher returns from safe investments. And 
oftentimes, they turn to CD's. CD's historically have been a 
great investment for seniors. And legitimate CD's continue to 
be a good investment. However, the world of CD's is very 
complex today. You have things like callable CD's. You have 
variations on a theme. Unless an investor understand these 
differences, it is a real problem, particularly if an elderly 
investor does not understand. Let me give you one example.
    One retiree was persuaded to invest more than $100,000 of 
her 97 year old mother's money in three callable CD's with 20 
year maturities. For a 97 year old to have a 20 year maturity 
in a CD is just completely unacceptable. The financial literacy 
concept missing here is that the age and risk tolerance of the 
investor is very key in getting a callable CD or any other type 
of CD.
    So as securities regulators who are always strapped for 
resources, we have seen day-to-day how critically important it 
is to have people who are savvy and understand the basics. I 
want to give you one example, the best example I can think of, 
of an outreach effort, a collaborative effort that was 
undertaken in this area.
    Some of you here may have heard of a program called 
Financial Literacy 2010. It originated in the State of Texas, 
the Texas State Securities Board, without taxpayer monies, I 
might add, set up this program and we have since then, through 
NASAA, the Nonprofit Investor Protection Trust, and the NASDR, 
as well as the consumer education group at the Eastern Michigan 
University (National Institute for Consumer Education), have 
taken this program nationwide and we have reached out to 
thousands upon thousands of teachers.
    In the State of Texas, we have delivered the program with 
free teaching guides to over a thousand teachers. We provide 
the information for free, and it is now in the schools and it 
is adaptable to economics classroom settings, to other 
settings, math settings and whatnot. And our goal is to make 
sure that every senior in the United States is given the 
opportunity to learn the basics of finance before he or she 
graduates. That is critically important, Senators, because so 
many of our seniors do not go on to college. So this is the 
only opportunity that they will ever have to get a personal 
financial literacy class.
    This has just been a tremendous success. The components of 
the program are set forth in our written testimony and I 
commend it to you. And again, not necessarily to sell the 
program itself to you, but to use it as an illustration of one 
of these partnerships that we think is so important going 
forward.
    With that, I am going to conclude my testimony and I would 
like to make myself available for questions. Anything that I 
can do to assist the Committee or anything that NASAA or the 
IPT can do as well, we are happy to.
    Thank you again, Mr. Chairman. I am delighted to be here.
    Chairman Sarbanes. Well, thank you very much, Ms. Crawford.
    It is obvious that great care and effort has gone into the 
prepared statements and not only will we include them in the 
record, but also they are a very important source of 
information to us.
    There is a vote scheduled at 11:30 a.m. I do not know 
whether it will go off on time. I am going to just do one quick 
question and then yield to my colleagues because I know it will 
be difficult to reconvene. In fact, there are two votes 
scheduled in a row, so I will try to move along quickly.
    I have one question that I want to ask and then I am going 
to yield. Senator Miller, I think you were here first this 
morning.
    The Chinese have this expression--let a thousand flowers 
bloom. And I have some perception that a certain amount of that 
is going on. You have this company that is running a terrific 
education program for its workers and the Historically Black 
Universities and Colleges have a special program now. La Raza 
is working. The AARP. You have these exciting things happening 
in Texas. The councils are at work.
    A lot of people can fall through the cracks. How do we get 
a system in place or a framework that we can say, well, 
everyone's going to go through this education process.
    The Chinese have another expression. When a group visits 
China, the first question they ask is: Who is the responsible 
person in this group? If you get fingered as the responsible 
person, then you have to handle all the issues from there on. 
Who is the responsible person here? Who are we going to put 
this on.
    Yesterday, Senator Carper said, that the treasurer of the 
State of Delaware has taken on the role of handling financial 
literacy as his project in Delaware.
    I would be interested very quickly in just getting your 
thoughts on that and then I am going to yield to my colleagues.
    Mr. Swygert. Mr. Chairman, if I may, it was not too long 
ago in our Nation's history that a question of public health 
was viewed as a very, very local, site-specific issue--whether 
it was personal hygiene, or the care and feeding of livestock, 
it was viewed as a very personal and local issue.
    I think today, we understand that public health is a 
national imperative. Now how we address it still has a 
significant local, as it must, impact.
    I think these hearings over the last 2 days have gone a 
long way in making the question of financial literacy a 
national question, and that is where we have to start.
    I come from the perspective of higher education, and I 
guess if left to my own devices, I would say that the Assistant 
Secretary for Post-Secondary Education in the U.S. Department 
of Education should consider that as part of her new mandate. I 
have not consulted, by the way, with the Assistant Secretary.
    Chairman Sarbanes. Ms. Crawford makes an important point, 
that a lot of people never get beyond high school.
    Mr. Swygert. Yes. As I said, Mr. Chairman, if left to my 
own devices. But I think it is bigger than that. I think it 
really has to start at the primary level.
    When we talk about students in middle school and we talk 
about students in high school, you are talking about students, 
sometimes tragically, who already have incurred debt.
    I think it has to start as a function of primary education. 
And 
if our young people in the second and third grade can be 
exposed to a foreign language, and successfully so, then I 
think we are 
clever enough to come up with ways and means of exposing them 
to financial literacy as well, as another language.
    Chairman Sarbanes. Does anyone want to add, very quickly?
    Ms. Canja. I will add.
    Chairman Sarbanes. Go ahead, very quickly.
    Ms. Canja. Very quickly. It really does have to be basic 
education through our school system. But then you come to 
special populations that have very special needs. I am thinking 
of women. I am thinking that 43 percent of women after the age 
of 65 are widowed and totally responsible for their economic 
security. And they need a great deal of guidance, a great deal 
of information at that moment or before they are coming into 
retirement. They have to realize that the chances of their 
being alone in later life is so significant. And so, somehow, 
whatever national strategy we have, we have to include these 
special populations. We heard about the Hispanic population and 
a whole group of special needs have to be addressed.
    Mr. Brobeck. The issue is so large and complicated, that it 
is difficult to hold any one body responsible, which is why we 
suggest that you consider creating an Office of Financial 
Education within the Treasury, and within the Department of 
Education, to have some accountability.
    But what would be really helpful as well is for the Federal 
Government to take the lead in helping to develop a 
comprehensive plan and evaluation of financial education which 
would serve as a roadmap for all of the many institutions that 
are seeking to meet needs and address challenges in this area.
    Chairman Sarbanes. Senator Miller.
    Senator Miller. Thank you, Mr. Chairman. I hurried back to 
get this question in. And I apologize for having to leave.
    I am the product of a single parent, back before that term 
was even invented, and as prevalent as it is now. My question, 
and you touched on it, Ms. Canja, is special challenges that 
face women.
    We know that an average woman spends 11\1/2\ years out of 
the workforce caring for children or other family members. And 
during that time, she is not investing in a pension or she is 
not paying into Social Security. Even during the working years, 
we know how much less she is paid than a man, and we will not 
get into that 
right now.
    [Laughter.]
    And women, as you have pointed out, live longer than men, 
an average of 7 years. So my question is what do you see as the 
consequences of these challenges for women in their retirement 
years? You touched on that a little. What role do you see for 
financial education in particular for these women? And I know 
that we could talk about that all morning.
    Ms. Canja. Yes, we could. I can tell you that it has been a 
huge concern of AARP's and we have had programs that have 
addressed it. We had a very wonderful program--Women's 
Financial Information Program. It gave basics. Very often, and 
especially in more traditional families, the husband has 
handled the finances and the woman, and especially if she has 
to deal with it then, really does not know where to turn.
    So this took care of many, many basic things for women. We 
have expanded that now into a program for younger women who are 
coming into retirement and talking much more about investments 
and financial planning, the kinds of things they need to do.
    There is a tremendous need for financial information for 
women of all ages as they move forward because they can be left 
alone at any age and responsible for their economic well-being.
    Senator Miller. Thank you. If you have any information, or 
if any of you have anything that you would like for me to read 
on the subject, I would appreciate your sending it to me.
    Ms. Canja. We will get you something.
    Senator Miller. Very good.
    Chairman Sarbanes. Thank you very much.
    Senator Akaka.
    Senator Akaka. Yes, Mr. Chairman, I know that we are short 
on time. I was trying to think of a question like yours. I come 
back to the question that I think was raised by Mr. Brobeck. 
And that is, is there a comprehensive national kind of plan 
that can be used nationally in our country to deal with the 
problems that we are facing today?
    Enron of course now is a spark that will certainly drive 
it. But as was mentioned earlier, I did put in a bill for 
economic educa-
tion beginning from kindergarten, as was mentioned here by 
Dr. Swygert. But whatever we do will have to be comprehensive 
and national.
    That is my question to all of you. What is the National 
Plan? Suggestions were made that we assign that task to the 
Federal Government, perhaps by giving it to the Secretary of 
Education. But in spite of that, I am looking for an answer to 
this. And so, let me just lay that down to you.
    Ms. Molinari. Senator, if I can start just by saying, 
obviously, we are in a delicate area of debate here on Capitol 
Hill with regard to the Federal role in course curriculum in 
schools.
    One of the concerns that we have heard constantly as we 
travel around the United States is not only how do we get that 
course curriculum in particularly high schools, but also 
particularly now that we are requiring schools to give 
standardized tests. How do we make sure that we are 
complementing the effort of the course curriculum with regard 
to the State tasks with the national impacts that are now being 
implemented throughout the United States. So, we have to 
somehow make sure that we are, in fact, rewarding the teaching 
of this with regard to the eventual testing and the way we deal 
with that today.
    Obviously, a lot of this I think does have to be left to 
the States to determine where they best enforce this 
curriculum. I have traveled to Delaware where they do a 
terrific job in the very early school grades, where high 
schools will run banks. The kindergartners are allowed to have 
their day where they go in and make their deposits and they 
learn to start at a very young age, get the general sense of 
accomplishments by saving and investing and spending and having 
their own little plan for how that money is going to last for 
the week.
    It is never too early to begin the very basic principles. 
But, again, once we start to get to the course curriculum in 
high schools, we cannot under-emphasize I think the role that 
the State education departments have to play. But I would 
certainly agree with everyone here that, as we proceed, and if 
we all agree, as I think we do, that this needs to be put on a 
very ambitious timetable, that the Federal Government can serve 
a very positive role by serving as a clearinghouse, if you 
will, for best practices, for good curricu-
lum, and make that available to the State education departments 
as quickly as possible.
    Mr. Yzaguirre. Mr. Chairman.
    Chairman Sarbanes. Mr. Yzaguirre.
    Mr. Yzaguirre. Mr. Chairman, I listened very carefully to 
all the testimony here and I was particularly struck by Steve 
Brobeck's comments about the end goal here. And the end goal, 
as I understand it, and one that I would support, is not to 
increase knowledge, but to change behavior, to move it in the 
right direction.
    I want to emphasize that because it has been our experience 
that tying all of these education programs to a specific event 
like buying a home or buying a car, tying it to IDA's, 
Individual Development Accounts--and buying a home--home 
counseling, has by far the best way of changing actual behavior 
compared to simply offering a course. This is not to in any way 
demean the importance of education, but it is also important to 
understand people's motivation and how we actually change 
behavior.
    Chairman Sarbanes. Mr. Blandin, you wanted to comment.
    Mr. Blandin. Yes.
    Chairman Sarbanes. Then, I will go to Senator Stabenow for 
her questions.
    Mr. Blandin. Thank you, Mr. Chairman. I am trying to answer 
both of your questions.
    Let me just say that I believe that the Government needs to 
create the climate for fostering public- and private-sector 
partnerships that can create the environment by using its bully 
pulpit of the Congress and the President to make sure that the 
people know that this is an issue of national concern.
    And if you do that through a Presidential commission, a 
Congressional commission, and have private-sector leadership 
involved, I think that will go a long way and do a lot better 
than creating a Federal entity to oversee it or to run it.
    We actually have Federal legislation now that is on the 
books that has not been implemented appropriately in a way that 
would make a difference.
    So, I think that it needs to be a public-private sector 
partnership with the Federal Government in the lead in helping 
to determine what needs to be done, but creating a separate 
office I am not sure is in the best interest.
    Chairman Sarbanes. Well, we will have to examine that 
carefully. Maybe we need to have a coordinator. Maybe one 
objective would be to establish a financial literacy council in 
every State and figure ways of encouraging that, so that at 
least in every State, you say, well, now, there is the locus of 
responsibility here. They are supposed to be addressing this 
issue. And that council, of course, could be a public-private 
composition.
    Ms. Crawford. Mr. Chairman, if I may.
    Chairman Sarbanes. Yes.
    Ms. Crawford. I would like to respond to your suggestion.
    As a State securities regulator, I think what you have just 
suggested makes a great deal of sense. One of the things that 
we have discovered is that the Governors, for example, have 
gotten very involved in investor education. One of the outreach 
programs that we have among the State securities regulators 
each year is a Facts on Savings and Investing Month.
    The Governors almost routinely issue proclamations and get 
involved in the activities. And President Bush this year 
actually sent a letter from the White House commending all of 
the participants. So back when he was Governor of Texas, he did 
this, and now as President, he continues to endorse that. That 
kind of climate is extremely important going forward.
    Chairman Sarbanes. Thank you.
    Senator Stabenow.
    Senator Stabenow. Thank you, Mr. Chairman. I think it is 
critically important that we look broadly at this issue and I 
appreciate the comments.
    I mentioned yesterday the Jump$tart Coalition in Michigan 
and the efforts working nationally and how important I think 
those public-private relationships are.
    I did want to mention just three more specific issues, 
though, and would welcome a comment on any of them. I know we 
have very limited time.
    First, I know that there is a great challenge, and we are 
talking about the language of financial services for many, many 
people. It already sounds like a foreign language. But when we 
are then coupling that with the attempt to translate what 
interest means or APR's or yields fees, capital gains, et 
cetera, into Spanish or Russian or Arabic or other languages, 
it seems that we have a special challenge as it relates to 
addressing the language of financial services and a multitude 
of languages and people who are coming as immigrants to our 
country and maybe, in fact, translating through their 8 year 
old child, and the challenge of then, as an adult, feeling 
vulnerable on a child who is attempting to negotiate a car loan 
or some other challenge. And so, I would welcome any comments 
on that.
    Second, I know AARP and many others have been involved in 
predatory lending, and this is a major issue that I have been 
involved in in Michigan and feel that we have to address these 
issues as it relates to financial literacy and information.
    And then, finally, I have a real concern as a parent of two 
children who have gone through teenage years and who have been 
aggressively marketed by credit card companies and if not every 
day, every other day, get either an application or a card in 
the mail, even before they were working at all. And certainly, 
for my 21 year old now, she would have the opportunity to have 
10 different credit cards at any moment, she is not working 
full time and is, in fact, going to school. I would welcome any 
thoughts regarding the role or responsibility of credit card 
companies and providing information as it relates to what is 
happening to promote credit.
    Mr. Swygert. Senator, if I may, I would like to speak to 
your first question. Namely, the question of translating 
financial documents and instruments into other languages. As an 
educator, I would like to begin by saying the first challenge 
is translating many of those documents into English. I think 
that is where we need to start. If we have learned nothing else 
recently, we have learned that a lot of the folk who we thought 
understood the language that was being expressed had no greater 
knowledge than lay persons, apparently.
    So, I think that is where we need to start. I think the 
Federal sector has been very helpful in terms of the SEC, 
insisting upon plain language in so many documents. And this is 
a movement that has been underway for some time.
    In terms of language, in terms of simple transactions being 
in the language of the consumer, here, I think again the work 
of the Committee can underscore both existing statutes and 
underscore the will of the Senate, that language that purposely 
obfuscates, is simply not in the Nation's best interest.
    Whether we need more legislation in this regard, I for one, 
would have to think more about. But I do think that it is in 
all our best interests, both in terms of the consumer and the 
Nation's interest at large, that the language be 
understandable, however it is translated, and to whom it is 
addressed.
    Mr. Brobeck. On the controversial issue of marketing of 
credit to young people, we sponsored a study that was released 
several years ago that revealed that a significant minority of 
college students were carrying unsustainable credit card debt 
levels, that those debt levels had carried with them huge costs 
that included dropping out of school, or at least cutting back 
on the course work.
    In a couple of cases, we brought in the mothers of apparent 
related suicides.
    But it is difficult because even teenagers now, many of 
them are working. It is hard to tell them that they cannot 
accept a credit card and use a credit card.
    You asked the question: What is the responsibility of the 
issuers? Most importantly, it is only to extend sustainable, 
affordable credit. That is their responsibility.
    Now it is very hard to create a law that would require them 
to do that. But if everyone in the country understood that that 
was their responsibility, I think they would act more 
responsibly. Then when it comes down to legislation, Senator 
Dodd has taken the lead and we support his efforts.
    Senator Dodd. I have tried over many years to get the 
industry to be more sensitive to the issue and it seems to get 
worse. The numbers are just getting worse every year. I cited 
them yesterday. I do not know if you have seen the sheets here. 
We made them part of the record yesterday. The average credit 
card debt per household has tripled in the past decade, to in 
excess of $8,000. Over half of families that earn less than 
$10,000 a year have over a $1,000 in credit.
    Americans owe more in credit card debt than education debt. 
Knowing the cost, I won't get into the cost of higher 
education. Seventy-eight percent of college students have at 
least one credit card. The average credit card among 
undergraduates is almost $3,000. It is up 46 percent in 2 
years. I quickly want to add, credit cards are a real asset for 
consumers. I do not want to be in the position of suggesting 
that credit cards are a liability. They have been a wonderful 
vehicle for people.
    First, our bill simply said that if you are under 21, you 
have to be able to prove that you can pay, something that I 
thought you would ask. Second, if you are not going to pay, is 
someone going to cosign it with you? And third, if either of 
those things are too much for you, then would you require that 
there be a course in what credit responsibilities are? Any of 
those things so that you can at least raise the level of 
literacy because you are just seeing kids coming out of school 
at a young age--and I agree, 18, 20, you should be certainly more 
responsible than you would be at a younger age. But you are 
watching the debt.
    We had bankruptcies between 18 and 25 year olds. In the 
early 1990's, there were 60,000. In 1999, there were 120,000, 
double the number of bankruptcies in this country of kids, 
really young people. That is not a good way to begin.
    So, I appreciate the Consumer Federation's interest in this 
subject matter. And I wish we could convince more people. This 
is not a way to try and deny people access to credit cards. But 
if you look at the proliferation of this stuff, you are 
watching infants getting stuff mailed to them in the mail, and 
automatically, they are approved.
    You know what happens. It is the parents that they are 
counting on. They will go to a college campus and they will 
tell kids, pay for your books with credit cards. Save your cash 
for Friday and Saturday night when you want to go out. And of 
course, these things mount up and it is the parents that are 
going to get hit with the darned thing. That is what happens. 
So, they know what they are doing. They know these kids are not 
going to pay it. Their parents are.
    So it is tragic, in my view, that they haven't been more--
the bankruptcy act we are trying to pass, I have been opposed 
to it for a number of reasons. Not because I do not believe 
that we should not try and restrain the amount of bankruptcies. 
But there is not a commensurate sense of responsibility on 
those who are extending credit.
    Just as the consumer has to be more responsible, those who 
are extending the credit have to be more responsible. And 
credit card companies dumping this stuff on college kids and 
sending them unsolicited, preapproved credit cards to infants and 
children is not responsible. It is highly irresponsible. And there 
is not a parent in America who does not understand what I am 
saying.
    And so, when I hear them claiming about the problems of 
bankruptcy and simultaneously pouring this junk out to them 
asking them to assume responsibilities they cannot even begin 
to afford--I am sorry, but I get a little irate about it.
    [Laughter.]
    It has literacy issues.
    Chairman Sarbanes. You should hear him when he is really 
upset.
    [Laughter.]
    Senator Miller. You have a child who is coming on to it.
    Senator Dodd. I have a child who is 4 months old. I am 
getting nervous.
    [Laughter.]
    Ms. Canja. How many credit cards does she have already at 4 
months?
    Senator Dodd. She is 35 years old.
    Senator Schumer. She has been mailed a lot of them, I am 
sure.
    [Laughter.]
    Senator Dodd. Actually, Senator Stabenow, I kind of jumped 
in on your time.
    Senator Stabenow. I very much appreciate your comments. I 
would underscore that certainly credit cards are an important 
tool. But it is extremely disheartening as a parent to watch 
these come in and to see my children at 12, 14, 16, being 
offered preapproved credit cards.
    Senator Dodd. Mr. Chairman, I apologize. I will just finish 
up briefly and you can go to Chuck. And that is, on the 
Hispanic households, Raul, my good friend. The absence of bank 
accounts, that 42 percent of Hispanic homes do not have bank 
accounts. You alluded to it in your testimony a little bit 
about what the reasons may be.
    I wanted to ask you about the individual development 
accounts, the IDA's. What do we need to do to make the IDA 
program 
and financial institutions do a better job in outreaching to 
the 
community?
    Those two questions I just have quickly, and then Chuck, 
whatever you want to ask.
    Mr. Yzaguirre. Thank you, Senator. First of all, we need to 
increase the amount of appropriations for the IDA program. It 
is a Federal program. It has been hugely successful. I think it 
comports with our experience that if you have an event, if you 
have a goal, that you can tie consumer education, financial 
education to, you will change behavior and you will create 
middle-class people out of poor people.
    So, we support the program very much. I would couple that 
also with housing counseling, which is in some ways a similar 
kind of situation where you have a specific event and you are 
trying to educate people to come to it and tie the two programs 
together. An IDA account can be used for a homeownership 
downpayment. I am sorry, I forget the rest of your question.
    Senator Dodd. On the 42 percent Latino households that have 
no bank accounts. You point out that in many countries where 
there is a lack of confidence and trust, maybe in their native 
countries in financial institutions.
    Mr. Yzaguirre. Indeed.
    Senator Dodd. And so they bring that insecurity about can 
you trust these institutions with their hard-earned money. I 
presume that has a lot to do with it. I presume language 
barriers as well. But there may be others.
    Mr. Yzaguirre. You know our community well, Senator. It is 
due in part to that. It is also due to the fact that poor 
people of any race or ethnicity have a distrust of institutions 
in general. It also has to do with income.
    But a lot has to do with the banks' willingness to do the 
right thing. We have visited a number of communities. Let me 
just give you one example.
    I went to a community in Gainesville, Georgia, where the 
community had almost forced the bank to set up a branch in the 
Latino community. It did so reluctantly and they created all 
Latino clerks. They had a day care center. They had everything 
in Spanish. They are making money hand over fist. So it is not 
just simply to do the right thing for altruistic purposes. 
There is money to be made and sometimes banks and financial 
institutions are not necessarily looking after their own best 
interests.

    Senator Dodd. Thank you, Mr. Chairman.

    Chairman Sarbanes. Senator Schumer.

             COMMENTS OF SENATOR CHARLES E. SCHUMER

    Senator Schumer. Thank you, Mr. Chairman.

    I want to thank you again for holding this hearing. I also 
want to welcome my New York colleague, Susan Molinari, who is a 
good friend, was a great Congresswoman, and who is doing a 
great job here on these issues.

    Welcome, Susan. As well as Mr. Swygert, who used to head 
Suny at Albany before he moved south.

    [Laughter.]

    Chairman Sarbanes. Susan was his student. We found that out 
this morning. She was a student there when he was the 
President.

    Senator Schumer. Oh, really?

    Ms. Molinari. His name is on my diploma.

    Senator Schumer. That is another plaudit for you because 
you did a great job.

    Mr. Swygert. Thank you, sir.

    [Laughter.]

    Senator Schumer. I just have one question. The dilemma we 
face in this issue is that many of us, as you can tell by the 
questions, feel some urgency here. And at least for me, and I 
mentioned this yesterday, having a daughter in high school, 
seeing the courses that she is required to take, and I want her 
to have a broad-based education, but geometry. That is a good 
one. Algebra is really 
important. Trigonometry is getting a little bit further afield. 
And yet, nothing on the things we are talking about here and 
trying to really learn what the world is all about. So the 
question I guess I have is, what is the appropriate Federal 
role here?

    Our local schools are overburdened. They have so much to 
do. We are putting new requirements on them. But at the same 
time, there is a real need for Washington to lead the way here, 
I think, because otherwise, the thousand flowers will bloom, 
but there will be a lot of the landscape that is barren.

    Chairman Sarbanes. Yes.

    Senator Schumer. And my guess is that the poorer districts, 
where it is needed the most, will have the most difficult 
ability in getting this done. So the question is, what are the 
carrots? What are the sticks? What is the appropriate Federal 
role other than exhortation? For whoever on the panel who would 
like to take a shot at that one.

    Mr. Swygert. Well, Senator, as you well know, one stick 
that comes to mind very quickly is the stick that has been used 
as it relates to mortgage lending generally in order to avoid 
red-lining. And the Federal Government has been very aggressive 
over time, as have the State governments, in addressing this 
issue. Although I am not suggesting some analogous 
circumstances exist, or should be utilized, there are examples 
that one can turn to.
    I would think, to echo my colleague on my left, that a 
strong program of public-private partnerships with some form of 
incentives, however the private side might be incentivized to 
support both grade school, middle school, and high school 
programs.
    There has to be, just as many local companies and 
corporations and financial institutions of all sorts, whether 
credit card issuers or not, who have all sorts of activities 
related to their communities. We need to come up with some ways 
and means to incentivize them to do this as well, not just 
clean up the playground, not simply paint the day care center, 
not simply to, as important as it is, to assist the elders. But 
also to use some of their bright and clever people to design 
curricula, although it may be locally-based curricula, which is 
not such a bad thing, to assist local grade and middle school 
teachers in terms of both handouts and actual classroom 
instruction because, as you say, the last thing a local 
superintendent wants is more Federally-mandated curriculum content. 
They just do not have the resources, or at least, certainly, I think 
the reaction or the reception would not be terribly positive.
    Ms. Molinari. Let me just say, Senator, that, obviously, 
that is the most difficult question I think we face today is 
recognizing the relationship between the Federal and the States 
with regard to education and the curricula.
    However, I do think, obviously, you went a long way in the 
education act by providing the carrot, which is some Federal 
monies for incentivizing some programs that can be, if you 
will, taken on the road to the rest of the States.
    I do think that the notion should be further explored of a 
potentially national commission that is private and public to 
raise the visibility and touch the States.
    I see Senator Carper here from Delaware. I would not want 
the Federal Government to interfere with the work that Delaware 
has done in so many ways in promoting financial literacy. And 
one of the things that they have done most recently along with 
the State of Wisconsin, under the auspices of the Governor, is 
creating a task force of public-private educators, parents, 
business people, to come up with suggested curricula to 
evaluate the need in those States. And these task forces really 
will be those small, little engines that can, in fact, not only 
drive the material, but also certainly the public relations 
that can continue to create the interest.
    Senator Schumer. Thank you.
    Chairman Sarbanes. We will just hear from Steve and then we 
will yield to Senator Carper.
    Senator Schumer. Yes. And I would just ask unanimous 
consent after Steve that any other comments in writing, because 
I wanted to hurry up and let Tom get in here.
    Mr. Brobeck. Senator, I think that a national commission is 
an idea that is worth exploring. But it will not be effective 
in our opinion unless it is given sufficient resources to 
conduct adequate research, a literature review of the research 
that has been undertaken to date, perhaps new research looking 
at the effectiveness of existing programs or proposed programs, 
and a commission or some other kind of body. And we fully 
support participation by responsible corporate groups, 
educational leaders, nonprofit organizations, as well as the 
Government. But it seems to us that the Government has to take 
the lead because you, more than anyone else, have concern, 
objectivity, and resources.
    Chairman Sarbanes. Fine.
    Senator Schumer. Thank you, Mr. Chairman.
    Chairman Sarbanes. Thank you very much, Senator Schumer.
    Senator Carper.

             STATEMENT OF SENATOR THOMAS R. CARPER

    Senator Carper. Thank you, Mr. Chairman.
    Welcome. It is nice to see you all today and especially 
nice to see Susan. Thank you for your kind words about 
Delaware.
    We had a hearing yesterday----
    Chairman Sarbanes. Actually, the kind words were said about 
Delaware when you were not in the room as well.
    [Laughter.]
    I just wanted to assure you of that.
    Senator Carper. Thank you. I mentioned yesterday our State 
Treasurer, Jack Markell, who is doing very, very good work in 
these vineyards that you all are working in, too. So, we are 
grateful.
    As Governor of Delaware for the last 8 years, we focused in 
my State and in virtually every other State to put in place 
rigorous academic standards of what we expected students to 
know and be able to do.
    Most States adopted somewhat different standards, but we 
focus on standards in math and science and English and social 
studies, for the most part--math, science, English, and social 
studies.
    The schools that are doing the best job in terms of raising 
student achievement and making sure that students are learning 
the things that they need to do in math and science and English 
and social studies, are ones who have found ways to align the 
curriculum and their classroom with the standards that have 
been adopted. So that the lesson plans, the materials, the 
texts are compatible and consistent with the standards that 
have been adopted. Some of the most exciting work that has been 
done is using the Internet to bring the outside world into the 
classroom.
    Our boys are now 11 and 13. But maybe 2 years ago when my 
youngest boy was in the 4th grade, I got up one morning and I 
went in to wake him up about 6:30 a.m. He is a kid who likes to 
sleep. He was up. He was up and his computer was on. I said, 
Ben, first, what are you doing up? And what are you doing with 
your computer on? He said, I am following the Iditarod. I said, 
you are following what? He said, I am following the Iditarod, 
this dog race up in Alaska. Most people have heard about it 
now. It is over a thousand miles long.
    And what his clever teacher had done was find a way to use 
the Iditarod and use the Internet to make that come alive for 
her students. They used the Iditarod for a period of a couple 
of weeks in order to, teach geography, teach geology, teach 
weather, teach mathematics, and to work on reading and writing 
skills.
    Everyone picked a dogsled driver. So, they had a team that 
they were rooting for. They had to create an award to give to 
one of the other dogsled drivers, one of the students in their 
class. They had a banquet and had Alaskan food. It was really 
quite something.
    There is a great need in Delaware schools and in other 
schools around the country to discover Iditarod-like events 
which we can use to make real our standards in math, science, 
English, and social studies that are fun, that are interesting, 
that may involve technology and bring the outside world in.
    I think those of us in this room, at this table, but the 
rest of us as well, to the extent that we can work in those 
vineyards--and this is not for the Federal Government to fix, 
but this is one where we can all have a role and we all can do 
something. And I would just encourage us to take our energy and 
our interest and to focus it in that direction toward that 
purpose.
    That was not a question, but just some insights from an old 
Governor who cares a lot about these things and now, thanks to 
Ben, knows a thing or two about the Iditarod.
    Thank you, Mr. Chairman.
    Chairman Sarbanes. Well, you have been an enormously 
helpful panel and we look forward to staying in touch with you 
as we try to find some way to give an additional impetus to 
this issue. I think it is a very important, long-run issue and 
we want to stay with it. Thank you all very much for coming.
    Mr. Swygert. Thank you, Mr. Chairman.
    Mr. Blandin. Thank you.
    Chairman Sarbanes. The hearing is adjourned.
    [Whereupon, at 12:00 noon, the hearing was adjourned.]
    [Prepared statements, response to written questions, and 
additional material supplied for the record follow:]

             PREPARED STATEMENT OF SENATOR PAUL S. SARBANES

    Today, we hold our second hearing on the state of financial 
literacy and education in the United States. We are very pleased to 
have such a distinguished panel of witnesses, all with significant 
expertise on this subject.
    We began our exploration of this issue yesterday, when we heard 
from Treasury Secretary O'Neill, Federal Reserve Board Chairman 
Greenspan, and SEC Chairman Pitt. Their testimony underscored the 
urgent need for improved financial education in America. Yesterday, one 
witness observed in response to the Committee's questions, that the 
problem of financial illiteracy in this country is one of ``epidemic 
proportions.'' Each of their agencies is actively engaged in efforts to 
improve Americans' financial understanding, and I commend each of them 
for their commitment to this issue.
    Of course, as I said yesterday, financial literacy is not a magical 
solution that will solve all the problems consumers face in making 
financial decisions. We obviously need a framework in which this takes 
place that also includes strong legal protections, vigorous 
enforcement, and best practices in the industry in providing 
responsible credit alternatives.
    Nonetheless, financial education can go a long way toward preparing 
consumers to make decisions that will be in their long-term financial 
interest. As was noted yesterday, the costly consequences that 
inadequate financial education can have, include such difficulties as:

 Increasing reliance on the high-cost fringe-banking sector by 
    those who find themselves closed out of mainstream banking 
    institutions.
 Predatory lending, when people are persuaded to borrow on 
    terms they do not fully understand and cannot afford.
 Accumulation of dangerous amounts of credit card and household 
    debt.
 Inability to save, to build a nest egg.
 Inability to plan for a secure retirement.

    I indicated yesterday that I think we need a national strategy to 
bring the public and private sectors together to address the problem of 
financial illiteracy. The commitment of yesterday's witnesses to 
improving financial education gives me some confidence that we can 
undertake increased coordination and cooperation on this issue at the 
very highest levels of the Federal Government.
    Today, we will hear from representatives of the private and 
nonprofit sectors, as well as from a representative of State 
government. We had far more requests to testify than we could 
accommodate, and frankly, I am gratified that there are so many 
organizations and groups working on this issue; it is a testament to 
the growing awareness of the important role financial literacy plays in 
helping people make the financial choices necessary to give them the 
opportunity to succeed in our society.
    Our panel today covers the broad spectrum of issues related to 
financial literacy and education, from school-aged children to young 
people who are handling credit for the first time, first-time mortgage 
borrowers, and those who are trying to save enough for retirement. I 
believe the testimony we will receive this morning will help to inform 
our development of a national strategy to address this critical issue, 
and I look forward to continuing to work with each of them as we move 
forward.

                               ----------

             PREPARED STATEMENT OF SENATOR DANIEL K. AKAKA

    Mr. Chairman, thank you for convening this second hearing on 
financial literacy. I thank the witnesses for appearing today. I look 
forward to your testimony as we continue this national dialogue on 
financial literacy.
    In the wealthiest country in the world, we must increase the 
ability of citizens of all ages and backgrounds to manage their 
resources, participate in the workforce, make wise investments, and 
become better informed about public policy. All Americans need to have 
the necessary skills and information to prepare for a secure financial 
future.
    The current economic recession highlights the importance of 
financial literacy. American families are now facing an enormous amount 
of financial stress. The Department of Labor reports that 7.9 million 
Americans were unemployed in January. These unemployment statistics do 
not include those whose hours and pay have been reduced. In Hawaii, 
bankruptcy filings for the third quarter of 2001 were 20 percent higher 
than in 2000.
    It is obvious that financial stress is not solely caused by a lack 
of financial literacy. There are many factors that can cause financial 
difficulty, including the bankruptcy of an employer or a reduction in 
tourism due to the September 11 terrorist attacks. However, having or 
knowing how to acquire financial knowledge can prevent or reduce the 
consequences of a difficult financial situation. Increased education 
about basic economic concepts will help people to make better financial 
decisions and increase opportunities for participation in today's 
global economy.
    Today's hearing will feature organizations on the front line of 
financial education. I look forward to your recommendations on how we 
can increase financial literacy.
    Mr. Chairman, thank you again for convening these hearings.

                               ----------

             PREPARED STATEMENT OF SENATOR DEBBIE STABENOW

    Thank you, Mr. Chairman. It is good to be back here for a second 
day of hearings on financial literacy. I am glad that yesterday we were 
able to begin to lay out the problem with the help of Chairmen 
Greenspan and Pitt, as well as Secretary O'Neill. I think it is clear 
that there is a consensus that something needs to be done.
    I know today that we are going to hear from a diverse array of 
groups who have been working very hard to combat financial illiteracy. 
Their work is to be commended. Too often educational outreach like this 
goes unappreciated. Reaching the financially illiterate is not simple. 
Many in society are intimidated by financial services and are too 
embarrassed to get help. Others do not fully understand the financial 
planning mistakes they are making and the true costs of those 
decisions. Others, simply wrapped up in their busy lives, never take 
time to assess their financial situation, and consequently they lose 
thousands of dollars unnecessarily to their creditors. I hope as we 
examine this issue today, we can build off of the findings discussed 
yesterday. We know the problem is severe. The question is: What do we 
do about it?
    There is a wealth of information out there, but, as I said, it is 
not always reaching the communities most in need. In particular, the 
Internet is a wonderful resource, but those with the most limited 
financial skills often are doubly impaired because they lack access to 
the web. This digital divide is something that we must work to bridge.
    We must also look at language barriers as well. For many consumers, 
the language of financial services already sounds like a foreign 
language. Just imagine what it is like to take that confusing foreign 
language of interest, A.P.R.'s, yields, fees, capital gains, et cetera, 
translate it into plain English and then translate it into Spanish or 
Arabic or Russian. As a Nation of immigrants, this is a challenge to 
which we should pay close attention.
    Finally, I hope that our witnesses will give us some insight as to 
what they think the role of Government is in addressing this problem. 
We obviously have an obligation to pass and enforce strong laws and 
regulations. Furthermore, I can envision a role for our Government in 
promoting education, but in many ways, educational efforts are often 
most successful when they are done at the grass roots level. And, they 
are often most successful when they are done in a sustained way. These 
are difficult and expensive challenges, indeed.
    Thank you, Mr. Chairman, and I look forward to hearing from our 
witnesses and I welcome their insight.

                               ----------

                  PREPARED STATEMENT OF SUSAN MOLINARI

                          National Chairperson
            Americans for Consumer Education and Competition

                            February 6, 2002

    Thank you, Congressman Dreier, for that kind introduction. Before I 
begin my testimony, I would like to recognize Congressman Dreier's 
efforts to improve financial literacy among our young people. He has 
been at the forefront of this effort for several years, beginning in 
the 105th Congress, where he introduced a House Resolution Expressing 
Support for Personal Financial Literacy Programs and culminating with 
this year's passage of the No Child Left Behind Act. Congressman Dreier 
was instrumental in ensuring that financial literacy programs were 
included and fully funded in the No Child Left Behind Act. This 
legislation earmarks $5 million specifically for financial education. I 
commend him for this accomplishment and applaud his dedication to 
improving financial literacy.
    Chairman Sarbanes, Ranking Member Gramm, Members of the Committee, 
I am Susan Molinari and I am Chairperson of Americans for Consumer 
Education and Competition (ACEC). I want to thank you for this 
opportunity to testify and participate in this dialogue to improve our 
Nation's financial literacy. Teaching our young people to manage their 
finances should be as much a part of their curriculum as teaching them 
math or grammar. It is a subject that will affect them throughout their 
lives and will impact their ability to purchase a home, raise a family, 
and prepare for retirement.
    Financial literacy forms the foundation that supports such American 
Dreams as homeownership and a secure retirement. Sound financial skills 
are crucial to avoiding the pitfalls that result in many of our 
citizens--particularly young ones--getting into financial hot water or 
becoming victims of charlatans who prey on the financially illiterate. 
Quite simply, being financially literate is essential to controlling, 
rather than being controlled by one's financial circumstances 
throughout life. And as Federal Reserve Board officials have pointed 
out, mastery of these financial ABC's by consumers is essential to the 
smooth and efficient functioning of our free market economy.
    These hearings bear witness to the fact that you and your 
colleagues, Mr. Chairman, share the view of many of us in the financial 
community, that the sweeping education bill which President Bush 
recently signed into law is a beginning--a first and important step--a 
down payment if you will, toward the financial educational accounts of 
the Nation's young people. This law marks the first time that a Federal 
law has specifically allocated funds for financial literacy. It makes 
available some $385,000,000 for local innovative education programs. 
Among the 27 programs that qualify for this funding are ``Activities 
related to financial literacy skills (including the basic principles 
involved with earning, spending, saving, and investing).'' Senator Jon 
Corzine championed this provision in the Senate. Senator it was an 
honor to work with you and several of your colleagues on this 
legislation including Senators Enzi, Akaka, Jeffords, Harkin, and 
Kennedy. Congressman John Boehner (Chairman of the House Education and 
the Workforce Committee) Congressman Dreier and Congressman Pomeroy led 
the way in the House.
    I am honored and grateful to be here, on behalf of ACEC, to answer 
the five most frequently asked questions regarding the importance of 
financial literacy courses.

Question One
    How bad is the problem? Let's look at the bottom line. Here is a 
study that caught my eye--in a Lou Harris study testing basic economic 
principles:

 Adults received 57 percent.
 High school students scored 48 percent.
 Half of the adults and two-thirds of the students did not know 
    that the stock market provides a venue for people to buy and sell 
    stocks.
 Only 54 percent of adults and 23 percent of students knew when 
    Government spending exceeds its revenue, a deficit is created.

    ACEC sought to add to the data and we reported last year that 82 
percent of high school seniors surveyed failed a personal financial 
quiz. We tested them on real life questions such as interest rates, 
loans, etc. According to the Norton Bankruptcy Law Advisor, individuals 
25-34 declaring bankruptcy have risen from 417,510 to 464,647.

Question Two
    So now that we have established the problem, the next question is 
why are we suggesting that these problems be solved at the blackboard 
rather than at home by the parents? While we may be great parents, we 
may not be great investors and savers:

 Fifty-six percent of U.S. households have failed to save 
    enough for retirement.
 Fifty-three percent of Americans report that they often live 
    paycheck to paycheck.

    And remember the first Lou Harris poll I cited, parents, as well as 
teenagers flunked! Moreover, a VISA USA survey revealed that 81 percent 
of parents want solid personal finances taught in schools because they 
want their children better prepared to manage money than they were.

Question Three
    Should we ask our teachers to assume one more responsibility in 
preparing our children for the future?
    I would answer that as we raise the next generation to be 
successful do we not have an obligation to train them to deal 
responsibly with success? For when they are not adequately taught, 
retirement plans are not funded, medical plans are not paid, 
bankruptcies are absorbed by consumers one way or the other and our 
economy is negatively impacted.

Question Four
    Do financial literacy courses work?
    Students, like those at Woodrow Wilson High School's Academy of 
Finance here in the District of Columbia, offers insight into the value 
of personal financial classroom instruction. Whereas just 146 of the 
801 seniors taking ACEC's 2001 personal financial quiz were able to 
achieve a passing grade, all of Wilson's 12th graders passed. They did 
so after just one semester of personal finance instruction that 
included everything from borrowing money to estate planning. Similarly, 
the National Endowment for Financial Education's High School Financial 
Planning Program (HSFPP) made a significant difference in the financial 
skills of students taking the course work. A survey of teens who 
completed HSFPP in the 1997-1998 program found that nearly half (47 
percent) knew more about credit costs and nearly two-fifths (38 
percent) knew more about investments. The knowledge gained also brought 
about important behavioral changes in the teens. Nearly two-fifths (37 
percent) improved their skills for tracking spending, and nearly half 
(45 percent) began saving or began saving more. More importantly, 
according NEFE, teens taking the Financial Planning Program retained 
what was taught to them and used these practices in their daily lives.
    Teachers can incorporate financial literacy curriculum into their 
applied math or economic courses simply by accessing the Internet. ACEC 
has prepared a course that can be downloaded from its website 
www.acecusa.org.

Question Five
    Let me conclude with one more question: Can we afford to teach 
financial literacy courses? We cannot afford not to!
    The poet e.e. cummings once said that, ``I am living so far beyond 
my income that we may also be said to be living apart.'' That might be 
funny were it not for the fact that too many Americans have the same 
relationship with their financial life. Working together to improve the 
financial literacy of our young people we can reunite consumers and 
their income so that they may live comfortably and productively under 
the same roof.

                               ----------
                 PREPARED STATEMENT OF STEPHEN BROBECK

                           Executive Director
                     Consumer Federation of America

                            February 6, 2002

    I am Stephen Brobeck, Executive Director of the Consumer Federation 
of America. For three decades, our organization and I have personally 
sought to promote effective financial education. In our opinion, there 
has never been a greater need to advance this education. So, we commend 
you, Mr. Chairman, and your Committee for organizing these hearings. 
Hopefully, they will focus national attention on consumer financial 
literacy and the most effective educational strategies for improving 
this literacy.
    This testimony begins by arguing that the financial education needs 
of the least affluent and well-educated Americans deserve special 
attention, in part because recent changes in the financial services 
marketplace have increased the financial vulnerability of these 
households. The testimony then outlines five important principles for 
effective financial education. The last of these principles stresses 
the importance of a comprehensive plan for increasing financial 
literacy, which probably cannot be developed and implemented without 
effective Federal leadership. The testimony concludes by suggesting 
that appropriate regulation provides a necessary complement to 
financial education.

Lower-Income Consumers Need Special Attention
    We cannot think of a large population with greater financial 
education needs than the tens of millions of the least affluent and 
well-educated Americans. Because these individuals lack financial 
resources and often are charged high prices, they cannot afford to make 
poor financial choices. But because of low general and financial 
literacy levels, they often have difficulty making smart financial 
decisions, in part because they are especially vulnerable to abusive 
seller practices.
    In 1998, 37 percent of all households had incomes under $25,000. 
With the exception of older persons who had paid off home mortgages, 
these households had accumulated few assets. In 1998, according to the 
Federal Reserve Board's Survey of Consumer Finances, most of these 
least affluent households had net financial assets (excluding home 
equity) of less than $1,000. Moreover, between 1995 and 1998, a time of 
rising household incomes, the net worth of lower-income households 
actually declined.
    Households with low-incomes and assets cannot afford to make unwise 
financial decisions simply because they have few discretionary 
financial resources. Failing to adequately budget expenditures may 
pressure these consumers into taking out expensive credit card or pay 
day loans. Mistakenly purchasing a predatory mortgage loan could cost 
them most of their economic assets.
    These households also need to make smart buying decisions because 
they tend to be charged higher prices than more affluent families: 
Higher homeowner and auto insurance rates because they live in riskier 
neighborhoods; higher loan rates because of their low and often 
unstable incomes; higher furniture and appliance prices from 
neighborhood merchants that lack economies of scale and face relatively 
high costs of doing business; and higher food prices in their many 
neighborhoods without stores from major supermarket chains.
    Lower-income families are also faced with higher prices for basic 
banking services. Partly because of high minimum balance requirements 
to open accounts and avoid fees, these households tend to pay high 
prices for checking services, or they do their banking at check-cashing 
outlets where check-cashing fees typically are at least 
2 percent of the face value of checks. These families also lack access 
to basic savings options.
    Lower-income households also are charged higher prices because 
their low general and financial literacy levels make effective product 
searches difficult and expose them to seller abuse. Low-incomes are 
highly, and increasingly, correlated with low-education levels, and 
these low levels are closely associated with low general and financial 
literacy levels. In our comprehensive 249 question test of the Nation's 
consumer knowledge, conducted by the Educational Testing Service in 
1989, lower-income households answered fewer than one-half of the 
questions correctly. If the functionally illiterate and marginally 
literate members of our sample population had not had the option of 
having questions read to them, this percentage of correct answers would 
have been much lower.
    Consumers who have difficulty reading are unlikely to understand 
the fine legal print in ads and contracts. Those with limited 
mathematical skills often do not understand percentages that express 
the key cost and yield indicators, respectively, for credit and savings 
products. For example, research shows that only about three-fifths of 
consumers understand and use the most important index of credit costs, 
the annual percentage rate or APR, and that nonusers tend to have low-
incomes and education levels.
    Lower-income households with low literacy levels are especially 
vulnerable to seller abuse. Consumers who do not understand percentages 
may well find it impossible to understand the costs of mortgage, home 
equity, installment, credit card, pay day, and other high-cost loans. 
Individuals who do not read well may find it difficult to check whether 
the oral promises of salespersons were written into contracts. And 
those who do not write fluently are limited in their ability to resolve 
problems by writing to merchants or complaint agencies. Consumers who 
do not speak, read, or write English well face special challenges 
obtaining good value in their purchases.
More Available Credit Has Increased Financial Education Needs
    Over the past decade, the financial vulnerability of low- and 
moderate-income households has increased simply because of the dramatic 
expansion of the availability of credit. Throughout the last century, 
consumers were exposed to widespread and persistent marketing of goods 
and services. Yet, they were insulated to an extent from the 
potentially adverse effects of this marketing by the financial 
constraints of their incomes and savings. Most of the credit extended 
to households took the form of first mortgage loans and installment 
loans, both of which were secured by the property purchased and 
amortized in fixed, regular payments.
    During the 1990's, lenders greatly eased these financial 
constraints by significantly expanding credit available to consumers 
and by marketing this credit aggressively. Since this credit tended to 
be open-end and carry a high price, it exposed consumers to greater 
financial risks than did the closed-end loans that had earlier 
dominated consumer credit markets.
    The loans that subjected the greatest number of Americans to 
financial risk were made with credit cards. From 1990 to 2000, fueled 
by billions of mail solicitations annually and low minimum monthly 
payments of 2-3 percent, credit card debt outstanding more than tripled 
from about $200 billion to more than $600 billion. Just as 
significantly, the credit lines made available just to bank card 
holders rose to well over $2 trillion. By the middle of the decade, 
having saturated upper- and middle-class markets, issuers began marketing 
to lower-income households. By the end of the decade, an estimated 80 
percent of all households carried at least one 
credit card.
    Independent experts agree that expanding credit card debt has been 
the principal reason for rising consumer bankruptcies. These 
insolvencies were still precipitated by unexpected major expenditures 
or income losses. However, many of those experiencing these new 
financial burdens or losses would have been able to manage if they had 
not been carrying large credit card debts. Contrary to the perception 
of many, the annual incomes of typical Chapter 7 bankrupts average well 
under $30,000.
    Also worrisome has been the expansion of high-priced mortgage loans 
and strato-
spherically priced smaller consumer loans. In the 1990's, creditors 
began to aggressively market subprime mortgage loans carrying interest 
rates greater than 10 percent and higher fees than those charged on 
conventional mortgage loans. By 1999, the volume of subprime mortgage 
loans peaked at $160 billion. Mortgage borrowers in low-income 
neighborhoods were three times more likely to have subprime loans than 
mortgage borrowers in high-income neighborhoods. A significant minority 
of these subprime borrowers would have qualified for much less 
expensive conventional mortgage loans. And a minority of these 
borrowers were victimized by exorbitantly priced and frequently 
refinanced predatory loans that ``stripped equity'' from the homes of 
many lower-income households.
    The 1990's also saw explosive growth in predatory small loans--pay 
day loans, car title, pawn, rent-to-own, and refund anticipation 
loans--typically carrying effective interest rates in triple digits. 
The Fannie Mae Foundation estimates that these ``loans'' annually 
involve 280 million transactions worth $78 billion and carrying $5.5 
billion in fees. The typical purchaser of these financial products has 
income in the $20,000 to $30,000 range with a disproportionate number 
being women.

Principles for Effective Financial Education
    There is no clear consensus about how to effectively provide 
financial education, especially to those who have completed their 
secondary education and to those with low literacy levels. However, our 
own research and programs, as well as those of others, suggest five 
principles on which successful financial education programs should be 
built.
    Seek behavioral change, not just improved knowledge. An important 
threshold question is how one defines the purpose of financial 
education. Is the goal simply to increase financial literacy--to expand 
consumer knowledge about the financial services marketplace and how 
consumers can best utilize this knowledge? Or, is 
the goal, more fundamentally, to improve the quality of consumer 
financial decisions--to help ensure that consumers not only have adequate knowledge, but also successfully apply this knowledge in decisions about spending, saving, and the use of credit?
    We strongly believe that behavioral change should be our most 
important financial education goal. After all, the principal reason for 
the growing focus of attention on financial literacy is the fact that 
the financial decisions of many consumers are viewed as unwise. These 
decisions may relate to poor spending decisions, in particular, 
spending beyond one's means. They may pertain to poor savings 
decisions, such as not accumulating sufficient savings or concentrating 
these savings either in cash or in highly speculative investments. Or 
they may relate to poor credit decisions such as unsustainable 
borrowing at very high prices. Perhaps nothing has increased our 
interest in financial education more than the growth, over the past 
decade, of consumer purchases of predatory mortgage and consumer loans.
    Deciding to focus on the quality of consumer financial decisions 
means that evaluation of financial education programs should examine 
their behavioral effects, not just increased knowledge levels. The most 
sophisticated efforts to measure these impacts, such as recent research 
on financial education mandates and savings accumulation published in the Journal of Public Economics, do just this.
    Make certain to include ``attractive'' useful knowledge that can be 
easily applied by consumers making financial decisions. It is sometimes 
assumed that the only effective financial education includes explanations 
of how the economy and markets function. That knowledge, in our opinion, 
is extremely important for Americans to have--we would support mandatory economic education for young people--but chiefly because it is essential 
to an informed citizenry. Consumers also need practical information about household budgeting, consumption, use of credit, and saving. Particularly 
for adults, knowledge about these subjects should be the focus of financial education.
    What this knowledge includes will depend somewhat on the time and 
interest of targeted consumers. But we feel strongly that this 
knowledge should always include relatively short, simple messages 
containing built-in motivators about how to meet financial needs and 
attain financial wants. Many consumers will never take a financial 
education course or workshop, or even read a lengthy pamphlet. Concise, 
powerful messages can be communicated most easily to millions of 
Americans, particularly if the same messages are disseminated by 
Government, nonprofit, and business 
``financial educators.''
    In the early 1990's, after forming the Consumer Literacy 
Consortium, 25 Government agencies, business groups, and consumer 
organizations spent 2 years researching and developing 66 messages, 
related to 28 products, on how shoppers could save money. The typical 
motivators in these messages are potential dollar savings that result 
from applying the tip, for example: ``You can save more than $100 a 
year in fees by selecting a checking account with a low (or no) minimum 
balance requirement that you can, and do, meet.'' Or: ``You can reduce 
credit card fees, which may add up to more than $100 a year, by getting 
rid of all but one or two cards, and by avoiding late payment and over-
the-credit limit fees.'' For several years, this publication has been 
by far the most popular pamphlet distributed for a fee by the Federal 
Government's Consumer Information Center. To date, 1.4 million copies 
of the publication have been requested from the CIC and the Consortium.
    Address values as well as knowledge. Financial literacy is a 
necessary but insufficient condition for sensible financial decisions. 
Consumers must also desire and make the effort to apply this knowledge 
in this decisionmaking. Many consumers are greatly influenced by 
product marketing that may create wants which they try to satisfy by 
purchasing all the products that their incomes and credit lines permit. 
For these individuals, financial planning is usually not a high 
priority. Interestingly, ``spenders'' and ``savers'' can be found in 
every income group. Our research shows that, despite modest 
discretionary incomes, a significant number of lower-
income households manage, during their lifetimes, to accumulate six-
figure wealth. Our research also reveals that a number of high-income 
families build little wealth.
    Our America Saves campaign illustrates how financial education can 
seek to communicate values as well as knowledge. This campaign is 
directed at low- and moderate-income households who save little and are 
convinced that they lack the ability to save and build wealth. An 
important goal of our efforts is, through knowledge about who saves, 
how to save, and the power of interest compounding, to persuade 
consumers to consider saving more of their incomes. But through mass 
advertising and encouragement from those organizations with which 
potential savers are affiliated--notably, employers, primary financial 
institutions, and churches--we also try to persuade these individuals 
to value saving more highly. Then when fellow employees, customers, and 
congregants begin saving, there is additional encouragement to shift 
priorities from spending to saving. For two decades, this social 
marketing approach has been used with much success in developed and 
developing countries to persuade individuals to change health and 
safety behaviors.
    Provide opportunities to learn by doing as well as by studying. 
Traditional classroom/workshop pedagogy may be sufficient for 
increasing knowledge levels but not for changing behaviors. To improve 
the quality of financial decisions, educators may also need to teach 
students how to function in the marketplace through actual or simulated 
participation. This participation can take the form of budgeting of 
personal expenditures, maintaining checking accounts, or making regular 
savings deposits. But it could also include using ``monopoly money'' to 
invest in the stock market or purchase services from a ``classroom bank.''
    Focusing on the behavioral effects of financial education seems 
especially appropriate for low- and moderate-income consumers. We want 
assurance not just that these individuals ``know'' how to budget, open 
a checking account, and avoid high-priced loans, but that they actually 
succeed in doing so. Some of the most successful financial education 
programs serving lower-income households--National Foundation of Credit 
Counselors' member credit counseling, Individual Development Accounts, 
Cooperative Extension's Money 2000 program, and America Saves--closely 
link education to successful budgeting, debt repayment, and savings 
deposits.
    Develop a comprehensive plan for increasing the financial literacy 
of all Americans. While many worthwhile financial education programs 
exist, they are not well-coordinated, effectively reach only a small 
minority of the population, and do not reflect any broad, compelling 
vision. What is most needed is a comprehensive needs assessment and 
plan to guide and inspire financial educators and their supporters. At 
worst, such a plan would help ensure that the efforts of individual 
organizations were more cost-effective. However, a comprehensive plan 
could also convince a broad array of Government, business, and 
nonprofit groups to work together to try to persuade the Nation to 
implement that plan.
    A comprehensive plan should include, at minimum, the following 
elements: First, a rigorous assessment of financial education needs. 
Second, selection of those populations with the most pressing needs 
that financial education would help meet. Third, evaluations of 
existing programs to develop the most promising, cost-effective 
strategies for meeting the needs of these targeted populations. Fourth, 
organizing broad-based societal support to implement these strategies. 
Fifth, at each stage of implementation, evaluating the success or 
failure of these strategies.

The Federal Government Must Take Leadership
    We believe that financial education can dramatically improve only 
through support from a broad array of public and private institutions. 
Yet, it is unlikely that any comprehensive plan could be developed and 
win broad support without leadership from the Federal Government. 
Accordingly, the hearings today represent a major step forward in 
making financial education an important national priority. Yet, this 
should only be the first step. The Congress and the Administration 
should support the development of a plan, build support for this plan, 
and then help implement it.
    A promising second step would be a major study of the Nation's 
financial education needs, vulnerable populations, and the most 
effective financial education programs to meet the needs of these 
groups. This study should go well beyond typical GAO and CRS reports or 
those from existing financial agencies using current 
resources. We suggest that those Federal entities with the greatest 
interest and knowledge of financial education select leading 
researchers to undertake this research, that the researchers be advised 
not only by Federal agencies and Congress but also by a committee of 
leading financial educators, and that Congress appropriate at least $1 
million to undertake this project. Frankly, if the Federal Government 
were not prepared to spend such a trivial amount on such evaluation and 
planning, we would question its commitment to financial education.
    One topic that the researchers and their advisors should consider 
is whether it would be cost-effective to create a new Federal Office of 
Financial Education to implement any recommendations of the study. If 
adequately funded, that office could go well beyond a review of 
existing research and programs to undertake new 
research and test new programs. It could also be given responsibility 
for communicating regularly with, and even help strengthen, the network 
of financial educators. This network not only could provide the office 
with useful advice, possibly through a formal advisory committee, but 
also could help mobilize support for the implementation of any 
comprehensive financial education plan.

Financial Education Is Not Sufficient But Still Necessary
    For decades there has been a very vigorous debate in Washington and 
around 
the country about the relative merits of education and regulation to 
solve societal 
problems. In our view, both approaches are necessary and complementary. 
In the financial area, regulation should proscribe socially destructive 
practices (including financially reckless practices, as well as 
consumer deception and fraud), insist that markets be as transparent as 
feasible (chiefly through adequate reporting and disclosures), and 
enforce related rules. The recent collapse of Enron highlights the 
importance of effective regulation both for individuals and the whole 
economy.
    Even in an effectively regulated financial marketplace, however, 
education is essential to ensure that consumers have the ability to 
make rational decisions in relatively dynamic markets filled with a 
broad array of complex products. After all, most regulation only sets 
minimum standards or requires effective disclosures. It is up to 
consumers to utilize the disclosures and other information to attain 
good value in their product purchases. Only education can help ensure 
that consumers undertake money management, consumption, use of credit, 
and saving in effective ways. If they do, they and the entire society 
will benefit because individual economic decisions, and the economy, 
will become more efficient and productive.

                               ----------
                PREPARED STATEMENT OF H. PATRICK SWYGERT

                      President, Howard University
                         Appearing on Behalf of
              Historically Black Colleges and Universities

                            February 6, 2002

    Chairman Sarbanes and distinguished Members of the Senate Banking 
Committee, good morning. My name is H. Patrick Swygert and, as the 15 
President of Howard University, I am delighted to be here in support of 
the Committee's initiative to further promote financial literacy. The 
current deficiency in this regard is, indeed, one of the most under 
reported, yet critical, problems plaguing our communities. I am 
grateful to you, Mr. Chairman, and to the other Members of the 
Committee for recognizing the magnitude of this problem, and for taking 
the initiative to resolve it by holding these hearings. I am especially 
honored to be in the company of such a diverse group of distinguished 
panelists, including yesterday's panelists of leading financial 
experts: Chairman Greenspan, Secretary O'Neill, and Chairman Pitt.
    I especially appreciate the invitation to speak on behalf of higher 
education, because I truly believe that, as educators, we have an 
inherent obligation to educate, nurture, train, and prepare our 
students for life's many challenges, and to help mold them into 
tomorrow's great leaders.
    This morning, I would like to provide some insight into the 
significance of youth-oriented financial literacy from a university 
perspective.

About Howard University
    For nearly 135 years, Howard University has been educating students 
and preparing them for the important leadership positions and social 
responsibility in an increasingly complex world. Our mission as a comprehensive, research-oriented, predominantly African-American 
university is to provide an educational experience of exceptional 
quality at reasonable cost to students of high academic potential. 
Particular emphasis is placed upon providing educational opportunities 
for African-American men and women, and for other historically 
disenfranchised groups. Furthermore, Howard University is dedicated to attracting, sustaining, and developing a cadre of faculty who, through 
their teaching and research, are committed to producing distinguished 
and compassionate graduates who seek solutions to human and social problems 
in the United States and throughout the world.
    Howard University is very unique in its diversity, and we value 
that diversity. We are diverse in our community of faculty, staff, 
students, and alumni who reflect the global community. Our fields of study 
and scholarship are equally diverse. We recognize that such diversity is a critical component of the American way of life and freedom.
    Many of our students have gone on to make significant contributions 
to this Nation and to the world. They include a former Supreme Court 
Justice, jurists at every level of the judicial system, mayors of 
cities, a former Governor of Virginia, numerous national and State 
congressional representatives, Cabinet Secretaries, Nobel laureates, 
United Nations Ambassadors and world-renowned lawyers, historians, 
musicians and artists, sociologists, psychologists, theologians, and 
physicians.

Why Financial Literacy is Important to the Communities
With Significant Minority Populations

    Traditionally, Historically Black Colleges and Universities 
(HBCU's) have played a pivotal role in enhancing and empowering 
communities through education. We are often pillars in our respective 
communities, and have well-established relationships and the necessary 
infrastructure in place to implement consumer education and a financial 
literacy curriculum. Promoting financial education for our youth is 
consistent with our core values.

Historical Disadvantage

    The persistence of racial inequality from a socioeconomic 
perspective has been well-documented (Darity and Myers, 1998). African-
Americans have historically remained secondary to White Americans on 
almost every measure of economic well-being. For example, the median-
income for White households in 1999 was $54,904 compared to that of 
African-American households, which was $30,439 (Bureau of Labor 
Statistics 2001). In December 2001, the unemployment rate for White 
Americans was 4.9 percent, compared to a rate of 9.9 percent for 
African-Americans.

The Wealth Gap

    The wealth gap between the minority and White households is 
significant and 
persistent.

 The average American household had a net worth or wealth of 
    $71,670 in 1998.
 White households had an average net worth of $94,800, an 
    amount six times that of African-American households at $15,500 
    (Straight 2002).

    We have the opportunity to narrow the wealth gap by empowering 
consumers with sound financial knowledge and skills to effectively 
manage their money, and to improve their credit. The benefits of this 
knowledge are intended to expand personal finance opportunities, 
including homeownership.
    Homeownership plays a big role in decreasing the wealth gap. Home 
equity alone makes up about 44 percent of the wealth distribution. In 
December of 2001, the U.S. Department of Commerce released 
homeownership rates for the fourth quarter.

 White households had a homeownership rate of 74.4 percent.
 Black households had a homeownership rate of 48.1 percent, 
    which is 26 percentage points lower.
 The homeownership rate of lower-income households (with family 
    income less than the median-family income) is 53 percent. This is 
    lower than the national homeownership rate of 68 percent.

    To increase homeownership among minorities and low-income families, 
we need to deploy financial education curricula that will be uniquely 
designed to address their needs.
    Mortgage denial rates for African-American applicants as compared 
to White applicants continue to be significantly high.

 In 2000, the denial disparity ratio for African-American 
    applicants was 2.02, meaning that they were more than twice as 
    likely as White loan applicants to be denied a loan (CLC Compliance 
    Technologies 2001).
 In the 1990's, we witnessed the tremendous growth in subprime 
    lending for mortgages, and consumer and auto finance paper. These 
    transactions carry onerous terms, like excessive finance charges, 
    unnecessary insurance coverage, high interest rates, repayment 
    penalties and other debt traps. Frequently, African-Americans and 
    other minorities are targeted for these loans (Lindsey 1999).

    This exploitation of minority consumers may be due to a variety of 
factors. It is a very complex issue. We have the opportunity to narrow 
the wealth gap and to mitigate impaired credit by empowering current 
and future consumers with sound financial knowledge.

Credit Issues
    A notable change in consumer financial services over the past few 
decades has been the growth of the use of credit cards, both for 
payments and as sources of revolving credit. From modest origins in the 
1950's as a convenience for the wealthy, credit cards have become 
ubiquitous financial products held by households across all economic 
strata. (Durkin 2000).

 In 1998, bank-type credit cards and outstanding balances 
    amounted to a family average of $4,073 dollars. It is significant 
    that 68 percent of the families surveyed had one or more credit 
    cards.
 At the lowest-income level, the average balance was $2,240 and 
    28 percent of the families surveyed had one or more credit cards.
 At the highest income level, the average balance was $5,232 
    and 95 percent of the families surveyed had one or more credit 
    cards.

    In short, credit card use and outstanding balances are up. This 
raises concerns about whether consumers fully understand the cost, and 
whether credit cards have encouraged widespread deficit spending, 
particularly among those least able to pay. Financial education can 
help resolve these concerns and level the credit playing field by 
preparing those least able to pay, including students and many African-
Americans, make informed financial decisions.

Impact on Students
    Our students are particularly vulnerable to the enticement of 
credit card predators. The Government Accounting Office (GAO) performed 
a study in 2001, which found that one-third of students had credit 
cards before they entered college, and another 46 percent acquired them 
during their first year. Other recent reports and surveys have shed 
even more light on the plastic invasion (Nellie Mae 2000, Manning 2000, 
and Warren 2001).

 Seventy-eight percent of college students have at least one 
    credit card; many students have four or more credit cards.
 The average credit card debt among undergraduates was $2,748 
    in 2000--a 46 percent increase from 1998.
 Nine percent of students carried a balance exceeding $7,000.
 In 1998, 81 percent of college students had obtained their 
    first credit card by the end of their freshman year.
 The number of young Americans between the ages of 18 and 25 
    who declared bankruptcy in the 1990's nearly doubled from 60,180 in 
    1991, to 118,000 in 1999.
 In January 2001, young adults accounted for 7 percent of the 
    Nation's personal bankruptcies.

    The Public Interest Research Group surveyed 460 students last year 
and found the following:

 One-third of the students applied for a credit card at an 
    ``on-campus table.'' Of those, 80 percent cited ``free gift'' as 
    the reason for applying.
 Fifty percent of students obtained their cards through the 
    mail. Another 15 percent obtained cards at on-campus tables and 10 
    percent over the phone.
 Fifty percent of the students with cards always paid their 
    balance in full, 36 percent sometimes did, and 14 percent never 
    did.
 Forty-eight percent of students with one or more cards pay 
    late fees, and 7 
    percent had a card cancelled due to missed or late payments.
 Only 19 percent of students were confident that their school 
    had educational 
    resources to learn the responsible use of credit.

    If used responsibly, credit cards allow students to build up credit 
histories that facilitate increased access to credit in the future. 
However, if college students have not learned financial management 
skills in their secondary education or from their parents; and if they 
misuse their credit cards or mismanage their credit card debt, the 
disadvantages can far outweigh the advantages.

Role of Institutions of Higher Learning in Promoting Financial Literacy
    In order to protect their students from unnecessary debt 
accumulation, all learning institutions have an obligation to properly 
educate them on consumer credit, and the dangers of credit card debt.
    Howard University is already addressing the national financial 
literacy problem as it relates to African-Americans and other 
minorities. In partnership with Freddie Mac, Howard and four other 
HBCU's (Benedict College, Clark Atlanta University, Florida A&M 
University, and St. Augustine's College) are participating in the 
CreditSmart program, which seeks to develop a comprehensive, classroom-
based consumer education curriculum.
    Students are provided with an overview of credit and credit 
management; insight as to how lenders access credit histories; and the 
key steps to achieving financial goals. The curriculum's mission is 
designed to increase financial literacy by enhancing successful life-
long money management skills.
    Howard University has deployed CreditSmart in numerous workshops, 
and in a range of existing business and finance courses. We have also 
completed a CreditSmart training video, and scheduled television 
appearances to promote the program in the Washington metropolitan area.

Other Organizations
    It is refreshing to see other organizations attack the problem of 
financial illiteracy head on. Howard University's strategic partner, 
The Fannie Mae Foundation, has developed a Personal Finance Initiative 
that prepares people for homeownership by providing free educational 
materials on credit, budgeting, and the homebuying process; and through 
key partnerships with organizations that assist consumers with money 
management issues. The Foundation has collaborated with several organi-
zations to develop personal finance education programs, including a 
partnership with Home Depot and Consumer Credit Counseling Services to 
develop a replicable workplace education program; a partnership with 
the Faith Center for Community Development to provide financial education through faith-based institutions; and, a partnership with the First 
Nations Development Institute to help Native American communities develop 
financial skills.
    Investing for Success, cosponsored by the National Urban League, 
the Coalition of Black Investors-Investment Education Fund, and the 
Investment Institute Education Foundation is a special investor 
education program designed for the African-American community. I 
commend the program for its mission to strengthen the 
understanding of middle-income African-Americans about opportunities to 
invest and build wealth; demystify the world of investments and the 
jargon that too often obscures it; contribute to realistic expectations 
about the risks and rewards of investing; and encourage long-term 
financial planning that can support the efforts of African-Americans to 
save for their children's education and secure their retirement.
    Although I am confident that the efforts of Howard University and 
the host of other institutions and organizations with similar goals 
will yield benefits, I believe that the real power to address this 
issue uniformly rests with the legislative authority. The establishment 
of a nationwide strategy that will protect and educate our citizens is, 
indeed, worthy of a collective, nonpartisan effort that will have a 
lasting impact on generations to come.
    Should the Committee have any questions regarding financial 
literacy programs at Howard University, our CreditSmart project manager 
and Professor of Finance, Dr. Debby Lindsey, has accompanied me here 
today.
    Thank you, Mr. Chairman.

REFERENCES

    CLC Compliance Technologies, Inc. HMDAWARETM. September 2001.
    Darity, William A. and Samuel L. Myers, Jr. Persistent Disparity: 
Race and Economic Inequality in the United States Since 1945. Edward Elgar 
Publishing Limited. 1998.
    Durkin, Thomas A. Credit Cards: Use and Consumer Attitudes, 1970-
2000. Federal Reserve Bulletin. September 2000.
    Nellie Mae. Credit Card Usage Analysis. December 2000.
    Lindsey Debby. ``Prime and Subprime Mortgage Lenders: Who Treats 
Black Applicants Less Equally?'' International Advances in Economic 
Research. May 1999 5(2).
    Lindsey, Debby. Racial Impact of NMAC's Finance Charge Markup 
Policy. Law Offices Clint Watkins, Brentwood, TN. November 9, 1999.
    Manning, Robert D. Credit Cards on Campus: Costs and Consequences 
of Students Debt. Consumer Federation of America. June 2000.
    Straight, Ronald. Black-White: Assets Accumulation Differences by 
Race. January 2002.
    U.S. Department of Commerce. Census Bureau Report on Residential 
Vacancies and Homeownership. January 2002.
    U.S. Public Interest Research Group. Additional Studies of College 
and Credit Cards. 2001.
    Warren, Elizabeth. Consumer Bankruptcy Project II and Consumer 
Bankruptcy Project III. Harvard Law School. January 2001.

                               ----------

                  PREPARED STATEMENT OF DON M. BLANDIN

             President, American Savings Education Council

                            February 6, 2002

    Chairman Sarbanes, Ranking Member Gramm, and Members of the 
Committee, I am pleased to appear before you this morning to testify on 
the status and importance of financial literacy and education in 
America. My name is Don Blandin and I am President of the American 
Savings Education Council (ASEC)--a coalition of private- and public- 
sector organizations that undertakes initiatives to raise public 
awareness about what is needed to ensure long-term personal financial 
independence.
    ASEC works through its partners to educate Americans on all aspects 
of personal finance, saving, and wealth development, including credit 
management, college savings, home purchase, and retirement planning. ASEC develops and distributes educational materials, all of which are available 
in hard copy and on the ASEC websites: www.asec.org and 
www.choosetosave.org.
    ASEC was launched in July 1995 as a result of discussions between 
representatives of the U.S. Department of Labor and the Employee 
Benefit Research Institute to take the savings message to the American 
public. ASEC is a program of the EBRI Education and Research Fund 
(EBRI-ERF), a 501(c)(3) nonprofit, nonpartisan public policy research 
organization based in Washington, DC. We do not lobby or advocate 
specific policy recommendations.
    As President of the ASEC coalition over the past 6 years, I have 
had the unique privilege and opportunity to witness firsthand the 
growth and evolution of financial education in America. I can say with 
great assurance that an increasing number of public- and private-sector 
organizations are committed to the mission of helping Americans to save 
and plan for their financial future. Although progress has sometimes 
been very slow, we are confident that by continuing to build coalitions 
of organizations that are committed to this common mission of teaching 
Americans to save, we will achieve more success at a faster rate.
    Today, I would like to give you a birds-eye view of financial 
literacy education in America and address some of the challenges we 
face as we move forward. I would also like to take this opportunity to 
highlight a few initiatives that ASEC has undertaken in the past few 
years. As the Committee knows, the need is obvious: Studies have shown 
that the United States has the lowest national savings rate in the 
industrialized world and that many Americans are not saving adequately 
for their retirement, let alone be fully prepared for unexpected life 
events such as medical emergencies. With increasing concern over public 
programs such as Social Security and Medicare, there is a need, more 
than ever, for individuals to take responsibility in planning and 
saving for their long-term personal financial independence.
Personal Finance and the Rush to Competence:
Financial Literacy Education in the United States
    In an effort to provide you with the most updated and comprehensive 
overview of financial literacy education in the United States, I would 
like to highlight some findings from a national field study conducted 
by the Institute for Socio-Financial Studies (ISFS) and commissioned 
and supported by the Fannie Mae Foundation entitled, Personal Finance 
and the Rush to Competence: Financial Literacy Education in the United 
States.
    The study was done to assess major trends in financial literacy 
education for adults and to learn the challenges program managers and 
educators face in trying to educate their constituencies. The research 
also identified the strategies and practices that are the most 
effective in helping Americans to better understand money management.
    The study found that the 90 personal financial education programs 
they surveyed were very diverse. The financial literacy education 
programs were broken into these main sectors: community-based (32 
percent); Cooperative Extension Service (27 percent); workplace (20 
percent); faith-based (9 percent); community college (8 percent); and 
military (4 percent). The main reasons these organizations gave for 
offering 
financial education programs fell into four categories: (1) empower 
participants to take charge of their financial lives; (2) help 
participants get out of or avoid financial problems; (3) comply with 
regulations or requirements imposed by an outside authority; and (4) 
meet an organizational goal (that is military readiness, increased 
stewardship, increased employee satisfaction or productivity).
    Financial education topics that were most frequently taught fell 
into these categories: budget and money management; saving/investing; 
credit and debt; 401(k) investing; financing education; and financing 
health care.
    Program leaders and managers identified the following challenges as 
those they faced during the design, implementation, and operations 
stages of their programs: (1) having inadequate resources to design, 
evaluate, revise, or expand programs; 
(2) inexperience in sociocultural aspects of program design, marketing, 
and evaluation; and (3) the need to attract or expand programs to reach 
many more participants than they currently do.
    What also emerged from the study were solutions found by other 
program managers that addressed these various challenges. Following is 
a list of the seven most effective strategies and practices in personal 
financial education today: Clear mission statement; targeted outreach; 
adequate resources; successful evaluation and 
follow-up; easy access to program; relevant curriculum; and dynamic 
partnering.
    The research from the financial literacy study was collected in 
better financial times, but one can argue that there is an even greater 
need for basic financial education facts today. Here are some 
additional recommendations from the study:

 Urge more employers to offer personal finance courses in the 
    workplace (it is the best venue for reaching out to most people), 
    and provide public policy initiatives that offer incentives to 
    those employers who do so.
 Increase public and philanthropic support for financial 
    education by faith-based and other community-based organizations, 
    since they provide a comfortable learning environment for many 
    people.
 Incorporate socioculturally sensitive teaching methods in 
    financial education materials and curricula to address different 
    communities.
 Utilize a life-planning approach when teaching about finances 
    to encourage individuals to think more proactively about their 
    future.
 Make financial education for older Americans a national 
    priority (that is, daily money management, avoiding scams and other 
    forms of financial abuse, alternative sources for health care, home 
    care, medication, etc.).

    According to a recent conversation EBRI staff had with the 
Institute for Socio-Financial Studies, one concern that needs to be 
addressed is the ability to sustain programs over a period of time. 
Unfortunately, few programs have the resources and support they need to 
be more than a one-time effort or to reach more than a fraction of the 
people they need to reach.

Impact on Lower-Income Households
    The lack of financial sophistication or awareness by lower-income 
consumers translates into significantly lower participation in the 
mainstream financial system. Another report by the Fannie Mae 
Foundation titled Financial Services in Distressed Communities 
highlights the fact that between 10 and 12 million households in the 
United States have no relationship with a traditional bank or savings 
institution. This population, also known as the unbanked, pays many 
times more for access to routine financial services than the typical 
American family.
    Unbanked households are more likely to rely on check cashiers, pay 
day lenders, rent-to-own establishments, and other alternative or 
``fringe'' financial services providers whose interest rates can 
average from 300 percent to more than 1,000 percent on an annualized 
basis. Moreover, these institutions are growing exponentially in the 
Nation's most impoverished and distressed communities. And over-
reliance on these alternative financial services firms significantly 
undermines the ability of unbanked households to accumulate assets and 
build wealth.
    The report points out that while many factors lead unbanked 
households to rely on excessively priced financial services, poor 
choices is a leading reason. As a result, greatly increased financial 
education for lower-income households, particularly those living in 
distressed urban and rural communities, is essential.
    Despite these somber findings, some organizations are addressing 
this very important issue. According to the National Association of 
Federal Credit Unions (NAFCU), credit unions across the country are 
making a national effort to reach out to underserved communities through 
their own local programs. San Antonio City Employees Federal Credit Union (CECU) is just one example. CECU uses its financial knowledge and 
experience of its staff to prepare and teach basic financial courses for 
the city's Adult Basic Education and GED Preparation Program.

The Second National Summit on Retirement Savings
    In light of recent events in the news regarding 401(k)'s and 
retirement planning, I want to remind everyone that the second National 
Summit on Retirement Savings is scheduled for February 27-March 1, 2002. 
In 1997, the Savings Are Vital to Everyone's Retirement (SAVER) Act was 
passed in Congress and signed by the President. As part of the bill, the 
first national summit was held on June 4-5, 1998, in Washington, DC. The summit, jointly convened by the President and the bipartisan leadership of Congress, strived to increase public awareness of the importance of 
retirement planning and to identify ways to promote greater retirement 
savings by all Americans.
    This year's national summit should offer a very compelling and 
enlightening look at the future of retirement savings in America. 
Additional information on the 1998 National Summit on Retirement 
Savings can be found at: www.saversummit.org. For information on the 
upcoming Summit, see www.saversummit.dol.gov. The SAVER legislation (in 
.pdf format) is available for your review at www.
saversummit.org.
    Since the 1998 SAVER Summit, ASEC and its partner institutions have 
participated in numerous efforts to increase public awareness about 
savings and retirement planning. The selected initiatives outlined 
below have attempted to achieve many of the goals expressed in the 
SAVER Act, including: (1) coordinating with public- and private-sector 
organizations to work together and share resources to support various 
public education campaigns; (2) getting involved with local and State-
level organizations; (3) involving the media in helping inform the 
public about retirement savings; and (4) urging employers to sponsor 
retirement plans and educate employees about the importance of 
retirement savings.
Delphi Survey
    EBRI contracted with Mathew Greenwald & Associates (Greenwald), 
Inc., to conduct a Delphi survey to evaluate ideas generated by 
delegates to the first National Summit on Retirement Savings held on 
June 4-5, 1998. Specifically, these ideas focused on ways to increase Americans' retirement savings and enhance the retirement income security 
of today's workers. The results of the survey have been the foundation for various action steps undertaken by ASEC over the past few years.
    In order to develop the questionnaire, EBRI provided Greenwald with 
a categorized list of the ideas generated at the summit. Greenwald then 
incorporated these ideas into a questionnaire asking respondents to 
rate each idea according to the respondent's perception of its priority 
for further action. For the second round of the study, respondents were 
presented with the same list of ideas, ranked within each category 
according to the results of the first round, and asked to rate each 
idea again according to its priority. The third round of the study 
again presented respondents with the same list of ideas, ranked 
according to the results of the previous round (but no longer within 
categories), and asked them to rate each idea a final time. Forty-one 
percent of summit delegates responded to the first round of the survey. 
The second round had a delegate response rate of 22 percent. Forty 
percent of summit delegates responded to the final round of the survey.

The Top Twenty
    Table 1 presents the top 20 ranked ideas by the percentage of 
summit delegates rating each a high priority. While the rankings vary 
somewhat by each survey round, they also show some surprising 
consistency. ``Educating about the benefits of starting to save early'' 
is the top-ranked idea by delegates in the final two waves of the 
survey. This signals that delegates believe that an educational 
campaign with this idea as one of its central messages should be the 
top priority for anyone seeking to implement ideas from the national 
summit.
    Seven of the ideas ranked among the top 10, and 13 of the ideas 
ranked among the top 20, also concern education. ``Educate people on 
the costs of retirement'' is the second-ranked idea, while ``develop 
financial planning curriculum for high schools and colleges'' is ranked 
4. A delegate priority is also to ``develop an on-going, funded, public 
awareness program to create a culture of saving and thrift'' (ranked 
8). There also appears to be a sentiment that such a campaign should 
involve ``different messages targeted at different groups, such as 
people at risk, young people, low-income people, savers vs. nonsavers, 
ethnic groups, and high/low education levels'' (ranked 10). According to delegate responses, a priority should also be to ``encourage the use of payroll deductions'' (ranked 3) and to ``increase availability of payroll deductions and direct deposits for IRA's and/or other (retirement) savings 
vehicles'' (ranked 9).
    Three of the ideas ranked in the top 20 directly concern the high 
priority that should be placed on the education of children and youth. 
``Developing a financial-planning curriculum for high schools and 
colleges'' is ranked 4, while ``institute education projects that start 
at a young age'' is tied for 13 place and ``encourage financial 
literacy in the schools through public-private partnerships'' is ranked 
18. In addition, educating employers, specifically on how to set up 
low-cost plans, is also a priority for summit delegates.

Choose to Save'
    EBRI and ASEC's Emmy-award winning Choose to Save' (CTS) 
education program was cited by delegates to the 1998 National Summit on 
Retirement Savings as the type of campaign that should be conducted 
throughout the Nation. Based on the findings of the RCS, this program 
provides first-time savings information and also customizes the 
financial planning message to different ``savings personalities.''
    Underwritten by Fidelity Investments in the Washington, DC test 
market, Choose to Save' includes educational brochures, 
radio, and TV public service announcements (PSA's) in primetime, 
newspaper ads and outdoor displays, and ongoing news coverage through 
our DC media partners--WJLA-TV (an ABC affiliate), WGMS Radio, and WTOP 
Radio. Although the program stresses the seriousness of the savings 
message, it uses humor and positive examples to help people overcome 
their reluctance to address financial issues.
    For more information, and to see and hear the TV and radio 
education spots, visit the Choose to Save' website at: 
www.choosetosave.org. In addition, CTS PSA's are shown on military 
bases and ships worldwide. The Public Sector CTS campaign, launched in 
October 1998, aims to increase participation in State and local 
government (Sec. 457) deferred-compensation plans. ICMA Retirement 
Corporation (RC), the National League of Cities, and the Government 
Finance Officers Association underwrite the program. The CTS program is 
now in its 5th year.
    PSA's are an integral component in the CTS campaign. The goal of 
showing the PSA's is to raise the general savings awareness level among 
viewers. The CTS PSA's have been disseminated nationally through a 
partnership with Goodwill Communications, as well as the U.S. Treasury 
Department, and the U.S. Social Security Administration.
    Some interesting stats from the first national CTS PSA Campaign 
television broadcast package that was launched in July 2000:

 1,100 television broadcast stations
 35 networks/NAB closed circuit
 600 cable stations
 181 broadcast stations; 14,945 plays
 221 cable stations; 35,363 plays
 Broadcast value as of July 2001: $4.9 million.

    Additional stats from the second CTS PSA Campaign television 
broadcast package launched in August 2001:

 229 cable stations; 12,393 plays
 Radio diskpak distribution: $407,773 (as of January 2002). It 
    also features a spot in Spanish.
 253 radio outlets in 179 cities: 28,266 plays
 Broadcast value as of January 2002: $5 million airing nearly 
    9,000 spots in 149 cities spread through 49 States.

                Table 1. Top Twenty Ideas Among Delegates
           [Ranked by percentage rating each a high priority]
------------------------------------------------------------------------
                                              First    Second     Third
 Rank                                         Round     Round     Round
------------------------------------------------------------------------
     1  Educate about the benefits of              2         1         1
         starting to save early...........
     2  Educate people on the costs of             1         5         2
         retirement.......................
     3  Encourage the use of payroll               3         3         3
         deductions.......................
     4  Develop financial-planning                16         2         4
         curriculum for high schools and
         colleges.........................
     5  Provide simple, user-friendly,            10         6         5
         easy-to-understand information on
         retirement savings...............
     6  Encourage portable models.........         8        10         5
     7  Educate employers on how to set up         4         4         7
         low-cost plans (as part of a
         national public awareness
         campaign)........................
     8  Develop an on-going, funded,               5         6         8
         public awareness program to
         create a culture of savings and
         thrift...........................
     9  Increase availability of payroll          10         8         9
         deductions and direct deposits
         for IRA's and/or other savings
         vehicles to encourage savings
         (that would not be accessible
         till retirement).................
    10  Develop an education campaign that        13         9        10
         includes different messages
         targeted at different groups:
         people at risk, young people, low-
         income people, savers vs.
         nonsavers, ethnic groups, and
         high/low education levels........
    11  Educate employers on how to set up        25        19        11
         low-cost plans (as part of
         opportunities for plan
         expansion).......................
    12  Position ``lifetime savings''             43        27        11
         campaign as opposed to
         ``retirement''--which does not
         register for young people........
    13  Encourage long-term investing.....        16        15        13
    14  Institute education projects that          8        16        13
         start at a young age.............
    15  Simplify the message..............        14        33        15
    16  Use automatic enrollment/negative         27        12        16
         consent to raise 401(k)
         participation....................
    17  Raise profile of retirement                6        13        17
         savings plans when they are
         offered..........................
    18  Encourage financial literacy in           32        16        18
         the schools through public-
         private partnerships (that is,
         ``adopt a school'' programs).....
    19  Provide more education for workers        28        21        19
         on an ongoing basis..............
    20  Translate retirement benefit              16        11        19
         statements into estimated monthly
         income statements at retirement,
         to make these statements more
         meaningful to workers............
------------------------------------------------------------------------


Choose to Save' Forum on Retirement Security and Personal 
        Savings
    On April 4-6, 2000, the Choose to Save' Education 
Program hosted a Forum on Retirement Security and Personal Savings in 
Washington, DC. The forum brought together key representatives in the 
private, public, and nonprofit sectors to share expertise and best 
practices encouraging long-term, routine saving, planning, and 
investing by individuals. The two principal topics of the forum, 
covered in both plenary and breakout sessions, were: (1) increasing 
retirement planning and retirement program sponsorship and 
participation and contributions at all income and age levels, and (2) 
minimizing the leakage of savings from the retirement system as more 
defined benefit and defined contribution plans pay lump-sum 
distributions.
    Forum participants addressed the importance of creating a national 
environment that encourages personal savings and investment for 
retirement, and focused attention on actions and ``best practices'' 
that companies and organizations could replicate and use on their own. 
At the end of the forum, delegates were presented with a menu of 
initiatives that emerged from the previous day's breakout sessions. Out 
of the many initiatives that surfaced, the delegates then reranked the 
top five initiatives (six in practice, since there was a tie for the 
no, five spot), after a period of discussion on their relative merits 
and shortcomings. The final-rank ordering was:

    1. Create a national media campaign to raise public awareness.
    2. Promote negative election as a default design feature.
    3. Promote consumer financial literacy in K-12.
    4. Promote financial planning tools and websites through SSA 
benefit statement mailings.
    5. Promote preservation/rollover through the use of waivers 
recognizing foregone future accumulations.
    6. Require automatic rollover of lump sums as a default design 
feature.

Annual Retirement Confidence Survey
    The year 2002 marked the 12th year that EBRI, ASEC, and Greenwald 
have undertaken the Retirement Confidence Survey (RCS) and the 5th year 
for the Small Employer Retirement Confidence Survey (SERS). The 2002 
surveys have just been returned from the field, and the results from 
the 2002 RCS will be presented at the SAVER Summit later this month. 
The RCS has asked certain key questions over these 12 years that have 
tracked trends in retirement confidence and retirement planning 
behavior for much of this time. I would like to focus on just a few of 
the highlights from last year's surveys.
    In general, the 2001 RCS found that retirement confidence had 
declined during the year, with fewer nonretired individuals engaging in 
retirement planning and savings activities than in recent years. First, 
the percentage of nonretired individuals who have tried to calculate 
how much they will need to accumulate to ensure a comfortable 
retirement decreased from 51 percent in 2000 to 46 percent in 2001. And 
the percentage who said they tried to do this calculation declined even 
further, to 39 percent, when workers were first asked about their 
knowledge of the various components that go into this type of 
calculation. Second, the proportion of workers who say they have 
personally saved for retirement has also gone down, albeit only 
slightly. In 2001, only 7 in 10 workers said they have personally saved 
for retirement, as opposed to 3 out of 4 workers in 2000.
    With these trends in mind, it should not be surprising that the 
workers were less 
likely in the year 2001 to say they were on track in terms of planning 
and saving for retirement than they were in 2000. In 2000, 38 percent 
reported they felt they were on track, while in 2001 only 33 percent 
felt they were on track in their financial preparation for retirement. 
At the same time, the proportion saying they are a lot behind schedule 
increased from 29 percent to 34 percent. This sense of being behind 
schedule may be a result of rather small amounts that American workers 
have thus far accumulated for retirement. Half of workers have saved 
less than $50,000; 2 in 10 say they have saved nothing at all for 
retirement. The average amount for retirement increases with age, of 
course. But still only a quarter of the workers age 45 and over have 
saved at least $100,000.
    The increase in the number of workers who feel they are behind 
schedule in preparing for retirement is no doubt linked to the 
turnaround in confidence in having a financially secure retirement. 
After 5 years of steady increase the proportion of workers who are 
confident that they will have enough money to live comfortably in 
retirement dropped from 72 percent in 2000 to 63 percent in 2001. Other 
indicators of confidence also fell in 2001 after several years of 
steady increase.

 In 2000, 77 percent of workers said they were confident they 
    were doing a good job of preparing financially for retirement. In 
    2001, it dropped to 70 percent.
 Similarly, 84 percent were confident of having enough money to 
    take care of basic expenses in 2000; only 78 percent were confident 
    in 2001.
 Sixty-six percent were confident in 2000 of having enough for 
    medical expenses, compared with 58 percent in 2001.
 And more than 51 percent of working respondents to the 2000 
    RCS were very confident of having enough to pay for long-term care, 
    compared with 44 percent of working respondents in 2001.

    The decline in confidence was not spread evenly across the working 
population. Workers ages 35-54 and those with household incomes of 
$35,000 to $75,000 experienced the biggest declines.
    One area where confidence has not declined this year is in Social 
Security and Medicare, despite the large amount of press concerning the 
financial health of these two systems. Confidence in these programs has 
continued to increase from the lows recorded in 1995, although a 
majority of workers continue to remain not confident. Confidence that 
these programs would continue to pay benefits of value equal to today's 
went up in 2001 by 6 percentage points to 34 percent for Social 
Security and 4 percentage points to 39 percent for Medicare.
    On another issue of importance, the 2001 RCS found that clear 
differences remain between American workers as a whole and minority 
workers on retirement planning and saving. African-American and 
Hispanic Americans tend to have lower levels of confidence in their 
financial prospects in retirement and lower levels of retirement 
planning and saving. Among workers:

 Forty-five percent of Hispanic Americans and 54 percent of 
    African-Americans were confident of having enough money to live 
    comfortably in retirement, compared with 63 percent overall.
 Sixty-two percent of Hispanic Americans and 69 percent of 
    African-Americans were confident in having enough money for basic 
    expenses, compared with 78 percent overall.
 Twenty-nine percent of Hispanic Americans and 29 percent of 
    African-Americans say they tried to figure out how much money they 
    will need to save to live a comfortable retirement, compared with 
    39 percent of all workers.

    As a ``best practice'' example on this specific issue, I want to 
highlight the Investing for Success program, an ongoing investor 
education partnership between the Investment Company Institute 
Education Foundation (ICIEF); the National Urban League (NUL); and the 
Coalition of Black Investors-Investment Education Fund (COBI-IEF).
    The program is designed to promote greater understanding among 
middle-income African-Americans about the benefits of long-term 
investing. To date, investor education workshops have been held in 
cities throughout the country. The Investing for Success program offers 
free personal finance workshops nationwide, conducted by African-
American investment professionals. Those who are unable to attend a 
workshop can visit www.icief.org for all the materials in an 
interactive, multimedia format. In addition, based on the success of 
the program, the ICIEF is developing a Spanish-language Investing for 
Success web course that will offer similar investor education 
opportunities to the Hispanic community.

Youth and Money
    Young people today are bombarded with messages to spend, yet the 
average student graduating from high school lacks even the most basic 
money management skills (that is, balancing a checkbook, understanding 
compound interest, etc.) that can help him or her to make sound 
financial decisions. Too often, we hear stories of parents bailing 
their children out of debt--even before they have had a chance to bring 
home their first paycheck.
    It is imperative that children be taught about personal finance at 
an early age so that they can develop the skills and knowledge they 
need to have to be financially responsible adults. Helping individuals 
prepare for long-term financial security needs to begin in the home--by 
parents. The earlier good savings behavior is taught to children, the 
better planners, savers, and investors America will have in the future.
    Last year, ASEC cosponsored, along with EBRI and MGA, the 2001 
Parents, Youth & Money Survey, underwritten by the TIAA-CREF Institute. 
The survey was a follow-up to the 1999 Youth & Money Survey finding 
that 94 percent of surveyed students look to their parents for 
financial education. As the primary teachers of money management, 
parents have a major impact on the financial attitudes and habits--
positive or negative--that their child develops.
    The 2001 Parents, Youth and Money Survey found, however, that while 
a majority of parents feel confident about their understanding of 
financial matters, many of their actions and behaviors contradict this 
self-assessment. For instance, 55 percent of parents roll over credit 
card debt each month. When asked where they would put or advise their 
child to put $5,000 to save for education or some other long-term goal, 
58 percent do not identify specific long-term investment vehicles such 
as mutual funds; rather, more than one out of three parents cited low-
yielding certificates of deposit (CD's), savings accounts, and savings 
bonds. Finally, fewer than half (45 percent) of all parents say they 
make a budget and stick to it most of the time.
    The 2001 Parents Survey shows that many parents are missing day-to-
day opportunities to engage their children in conversations about money 
management, and provides some ideas for parents to help kids become 
savvy savers and consumers. One of the reasons for undertaking the 
survey was to help parents and children recognize the enormous value of 
understanding everyday financial basics, as well as to motivate 
financial service providers, K-12 teachers, financial advisors, and 
youth leaders to develop, provide, and employ tools and resources to 
strengthen family 
financial literacy.
    In conjunction with the 2001 Parents Survey, ASEC and the TIAA-CREF 
Institute have created the following tools to help educate parents and 
kids about financial matters: ``Money Talk'' pamphlet series, Youth & 
Money Poster, Interactive Savings Goal Calculator, and Piggy Bank 
Wrapper. All tools are available on the ASEC and TIAA-CREF Institute 
websites at www.asec.org and www.tiaa-crefinstitute.org.
    One question that is often asked is how effective are financial 
education classes in schools? A 2001 study done by Stanford University 
entitled, ``Education and saving: The long-term effects of high school 
financial curriculum mandates,'' attempts to answer that question. The 
paper explains that between 1957 and 1985, 29 States adopted 
legislation that required secondary schools to offer some kind of 
``consumer'' education. Fourteen States specifically required that the 
schools cover topics related to household financial decisionmaking 
(that is, budgeting, credit management, investing, etc.). The goal of 
the curricula was to ensure that the students gained practical 
financial knowledge and skills that they could later use in their adult 
lives.
    The study abstract says, ``The evidence indicates that mandates 
have raised both exposure to financial curricula and subsequent asset 
accumulation once exposed students reached adulthood. The estimated effects are gradual, probably due to implementation lags.'' These findings support 
the work of organizations such as the Jump$tart Coalition for Personal Financial Literacy, whose objective is to encourage curriculum enrichment 
to insure that basic personal financial management skills are attained 
during the K-12 educational experience.
    ASEC is a founding organization of the Jump$tart Coalition and is 
represented on its board of directors. ASEC helped to develop the 
coalition's savings and investing guidelines, which include teaching 
students about the importance of income, money management, savings and 
investment, and spending. More information can be found at 
www.jumpstart.org.
    A post September 11, 2001 survey report released yesterday by 
Certified Financial Planner Board of Standards shows the consequences 
of young people not learning to manage their finances. Young people 
today are more focused on managing and reducing debt than they were in 
1999. Among individuals ages 20-39, 47 percent list managing and 
reducing debt as a current financial goal, second only to building a 
retirement fund. By comparison, 39 percent of that group listed it as a 
current financial goal in 1999.
    What this means is that young people are turning away from other 
critical facets of the economy, CFP Board's survey shows. Interest in 
home purchase/renovation as a current financial goal has declined, and 
interest by the younger generation in vacation/travel also declined 
from 40 percent in 1999 to 33 percent in 2001. By contrast, those 
nearing retirement (ages 55-69) showed an increased interest in travel 
with 45 percent listing it as a current financial goal, up from 41 
percent in 1999.
    Finally, on a more upbeat note, I would like to bring the 
Committee's attention to an excellent example of a public- and private-
sector partnership aimed at educating America's youth about finances--
Money Math: Lessons for Life. In response to the country's low 
financial literacy rates among teens, the U.S. Treasury Department 
Savings Bonds Program, the Jump$tart Coalition for Personal Financial 
Literacy, and the Center for Economic Education (University of St. 
Louis, MO)--along with 17 other partners--developed a supplemental 
middle school math curriculum that teaches important personal finance 
skills to students in grades 7 through 9. Money Math lesson topics 
include income, saving, taxes, and budgeting.
    The four lessons included in the curriculum are available online at 
www.savingsbonds.gov and at http://coach.dosomething.org. Both the web-
based lessons and print materials are available for free. To request a 
paper copy of Money Math, send an e-mail to [email protected].

Conclusion
    Unfortunately, no matter how you look at the statistics, the bottom 
line is the same--many Americans are not saving enough for their future 
or taking control of their current financial situation. Individuals 
need to know that responsible money management is not rocket science, 
but the financial cost of not starting to save today can have a serious 
impact on their financial well-being 10, 20, or 30 years down the line.
    America is the land of opportunities, but many Americans are opting 
out of their opportunity to build wealth by overspending, carrying 
excessive credit card debt, and not participating in their company's 
employment-based retirement plans. Fortunately, many of us here are in 
a position to make a difference and educate Americans about the 
importance and urgency of planning financially.
    ASEC is a national educational effort supported by public- and 
private-sector 
institutions that are fully engaged and committed to educating 
Americans about the need to save, invest, and plan for retirement and 
other important life stages. We have been down a road and made 
significant progress, but we have also faced some turns in our path.
    But in the end, I return to my thoughts at the beginning of the 
testimony about the importance of coalition building. Organizations in 
both the private and public sectors must collaborate on all levels to 
help educate Americans about the importance of taking control of their 
financial future. By combining and leveraging our comprehensive 
networks and resources, we have a better chance of reaching people that 
none of us would be able to reach alone.
    Mr. Chairman and Members of the Committee, I thank you for the 
opportunity to speak to you today on this important topic. I would be 
pleased to take questions now, and to respond to written questions 
following the hearing.

                               ----------

              PREPARED STATEMENT OF ESTHER ``TESS'' CANJA

                            President, AARP

                            February 6, 2002

    Good morning, Chairman Sarbanes, Ranking Member Gramm, and other 
distinguished Members of the Senate Banking Committee. My name is 
``Tess'' Canja. I am President of AARP. I appreciate this opportunity 
to offer our views regarding the status of personal financial literacy 
and education in America--offered in support of the Committee's 
examination of options for developing a national strategy. With a 
membership of over 35 million midlife and older persons age 50 and 
over, we consider the work being undertaken by this Committee regarding 
financial literacy to be critical in its focus and in its timing.
    If there is a positive aspect of the debacle known as ``ENRON''--
where thousands of employees and retirees have lost most of their 
retirement savings--it is the realization that it is in our national as 
well as our individual interest to make an effort to learn about, 
understand clearly, and strive to protect the openness and fair play of 
the investment process. Enron's collapse also has shed some much needed 
light on a simple, fundamental truth--that Social Security's 
guaranteed, defined benefits will be even more important to future 
retirees than they are to today's retirees.
    For our part, we at AARP continually work to weave personal 
financial literacy into the fabric of all our program and service 
offerings. To be certain, developing effective financial literacy 
programs and services should not be viewed by anyone as a substitute 
for clear and strong oversight and enforcement of investor protection 
laws and regulations.
    About a decade and a half ago (1987), E. D. Hirsch published his 
thought provoking book on Cultural Literacy. His was a slender volume, 
with the subtitle: ``What Every American Needs To Know.'' Hirsch helped 
to spawn a national debate over what he argued was an absolute as well 
as a comparative decline of literate knowledge in the United States. 
This debate continues today, and your hearings reflect one important 
aspect of that debate--a concern over the status and need for personal 
financial literacy and education in America.
    Complicating the challenge of developing a ``civic-based'' 
financial literacy strategy for adults, as well as curricula for 
primary and secondary education, is that there are today a wide variety 
of commercial initiatives being promoted as unbiased financial literacy 
services that have--in reality--a ``conflicted agenda.'' The objective 
of many of the latter type of literacy campaigns is to market new 
products and services and systems of service delivery.
    We believe that promotional initiatives can be very useful in the 
introduction of new and of better financial services. And we understand 
that the use of creative 
marketing techniques is an essential program and service requirement 
necessary to increase the public's awareness of their need to become 
more financially literate--and to make citizens aware of available 
resources and assistance. However, we see a need for a coherent and 
coordinated national strategy for making available a 
well-researched and well-evaluated progression of financial literacy 
programs and services. This strategy should be targeted at the life- 
spanning needs of busy adult Americans--and the orientation of the 
programs should be independent of ulterior commercial motivations.
    Senator Sarbanes, in inviting me to testify today you requested 
that I share with the Committee an overview of what AARP has been 
learning about the status of, and the need for financial literacy and 
education among midlife and older Americans (those we generally 
identify as being 50 or over). AARP has long been active in efforts to 
assist midlife and older Americans improve their prospects for 
achieving personal financial security. In this regard, we have been 
active in conducting research,\1\ designing, testing and providing 
financial education and counseling services to our members, and to the 
broader midlife and older constituencies we aspire to serve.\2\ 
Currently, we are engaged in an effort to:
---------------------------------------------------------------------------
    \1\ See, with reference to the interaction of computer and 
financial literacy, the ``AARP National Survey on Consumer Preparedness 
and E-Commerce: A Survey of Computer Users Age 45 and Older,'' March 
2000.
    \2\ For example, the AARP Andrus Foundation, in a joint venture 
with the National Center for Women and Aging at the Heller Graduate 
School at Brandeis University, has created a website (www.FAAR.org) 
that provides direct access for researchers, practitioners, and 
journalists, to the latest research on economic security, retirement 
income and consumer expenditures issues. FAAR refers to ``Financial 
Aspects of Aging Research.'' Also, AARP's own website (www.aarp.
org) has a venue for ``web financial resources'' that offers assistance 
in finding financial information, financial planning, consumer 
watchdog, work smart, wise spending, etc.

 Assess the magnitude of the problems of insufficient savings 
    among adult Americans.
 Identify and review research on the status of mature adult 
    financial planning and management as it relates to savings and 
    financial security.
 Analyze existing savings education programs, focusing on those 
    that have been formally evaluated.
General Patterns of Saving and Investment \3\
    A recent research report by AARP has identified four basic pillars 
of retirement income security for the 21st century:
---------------------------------------------------------------------------
    \3\ AARP has sponsored a number of studies detailing with different 
aspects of savings and investment behavior for those age 50 and over. 
Some of the most recent reports include: How Americans Save (July 
1998). Do Baby Boomers Save and, If So, What For (June 1999). The 
Impact of Pay Inequality, Occupational Segregation, and Lifetime Work 
Experience of the Retirement Income of Women and Minorities (September 
1999). Pension and IRA Coverage Among Boomer, Pre-Boomer, and Older 
Workers (February 2000). Patterns of Dissaving in Retirement (August 
2000).

 Social Security.
 Pensions and savings/investments.
 Healthcare insurance coverage.
 Earnings from working during one's ``retirement'' years.\4\
---------------------------------------------------------------------------
    \4\ The first issue of a new AARP series: ``Beyond 50: A Report to 
the Nation on Economic Security'' (2001) concludes that traditionally, 
the structure of retirement security has been thought of as a ``three-
legged stool.'' Now, because one-fifth of the aggregate income of 
Social Security beneficiaries derives from wages, earnings from 
employment merit consideration as a pillar of retirement security.

---------------------------------------------------------------------------
    This same research report reveals that Americans age 50 and older:

 Controlled two-thirds of all household wealth in the Nation in 
    1998.
 For most of these families, home equity made up the largest 
    percentage of the total--except for the very wealthiest.

    However, in an independent analysis of 1994 Health and Retirement 
Study data, prepared for AARP and released in 2001, a team of 
researchers at Colorado State University found that low levels of 
savings and high levels of personal and real estate debt are serious 
problems for many households nearing retirement.\5\ The net effect, the 
analysts conclude, is that many households have relatively little 
wealth to rely on for retirement income.
---------------------------------------------------------------------------
    \5\ See: ``Risk Preferences and the Investment Decisions of Older 
Americans,'' June 2001. The views expressed in the study are for 
information, debate, and discussion, and do not necessarily represent 
formal policies of AARP.
---------------------------------------------------------------------------
    These findings raise important policy questions about how to 
improve the retirement income prospects for all Americans. One 
important component is surely to 
increase their financial literacy.

The Marketplace and Pace
    There has been a sustained trend of greater popular participation 
in the stock markets, and an increasing reliance on these investments 
for retirement income. Approximately one-half of American households 
own stock either directly or through mutual funds. According to the 
Investment Company Institute, investors that are 65 and older own 17 
percent of mutual funds. Nearly 40 million American households with 
incomes under $55,000 own mutual funds.
    According to the Census Bureau, more than 28 million Americans over 
age 65 rely to some extent on investment income to meet their living 
expenses. Three-quarters of older persons depend on investment income 
to meet 25 percent or more of their income. This trend is likely to 
accelerate as the baby-boomer generation ages and defined contribution 
pension plans replace defined benefit pension plans. According to the 
1998 Federal Reserve Survey of Consumer Finances, 18 percent of 
American households have defined benefit plans, while 33 percent have 
defined contribution (401(k) and 403(b)) plans.
    Interrelated with this trend of greater popular participation has 
been an explosion of information about investing, the stock markets, 
the economy, and personal finance. The policy debate over the future of 
the Social Security program and its benefits has provided additional 
focus for AARP's members and the American public as a whole--those just 
starting their working careers, as well as those anticipating or in 
retirement--regarding the nature and risks of private investment.
    And to be certain, the playing field is not level for all 
investors. Large institutional investors (that is, pension and mutual 
funds) have the resources to retain their own independent market 
analysts. For most individuals interested in investing, the ability to 
deal with the complexity of and choices in the stock markets 
begins with the challenge of interpreting and assessing investment 
quality rating systems--no mean task.

A Measure of Investor Knowledge and Vulnerability
    AARP commissioned a national telephone survey and analysis of 
consumer behavior, experience, and attitudes by Princeton Survey 
Research Associates.\6\ Interviews with 1,504 adults aged 18 and older 
were completed in November-December of 1998. This was during a period 
in which the stock market had been soaring. Four questions were asked 
to provide a general indication of the level of investment knowledge 
possessed by this sample of consumers. Responses to these questions 
were grouped into three age categories: Younger respondents (age 18 
through 49), midlife respondents (age 50 through 64), and older 
respondents (age 65 and over).
---------------------------------------------------------------------------
    \6\ See: ``Consumer Behavior, Experiences and Attitudes: A 
Comparison by Age Group,'' March 1999.
---------------------------------------------------------------------------
    The questions were:

 Do you think most full-service brokers and financial planners 
    are paid based on the quality of the advice they offer and how much 
    their clients earn, or based on the amount and type of investments 
    they sell to their clients?

  --Only fifty percent (50 percent) of older respondents correctly 
        indicated that the amount and type of investments sold to their 
        clients was the basis of their pay.

  --While over two-thirds of midlife and younger respondents (68 
        percent and 67 percent respectively) answered correctly.

 As far as you know, if you lose money in a mutual fund you 
    invested in at a bank, will the FDIC, that is, the Federal Deposit 
    Insurance Corporation, cover your loses?

  --Only forty-two percent (42 percent) of older respondents (aged 
        65+), knew the statement to be false (the remainder answered 
        incorrectly, indicated they did not know, or refused to 
        answer).

  --While fifty-one percent (51 percent) of those respondents in 
        midlife (aged 50-64), were correct.

  --Fifty-seven percent (57 percent) of the younger respondents (aged 
        18-49) were correct.

 Next, do ``no-load'' mutual funds involve no sales charges or 
    other fees?

  --Only 30 percent of older respondents knew that the statement was 
        false.

  --While 36 percent of those in midlife answered correctly.

  --Forty-one percent (41 percent) of the younger respondents answered 
        correctly.

 And finally, when an investor diversifies his investments, 
    does his risk of losing money increase or decrease?

  --Only twenty-six percent (26 percent) of older respondents correctly 
        indicated that their risk of losing money would decrease.

  --While forty percent (40 percent) of those in midlife answered 
        correctly.

  --Slightly fewer, thirty-eight percent (38 percent), of the younger 
        respondents answered correctly.

    For all respondents, only 11 percent of this sample of consumers 
correctly answered all four of these basic questions, while 25 percent 
correctly answered three of the four questions. Among consumers under 
the age of 65, 12 percent answered all four questions correctly, while 
only 6 percent of the age 65 and older consumers could do so.
    The responses to our simple set of investment questions are 
worrisome. Today the individual investor confronts a market 
characterized by multiple and increasingly complex investment choices, 
a proliferation of information sources of uneven and uncertain quality, 
and links the customer into a trading system designed for convenience 
and efficiency. However, the growth in the proportion of Americans 
investing in the stock market appears not to be supported by a 
corresponding knowledge about fundamental product features, charges, 
and risks.

Seeking a Baseline for a Literacy Strategy

    In April 2001, AARP contacted with Ipsos-NPD to conduct a study of 
persons age 50 through 59 to gain more information about their 
interests, preferences, and behaviors (from a sample composed mostly of 
baby boomers nearing retirement age). The questions relate to financial 
planning and management.\7\ Among the key findings of this unpublished 
survey:
---------------------------------------------------------------------------
    \7\ Response to the mailed questionnaire was 57 percent (N = 1,932 
responses out of 3,400 
surveyed).

---------------------------------------------------------------------------
 How they rated financial topics to learn about:

  --Respondents were given a list of 22 financial topics and asked to 
        select five that they consider most important to learn about. 
        More than 6 in 10 (62 percent) say that Social Security 
        benefits are important to learn about. Roughly half as many 
        consider knowing how much money they will need in retirement 
        (39 
        percent), sources of retirement income (39 percent), saving for 
        retirement (30 
        percent), or pension benefits and 401(k)'s (29 percent) as 
        important topics to learn about.

  --No more than one in four picked any of the other topics, listed 
        here in descending order in which they were selected as being 
        among the top five: Investing (24 percent), savings (22 
        percent), tax strategies (21 percent), interest in inheritance 
        issues (20 percent), home-based business (14 percent), estate 
        planning (14 percent), debt management (14 percent), financial 
        planning (12 percent), IRA's (11 percent), home equity or 
        reverse mortgages (9 percent), investment terms and concepts (8 
        percent), changing careers or career management (8 percent), 
        and paying for education (7 percent).

 Preferred formats for receiving financial information:

  --For each of the twelve financial topics about which they were 
        asked, the largest percentage of the respondents expressed a 
        preference for receiving written information.

  --Only 3 to 7 percent preferred computer disks, workshops or 
        seminars, audio or videotapes, or web-based formats, large 
        print or Braille.

 Levels of confidence in a financially secure retirement:

  --Roughly 2 in 10 respondents say they are either extremely (5 
        percent) or very confident (14 percent) that they will have 
        enough money to live comfortably throughout their retirement 
        years. Roughly 4 in 10 (42 percent) say they are somewhat 
        confident in a financially secure retirement, while a similar 
        percent (39 percent) say they are either not too confident (22 
        percent) or not at all confident (17 percent).

 Levels of involvement with various financial planning 
    activities:

  --The largest percentage of respondents say they have read their 
        Social Security statement in the past year (56 percent). One-
        third (33 percent) say that they have contributed to a 401(k) 
        or other similar employer retirement plan while roughly 2 in 10 
        say that they have determined their net worth (22 percent), or 
        reviewed their pension information (20 percent).

 Media, individual or organizational sources of financial 
    information:

  --When asked how they receive media information about financial 
        issues, over half (54 percent) say they get information from 
        newspapers, while slightly fewer (47 percent) say they get such 
        information from television. Four in 10 respondents note that 
        they receive financial information from print brochures (43 
        percent) and from magazines (42 percent), while roughly one-
        fifth get information from the Internet (21 percent), from 
        books (20 percent), or from the radio (19 percent). Only 4 
        percent report that they receive financial information through 
        computer software or videos.

  --Respondents were also asked what individuals or what organizations 
        provide financial information to them. Four in 10 say banks or 
        other financial institutions (44 percent) or Government 
        programs or agencies (41 percent). Roughly one-third of the 
        respondents say that their financial planner (33 percent), 
        family or friends (32 percent), and their employer (32 percent) 
        provide financial information to them. Between one-fifth and 
        one-quarter of the respondents say they receive information 
        from financial services companies (21 percent) and insurance 
        companies (25 percent). Less than 1 in 10 respondents say they 
        receive information from national financial organizations (8 
        percent), religious organizations (5 percent), and community 
        groups or clubs (3 percent).

 The most trusted source for financial information:
  --Respondents were asked to select their one most trusted source of 
        financial-
        related topics. Nearly one-third (32 percent) of respondents 
        pick a well-known 
        financial expert or professional, while slightly less than one-
        quarter selects a local financial professional (24 percent) or 
        AARP (23 percent). Only 3 percent of the respondents pick an 
        insurance company.

Lifelong Learning
    Complementing the Ipsos-NPD survey are the results from a survey 
that AARP contracted for with Harris Interactive Inc., in September 
1999, to explore how and why people over 50 years of age learn about 
new things.\8\ This research examines typical learning motivations, 
learning interests, and the life-event contexts in which learning takes 
place. In brief, the survey findings suggest that lifelong learning 
experiences that would likely hold the most appeal for mature adults 
include subjects that are:
---------------------------------------------------------------------------
    \8\ See: ``AARP Survey on Lifelong Learning,'' July 2000.

 Personally meaningful.
 Taught in environments which provide a direct learning 
    experience.
 Allow adults control over all aspects of the learning process.
 Are not too expensive.

    The findings also indicate that mature adults prefer methods that 
are:

 Easy to access.
 Require small investments of time and money to get started.
 Allow learning to begin immediately.
Lessons to Explore
    A number of potential program guidelines have surfaced, derived 
from the limited survey and literature review reported above, that 
suggest further exploration and testing. Ideally, financial literacy 
programs should:

 Have a close linkage to basic literacy skills.
 Be based on clear and focused learning objectives and 
    standards.
 Emphasize demystifying financial products and services.
 Engage people to learn when they are most receptive, that is, 
    when they are:

  --Near key life stage events.

  --Approaching the time for making a choice/selection of a financial 
        service or 
        product.

 Last, the credibility of the program, and therefore its 
    effectiveness is enhanced if:

  --Traditionally respected sources of information are the source or 
        sponsor of the program.

  --There is (affordable and ready) access to a choice of programs and 
        services.

  --A navigation (referencing) strategy is in place for making this 
        information known and current.

Conclusions
    It is premature to conclude too much regarding how best to address 
the inadequate state of financial literacy among adults in this 
country. Because of changing work patterns, a rapidly growing 
population of retirement-age Americans, increasingly complex financial 
products and services and greater personal responsibility for managing 
one's own finances, the demand for ``nonconflicted'' financial literacy 
programs and services will continue to grow. This modest projection 
assumes that there will be an increased awareness and expectation by an 
alerted public that, by necessity, we must become more self-reliant.
    At the same time, it is worth repeating our concern that support 
for adult financial literacy should not be viewed as a substitute for a 
clear and strong oversight and enforcement of investor protection laws 
and regulations.
    We look forward to working with you, Chairman Sarbanes, and Members 
of the Senate Banking Committee, on both fronts--strengthening investor 
protections and strengthening the investor.
    Thank you for this opportunity to testify before you today. I would 
be happy to answer any questions you may have.

                  PREPARED STATEMENT OF RAUL YZAGUIRRE

                 President and Chief Executive Officer
                      National Council of La Raza

                            February 6, 2002

Introduction

    My name is Raul Yzaguirre and I am President of the National 
Council of La Raza (NCLR). NCLR is a private, nonprofit, nonpartisan 
organization established in 1968 to reduce poverty and discrimination 
and improve life opportunities for Hispanic Americans. NCLR is the 
largest national Hispanic constituency-based organization, serving all 
Hispanic nationality groups in all regions of the country through our 
network of 277 affiliate community-based groups and regional offices.
    NCLR established its Economic Mobility Initiative several years ago 
in an effort to address the economic issues faced by Latino working 
families. An important element of this project is to explore the 
financial and economic security of the Nation's Latino families, and to 
develop and propose clear public policy measures to improve the ability 
of Latino families to move more successfully into the ranks of the 
American middle class. With this charge, NCLR committed itself to 
focusing on an array of issues not traditionally viewed as ``Latino 
issues,'' such as savings and investment, retirement security, pension 
coverage, homeownership, tax policy, and financial literacy, and 
general issues of asset accumulation and wealth-building for American 
families.
    In light of this, I appreciate this opportunity to appear before 
the Committee today to share with you what we have learned about the 
economic security of the Hispanic community and the role that financial 
literacy and education could play in improving the economic status of 
U.S. Latino families.
    My comments focus, in particular, on where Latino families are 
positioned in today's economy and how improved financial literacy is 
especially important to Latinos and to the Nation as a whole. I will 
also outline some key issues in financial education which are relevant 
to the Latino community and highlight ``elements of success'' with 
respect to education strategies. Finally, I call for a national 
partnership among Government, the financial services industry, and 
community groups to focus both on providing effective financial 
education to those who want and need it and eradicating financial 
illiteracy within the Latino community.

Background

    In recent years it has become clear that the economic well-being 
and financial 
security of families is no longer simply predicated on one's income 
from work, but rather on the net worth, or wealth, of a family or 
household. The Federal Reserve recently reported that over the last 
decade overall household wealth nearly doubled from $21 trillion in 
1990 to about $40 trillion at the beginning of 2001. It also reported 
that about 80 percent of this growth was attributable to capital gains, 
a substantial amount of which was due to the strong performance of the 
stock market. Thanks, in large part, to a vibrant financial services 
market--made more asset-friendly by favorable Government intervention--
American families have become wealthier and more financially secure 
than Americans in previous decades, even though their income has grown 
at a more modest rate. Today, more American workers have robust 
employer-provided pension plans, Individual Retirement Accounts 
(IRA's), stocks, and bonds, and many have seen the value of their homes 
grow exponentially in recent years.
    Today, there are 35.3 million Hispanics in the United States; 1 in 
8 Americans are Latino. We are more than 1 in 10 workers, 1 in 5 
students, and are a vital part of the economies of States, cities, and 
communities across the country. The number of Hispanic-owned businesses 
has continued to rise dramatically, and Latinos now have a buying power 
that exceeds $450 billion annually. The evidence shows that Latinos 
made serious contributions to the record economic growth experienced 
across the Nation in the late 1990's with both their hard work and 
consumer spending. Latinos, especially the Hispanic men, continue to 
work at high levels, which has led to rising median income and to 
falling poverty for many Hispanic families in recent years.
    That said, as the Nation continued its transformation toward an 
asset-based economy, most, though not all, Latinos have been left 
behind. Recent data show that the median Latino family net worth 
actually decreased in the middle of the last decade to $3,000 in 1998. 
In 1998, Latino family net worth was just 4 percent of the average net 
worth of non-Hispanic white families ($81,700), a ratio of 27 to 1. And 
when home equity is taken out of the equation, we find that Hispanic 
families have a median financial wealth of zero compared to $37,600 for 
the average non-Hispanic white family.
    Although there is a small but significant share of Latinos doing 
well financially in the United States, today, Hispanic families are the 
least likely of all Americans to own a home, have employer-provided 
pension coverage, and save or invest in the stock market. While Latinos 
have experienced gains in income in recent years thanks to their hard 
work, the average Latino family appears to be no more financially 
secure than they were in the early 1990's. Not only have many Latinos 
failed to climb the economic ladder and attain the ``American Dream,'' 
but without assets far too many remain extremely vulnerable 
economically to job loss--a concern that has materialized in recent 
months.
    However, lower net worth for Latinos has less to do with lack of 
interaction with financial service providers than with the limited 
types of providers, services, and products available to Latinos. To be 
sure, the gulf that exists in asset accumulation and wealth among 
American families can be attributed largely to distinctions in income 
and education. But disparities in net worth persist even when access, 
income, and education are not factors. A considerable problem is the 
relatively narrow scope of providers and even more limited kinds of 
products that meet the distinct financial and economic needs of Latino 
families. In addition, many Latinos are unaware of the full range of 
products available in the financial services market, and many often do 
not have the benefit of adequate information. These factors effectively 
limit the ability of Latinos to become more economically mobile and 
help to keep Hispanic families prey to unscrupulous agents and 
providers who offer high-cost products that effectively eat away at the 
financial security of families.
    In view of demographic trends and the increasingly important role 
that Latinos are playing in the U.S. economy, ensuring that Latino 
workers and families can reach their full economic potential, unimpeded 
by elements in industry such as discrimination, is critical to the 
future prosperity of the Nation. An important means of opening up the 
doors of economic opportunity and financial security to more Latino 
workers is improvements in financial literacy and more financial 
education opportunities for Hispanic families.

Financial Education
    As a practical matter, a basic understanding of how the financial 
services industry operates helps workers and their families make more 
informed choices about how best to progress economically. Even a modest 
degree of financial literacy helps families to stay away from harmful 
personal debt, fight discrimination, avoid predatory practices, and 
invest wisely and purchase and accumulate assets. But for Latinos, 
financial education and improvements in literacy are especially 
important to begin the process of purchasing and accumulating assets. 
For some Latinos it is a matter of more effectively understanding the 
particular ebbs and flows of the financial services industry in the 
United States and determining which are the most useful and cost-
effective services and products. But for most Latino families, most of 
whom are native-born, low participation in financial markets can be 
largely attributed to a lack of familiarity with financial institutions 
and the process of building wealth.
    For most Americans, including some Hispanics, financial knowledge 
is simply passed down from one generation to the next. And because the 
process of maintaining assets often naturally leads to greater 
knowledge and literacy, those Americans born into families with assets 
have the easiest road to a relatively secure middle-class life. 
Accordingly, financial education services tend to be more vital to 
those workers and families who have some means but no experience with 
assets--a circumstance that best characterizes the position of many 
Latinos in the market today. Clearly, although financial education 
alone is insufficient to narrow the wealth gap significantly between 
Hispanic and non-Hispanic families, it is a necessary component of any 
antipoverty and asset-building strategy. As such, good quality, well-
developed, financial education programs targeted to Latinos offer 
enormous economic benefits for families, the industry, and the Nation.

Elements of Successful Programs
    There are a variety of financial literacy and education programs 
currently operating across the country targeted to Latinos. These 
programs range from those with a focus on consumer protection to those 
targeted toward helping Latinos purchase homes. Notwithstanding the 
volume of financial education activity, it remains unclear what 
specific model or approach works best for Latinos. That said, there are 
detectable elements of success.
    First, successful financial education and outreach programs tend to 
be both sophisticated and responsive to nuances among Latinos. The 
Latino community is extra-ordinarily diverse. Financial education programs that have not recognized the significant, distinguishing characteristics between Latinos and non-Latinos, or even between native and foreign-born Latinos, have often proven unsuccessful. For this reason, especially, translating materials directly from English to Spanish often fails to 
elicit the hoped for response.
    Second, successful financial education programs for Latinos have 
tended to link education to an actual product or service. As a general 
rule, the promise of actually engaging in saving and purchasing of a 
product at the end of a specified period have provided strong incentives 
for Latinos to take time to attend classes and ask questions.
    Third, financial education programs that are delivered by a group 
the community knows and trusts, and which is culturally sensitive, are 
often successful. Evidence suggests that for Latinos the best vehicles 
for such strategies are community-based organizations that already have 
strong relationships with the community and provide a range of social 
services for Latino families. Such strategies provide culturally 
relevant materials and training that directly link Latino families to 
appropriate wealth-building products.
    There are two noteworthy programs that combine these elements: The 
Individual Development Account (IDA) program and homeownership 
counseling programs. The IDA program is a Federally supported program 
that matches the savings of low-income families in accounts that are held 
by financial institutions. The IDA's are designed to provide financial incentives for savings and asset accumulation among low- and moderate- 
income people. As part of this program, account holders must attend 
mandatory financial education classes, often provided by a community-based organization. Besides providing basic finance and budgeting information, 
many classes are structured around issues related to the asset development activities a person chooses to pursue. The act of saving and the promise of 
an asset at the end of the process has offered a strong incentive for 
Latinos to attend and participate in these financial education classes. Preliminary evaluation studies have found that Latinos save at higher 
rates than other IDA participants.
    Also, the Federally supported homeownership counseling programs 
offer another model for effective financial education. A number of NCLR 
affiliates provide prepurchase counseling, both to people who are ready 
to buy a home and to people who are just starting the process of saving 
for their first home. The education and assistance are effective for 
both groups because they are working toward a goal and the information 
provided is directly linked to achieving that aim. These programs are 
geared to serve the distinct needs of the local community population, 
promise a product or service, and are delivered by an agent that the 
community trusts.
Conclusion
    While more information is needed about best practices and 
approaches to improving financial literacy, we do know that the such 
measures are only useful insofar as they result in material 
improvements in the asset levels and financial security of Latino 
families nationwide. For this reason, approaches to this issue must be 
comprehensive but also sophisticated and responsive to the nuances of 
the Latino community. It is also clear that there are existing models 
that should be a central part of the solution and offer good insights 
into how best to address the financial education issues of Latinos. For 
instance, any approaches must include a national partnership among the 
financial services industry, community groups, and Government which can 
work on determining effective strategies and then help to implement 
various programs and policies that will address these financial 
literacy concerns.
    The Government can play an important role by taking public policy 
measures to foment financial education efforts. The IDA program is 
still a relatively modest demonstration project.
    Moreover, the program has failed to take serious steps to include 
Latino community-based providers and, as a result, this program does 
not serve many Latinos, even though studies show Latinos to be ideal 
participants. NCLR recommends expanding the existing IDA grant program 
to $500 million and including a clear intent to target such programs to 
serve more Latinos.
    The homeownership counseling program is also a modest program, even 
though it is proven to be highly successful for Latinos. NCLR 
recommends expanding this program to $35 million this year. Creating 
initiatives that entice the financial industry to play a role in 
providing services, education, and opportunities for underserved 
communities would do a great deal to reach millions of people and 
increase financial literacy. For our part, advocates and community 
groups are here to provide the services. We are committed to reaching 
out to the community and providing the education to underscore the 
importance of financial literacy and the opportunities it presents.
    Finally, the financial services industry has an important role as 
well. It should make the effort to learn about the Latino community and 
become involved by partnering with community-based organizations. 
Distrust of banks and financial 
institutions is also common among many Hispanics. Some Latino 
immigrants have deposited money in banks in their home countries only 
to have it lost when the bank went out of business or devalued because 
of a weak economy. Such personal experiences lead some Latinos to 
prefer whatever is perceived to be safest to the possibility of a 
profitable rate of return. Again, further exacerbating the problem is 
the failure of most banks and other financial institutions to reach out 
to the Latino community, especially in a way that addresses these 
concerns. Yet by educating Hispanic immigrants about the financial 
market in the United States, especially if the teacher is a trusted 
member of the community, Latino families can begin to gain familiarity 
with and confidence in these institutions.
    Increasing financial literacy is an important goal and an endeavor 
in which we must all embark together. It is important for the country 
that all Americans understand the financial market and have the 
opportunity to participate fully. I thank you for allowing me to speak 
here today, and I look forward to working with you in the future to 
help make all American families financially secure.

                               ----------

              PREPARED STATEMENT OF DENISE VOIGT CRAWFORD

                     Texas Securities Commissioner
                      Texas State Securities Board

                            February 6, 2002

    Chairman Sarbanes, Ranking Member Gramm, and Members of the 
Committee.
    I am Denise Voigt Crawford, the Commissioner of the Texas State 
Securities Board and Chair of the Investor Education Section of the 
North American Securities Administrators Association, Inc. (NASAA), a 
nonprofit association of securities administrators from the 50 States, 
the District of Columbia, Puerto Rico, Canada, and Mexico. I am also a 
Trustee of the Investor Protection Trust (IPT), a nonprofit trust 
devoted to investor education.
    I am pleased to appear before you today to discuss the importance 
of financial literacy and education in America. Texas is a recognized 
leader in this area, and I am pleased to have the opportunity to share 
our experiences and suggestions with you.

Status of Financial Literacy and Education in the United States
    On average, the general public is financially illiterate. That may 
sound harsh, but unfortunately it is true. Despite numerous, well-
intentioned efforts over the last few years to increase investor 
knowledge, recent surveys on financial literacy are finding nearly the 
same dismal results that were found in surveys 5 or more years earlier. 
Does this suggest that no amount of investor education will improve the 
situation? I think not. Instead, it demonstrates that we must be 
smarter about how we provide the information, motivate people to want 
to learn, collaborate, and coordinate our efforts.
    As a Nation, we have only recently recognized our financial 
literacy education shortcomings. In response, many groups have taken 
action, developed initiatives and programs, and offered their services 
to various segments of society. Governmental agencies have recognized 
that an important component of fraud prevention is investor education. 
State securities regulators, the ``local cops on the beat,'' are 
responsible for investor protection and education at the local level. 
Nonprofit entities and public service organizations are finding an 
endless need for their services. Industry participants realize that 
educated investors are more savvy and less likely to be disappointed 
with their investment decisions. The need for a better educated 
populous becomes more apparent daily, and with this recognition there 
is a disturbing awareness of the multitudes of investors who are ill-
equipped to make critical financial decisions for their lives.

We Are A Nation Of Investors
The Texas Example
    From modest beginnings, Texas has grown to be a major market and is 
eagerly sought out by national and international securities issuers. 
The dollar volume of securities registrations and filings processed in 
Texas in fiscal year 2001 was approximately $330 billion. (This number 
does not include, for example, sales of exchange-listed securities and 
other securities sold pursuant to exemptions.) The dollar volume in the 
Texas securities market now exceeds the combined deposits of all banks, savings and loans, savings banks, and credit unions in Texas.
    The Texas experience mirrors what has, to varying degrees, occurred 
throughout the United States. Over the last 10 years, the United States 
has been transformed into a Nation of investors. Over half of all 
Americans are now invested in the securities markets. Many individuals 
have become investors because they participate in employer-sponsored 
401(k) programs. At year-end 2000, about 42 million American workers 
held 401(k) plan accounts with a total of $1.8 trillion in assets. As 
most Americans have become investors, attention has focused on making 
sure students are prepared for the credit card offers they will receive 
upon going to college, preventing investors from being defrauded, 
making sure that individuals are financially prepared for retirement, 
and ensuring that Americans have a basic understanding of the 
principles of saving and investing, as well as preserving their 
accumulated wealth.
    We no longer have the comfort we experienced during the passbook-
savings years of our childhoods. Our current standard of living and our 
plans for the future are increasingly tied to the ups and downs of the 
markets, and the variety and complexity of investment options can be 
overwhelming even to those with some degree of financial knowledge. In 
addition, the markets and the investment products are constantly changing. Today, it takes knowledge of financial literacy basics just to keep up.

Importance of Financial Literacy and Education
Investors Who Lack Knowledge Are Subject To Unwise Choices
    Without basic financial education, investors are less savvy in 
making important financial choices. For example, with an increasingly 
mobile workforce, many people will, upon changing employers, be asked 
whether they should roll over their retirement account into the 
retirement plan of their new employer or cash it out. To someone who is 
30 years old and has built up several thousand dollars through 
automatic payroll deductions, the prospect of using this ``nest egg'' 
for travel, a new car, or even to purchase a home, might be a strong 
temptation. Without a fundamental understanding of the time value of 
money, the compounding factor in savings, tax penalties for early 
withdrawal of retirement funds, and an appreciation for what this nest 
egg will mean to his overall retirement plan, he may choose to cash it 
out. Unfortunately, this is a common mistake.
    Take the example of a middle-aged married couple, with a working 
father and a stay-at-home mom. If the father becomes disabled on the 
job, then receives a significant settlement, in the absence of strong 
investment knowledge, the money might all be used for immediate needs, 
rather than assuring that an adequate amount is invested so that the 
family can live off of the income and still have retirement funds for 
their later years.
    Another example is of a person who has worked all the way up to 
retirement, building a retirement account through her employer, then, 
at retirement, is offered a lump sum settlement. Like the first 
example, it may sound like a lot of money to her. She may want to spend 
some on home improvements, her children, et cetera. If she does not 
understand and appreciate that she will need income from the investment 
of her retirement funds, she may find herself over 65 years of age and 
unable to pay her bills.
    There is one additional example you may have seen in the press 
lately: Professional athletes. The U.S. Securities and Exchange 
Commission (SEC) has been investigating an investment adviser whose 
smooth-talking mannerisms engendered the trust of several sports 
figures who lost millions in a scam. Another scandal involves a former 
teammate-turned-investment counselor who swindled his friends by 
talking them into investing in his failed business, then using their 
funds for personal purposes. Such well-paid, high-profile investors are 
seemingly easy targets because they often come from modest beginnings, 
they do not have the time to manage their own investments, and often 
are all too trusting of people they know through previous 
relationships.
    In each of these examples, understanding the need to invest is only 
the first consideration. They should have knowledge of who to invest 
with, how to check out the background of their investment professional, 
and how to participate in their investments by reviewing account 
statements and changing investment goals and risk tolerances as their 
life situations evolve and change.

Without Basic Education, Investors Are More Susceptible To Fraud
    What follows is a compilation of examples from the records of the 
Texas State Securities Board, describing Main Street investors and how 
they lost their investments to investment fraud. These stories 
exemplify the importance of educating investors to help protect them 
from being defrauded.
    Just last month, a Texas court convicted an unregistered agent who 
sold approximately $300,000 worth of viatical certificates in Texas. 
Her employer, a Florida-based company, sold over $115 million in 
viatical certificates. Ultimately, a Texas judge sentenced her to 9 
years in prison for selling securities without being registered as a 
securities dealer or agent, but there was no restitution--there rarely 
is in this type of case.
    The financial literacy concept that was lacking here is the 
knowledge to call a securities regulator and check out the legitimacy 
of the promoter, the company, and the securities. Had investors done 
so, they would have found out that the company and agent were not 
registered and that should have been a red flag.
    In another situation, investors were offered a ``Prime Bank/
Debenture'' deal, marketed as a ``little known secret'' ostensibly 
unavailable previously because of an ``exclusive trading program'' 
having to do with blocking and leveraging of funds. Over the past 3 
years, State regulators have brought actions on behalf of more than 
41,000 people nationwide who invested at least $470 million in prime 
bank scams.
    A financial literacy concept that might have helped here is that 
there is no such thing as a ``prime bank'' and any investments offered 
by such a promoter are entirely fictitious.
    In Texas, we investigated another case in which investors pooled 
money to invest in speculative trading in ``foreign currencies'' that 
the promoter promised would capitalize on the momentum in the 
marketplace via minute-by-minute currency trading. The promoter also 
promised that the funds invested were protected against loss through 
``clever hedging'' strategies. However, whenever investors tried to 
``cash-out'' they were told the money was ``lost.'' The amount was 
approximately $50 million. The promoter was sentenced to a total of 84 
months in prison but much of the investors' money was lost.
    The financial literacy concept that was lacking here is the need to 
review account statements carefully and consider them in light of 
actual market fluctuations.
    With the volatility of the stock market in recent months, investors 
have looked for safer places to put their money. Elderly investors have 
been encouraged to buy higher yielding ``callable'' certificates of 
deposit (CD's). Investors are not always aware that these days not all 
CD's are created equally. A number of these ``callable'' CD's are 
callable only by the issuer. Cases across the Nation demonstrate that 
investors in their 1970's and 1980's were sold CD's with 10 to 20 year 
maturities. One retiree was persuaded to invest more than $100,000 of 
her 97 year old mother's money in three callable CD's with 20 year 
maturities.
    The financial literacy concept missing here is that buying a CD 
from a dealer is different from buying a CD at the issuing bank. 
Commissions, availability of FDIC insurance, ultimate ownership of the 
CD, and the age and risk tolerances of the investors are important factors 
to understand and consider before investing in brokered CD's.
    If these investors had been educated on investing, they would not 
have been so vulnerable. In each of these cases, the investors could 
have contacted licensing and regulatory agencies to determine if the 
security they were offered and the brokerage firm and its agents were 
appropriately registered and, if the firm or agents had ever been 
registered, they could have had access to the disciplinary histories.
    By simply visiting the website of a State or Federal securities 
regulator, they would have learned about prime bank scams, callable 
CD's, and currency exchange schemes, and would have armed themselves 
with revealing questions to ask the program promoters.

Direct Education To Current And Prospective Investors
    In order to address the vast need for investor education, we must 
recognize the challenge of directing our efforts toward the varying 
audiences: (1) young people, who are finishing high school and headed 
toward their first job or to college; (2) young married couples, 
beginning their careers and planning to buy a home, and planning for 
their children's education and for their own retirement; (3) middle-
aged persons trying to meet their retirement goals in the limited 
number of work years ahead of them; (4) retirees who have built their 
nest eggs and are beginning to take active roles with their 
investments; and (5) surviving spouses, lawsuit award winners, lottery 
winners, ``baby boomers'' and others who are expected to inherit or 
otherwise come into significant funds and are ill-equipped to properly 
manage the funds for their future use.
    Which group has the greatest need and how much effort should be 
directed toward each of them? We find ourselves with an overall 
financial literacy crisis in part because the learning curve is long, 
due to the absence of financial education at the primary level. These 
days, people have to manage their own money yet they often do not have 
the necessary background to do it wisely. We must act upon the 
realization that we will never overcome this deficiency without 
incorporating financial literacy into our education systems. We simply 
cannot leave Americans unable to save and invest wisely.

Recommendations For Improving Financial Literacy And Education
State and Federal Legislative Efforts
    The Texas State Legislature in 2001 added investor education as an 
official duty of the Securities Commissioner. New Section 43 of the 
Texas Securities Act expressly recognizes the importance of investor 
education initiatives to inform the public about the basics of 
investing in securities, with special emphasis placed on prevention and 
detection of securities fraud. The Legislature recognized the need to 
provide such education to Spanish-speaking individuals as well by 
requiring that materials developed and distributed in connection with 
investor education programs must be published in both English and 
Spanish.
    It was recognized that this function would cost money, of course. 
Rather than providing tax payer funding to accomplish this objective, 
the Texas Legislature directed me to use my best efforts to collaborate 
with public or nonprofit entities with an interest in investor 
education. We hope that these collaborative efforts will result in 
greater investor awareness, as the Legislature intended.
    Some other States have investor education provisions in their 
securities statutes and the number is rising. These statutes provide 
for various funding mechanisms, but all share a common goal of 
educating the public on personal finance and creating greater awareness 
of the dangers of securities fraud. Some, like Texas, were directed to 
establish public-private partnerships to carry out their programs. 
However, money needed to support these State investor education 
initiatives is still 
sorely lacking.
    In Congress, the recent passage of H.R. 1, the No Child Left Behind 
Act of 2001, which provides authorization for a personal finance grant 
program, may be a source for assistance to States for investor 
education initiatives aimed at public schools. NASAA is currently 
reviewing this legislation to assist the States in assessing the 
opportunities created by this Act. We are appreciative of this 
legislation and of other efforts in Congress to address the problem.
NASAA, Financial Literacy 2010 and the Investor Protection Trust
    State securities agencies, through the North American Securities 
Administrators Association (NASAA), have developed questions for 
investors to ask before committing capital to any investment; 
straightforward information about mutual funds; and a list of ways to 
spot fraudulent investments and con artists. In 1999, NASAA created a 
section that is coequal with its enforcement, broker-dealer, and 
investment adviser sections, to focus on investor education. I have had 
the honor of chairing this section since its inception. Today, the 
NASAA Investor Education Section consists of the following Project 
Groups: Affinity Based Outreach, Ethnic Based Outreach, FL 2010, 
Investor Education Coordination, and Online Trading Awareness. Members 
of these project groups are drawn from the staff of State securities 
agencies across the United States.
    NASAA promotes an Investor Education Month in April of each year. 
Events are planned to bring investing issues to the attention of the 
general public and the month is a kick-off for other such projects that 
go on throughout the year. A variety of activities such as 
presentations in public schools, senior centers, and retirement 
communities are conducted and Governors routinely issue proclamations 
to increase the public awareness of the events. President Bush issued 
several such proclamations as Governor of Texas and last year he issued 
a written statement from the White House commending participants in 
Saving and Investing Campaign Month and urging all Americans to take 
action to secure their financial futures. Due, in part, to such high-
level support, we see a growing public interest each year and our goal 
is to establish these activities as part of everyday life in America, 
not just a series of events that happen once a year.
    NASAA and its members joined forces with the Investor Protection 
Trust (IPT), a nonprofit trust devoted to investor education, the 
National Association of Securities Dealers-Regulation, Inc. (NASD-R), 
and the National Institute for Consumer Education to launch an 
ambitious program, FL 2010 (formerly, Financial Literacy 2001), to 
teach the basics of finance to high school students across the country.
    We know that the young people of today soon will begin making 
personal finance decisions that will affect the quality of the rest of 
their lives. They will be compelled to make critical decisions about 
earning, spending, saving, and investing their money. However, very few 
American teenagers today have the tools they need to make these 
important choices. FL 2010 was launched in 1998 to help combat the 
widespread financial illiteracy among the next generation of American 
savers and investors.

Financial Literacy 2010 Campaign Features
 State-customized teaching guides that have been shipped to 
    more than 40,000 high school teachers throughout the United States. 
    The FL 2010 program includes two teaching guides, one geared toward 
    general business or consumer education teachers and one focusing on 
    the unique needs of high school economics teachers. Each of the two 
    guides includes units that can be used together or on a stand-alone 
    basis. State-customized information provides local and statewide 
    information on investment education and protection.

 Training sessions. Through the end of 2001, a network of more 
    than 100 State securities agency officials and volunteers had 
    conducted more than 350 training workshops at State and national 
    education association conferences. In the first 
    3 years of FL 2010, an estimated 8,500 teachers took part in the 
    training.

 Teacher support through a website (www.fl2010.org) and 
    newsletter published three times a year.

    The project has been enormously successful. In Texas, we have 
distributed guides to more than 1,000 high school teachers. Many States 
have had similar success. For the most part, high school teachers have 
worked financial education into the final semester for high school 
seniors, as they focus on issues such as financing a college education, 
choosing a job, getting married, and so on.
    FL 2010 is but one example of a way to reach audiences where they 
are most reachable. The public schools provide us with a great 
opportunity, but we need to do much more. More resources are needed and 
this is a ripe area for public-private 
partnerships.

Coordination of Investor Education Efforts
    Now that significant participants in the securities and financial 
industries have recognized the need for financial education, many 
efforts have been undertaken to develop more savvy investors. Similar 
to the programs described above, genuine 
efforts are being made by governmental bodies, by nonprofits, and by 
private and public organizations. The States, individually and through 
NASAA, have multifaceted education efforts. The SEC and NASD-R have 
programs. The American Savings Education Council, the AARP, the 
National Council on Economic Education--to mention only a few--all have 
on-going efforts to increase the public awareness of the need for 
financial planning and investor education programs.
    Every investor can benefit from financial education. However, 
instead of every educational effort attempting to reach every need, 
perhaps a division into focus groups, similar to what has been done at 
NASAA, would be more successful overall. I envision an action plan for 
attacking the problem at deliberate points, with specific objectives 
that are quantifiable, toward the final goal of having an educated 
investing public.
    The ability of investors to make wise, informed choices is a major 
assumption and is the cornerstone of a capitalistic economy. Investment 
fraud drains the economy of needed resources and can instill fear, not 
only in those defrauded, but also in the millions of other Americans 
who learn about it. The ability of consumers to buy what they need 
throughout their lives provides markets for the goods we produce and 
the services we provide. A stifling debt load or uninformed planning 
can preclude that ability. Financial concepts touch every facet of 
every life in this great Nation and the financial health of our 
families is a prerequisite to the health of our markets and our 
economy.
    While financial education in the classroom is a necessity, that 
alone is insufficient. Financial professionals in the Government arena, 
the securities, banking and insurance industries and in the accounting 
and legal professions must work tirelessly and together to make the 
knowledge we each have, from our unique perspectives, readily available 
to the public. We are on the right path, but the journey has been 
slower than we would like.
    Elected officials have a unique perspective as well and can help. 
The scheduling of the hearings this week have already helped to raise 
public awareness. Individually, you and your staffs can participate in 
national saving and investing month activities and can encourage your 
own State to sponsor and/or fund such activities as well. As a 
Committee, you have access to numerous financial professionals who 
would be happy to participate in any activities you may choose to 
initiate.
    Working together, we have the expertise needed to reach the goal of 
a financially literate populace. It is our hope that, working together, 
we can find creative ways to reach every American.
    Thank you for the opportunity to testify before you today.

        RESPONSE TO WRITTEN QUESTIONS OF SENATOR AKAKA 
                    FROM H. PATRICK SWYGERT

Q.1. Why have bankruptcy filings by those under 25 years of age 
increased by 51 percent from 1991 to 1999?

A.1. It appears that the increase in bankruptcy filings among 
this age group is largely influenced by increases in the level 
of borrowing for post-secondary education and credit card debt, 
coupled with modest/zero income. Credit card companies have 
been overly aggressive in pursuing students for credit cards: 
They often visit college campuses with credit card 
applications, enticing students with offers of free gifts and 
easy credit. By the time the student graduates, he or she has 
often ``maxed out'' the cards and have the additional burden of 
student loans. Although some parents incur the debt, many do 
not.

Q.2. According to the General Accounting Office, the average 
college graduate leaves school with an average of $19,400 in 
student loans. This combined with credit card debt can place a 
large burden on recent graduates. What debt management services 
are currently available for recent college graduates?

A.2. Last year, the Society for Financial Education and 
Professional Development (SFEPD) launched a series of debt 
management seminars which have been conducted at Historically 
Black Colleges and Universities during their Freshmen 
orientations. Debt management training is also offered through 
most college and university financial aid programs. 
Additionally, the U.S. Department of Education and various 
lenders offer repayment plans that correspond to the student's 
income.

         RESPONSE TO WRITTEN QUESTION OF SENATOR AKAKA 
                   FROM ESTHER ``TESS'' CANJA

Q.1. As life spans increase, what should we be doing to help 
Americans adequately prepare for the extended length of 
retirement?

A.1. Improving well-being among those 50 and older begins 
logically with improving the adequacy of economic resources. 
However, Americans have been consistently undersaving for 
retirement and other purposes for over a decade. Trends in 
retirement income (including less generous public and private 
pensions, preretirement distributions from 401(k) plans and 
demographically driven reforms to Social Security) suggest an 
ever-increasing need for higher rates of personal savings.
    An increasingly mobile and competitive workforce requires 
much more education, at all ages, about what income needs in 
retirement are likely to be and how workers can meet them. AARP 
supports strengthening public policies that encourage people to 
save for their retirement and that ensure the preservation of 
such funds for retirement. Such policies should more strongly 
emphasize educating Americans of all ages--through schools, 
colleges, religious institutions, workplaces, and other 
avenues--on the importance of lifelong saving.

         RESPONSE TO WRITTEN QUESTION OF SENATOR AKAKA 
                      FROM RAUL YZAGUIRRE

Q.1. For States such as Hawaii, with significant numbers of 
recent immigrants, what can be done to encourage the unbanked 
to develop a relationship with a financial institution?

A.1. There are several important steps that can be taken. One, 
encouraging partnerships between community-based organizations 
(CBO's) and financial institutions would be beneficial. For 
example, CBO's serve as great vehicles for delivering financial 
education to immigrant groups by helping them to understanding 
what options are available for financial industry 
participation, as well as helping them gain trust in these 
institutions where it may be lacking. These partnerships can 
also work to foster an Individual Development Account (IDA) or 
similar type of savings program. Two, it is equally important 
that financial institutions be encouraged to create products 
conducive to the needs of immigrants, many of whom are low-
income. This could involve offering low-cost and starter 
checking accounts; remittance and fee-based check cashing 
services; and access to low-cost money orders and deposit-
secured emergency loans for those whose credit histories may be 
flawed or nonexistent. It is also very important that banks and 
their tellers understand what types of identification are required-- 
and which kinds are not--in order to open an account. For example, 
banks are not required by law to obtain their customer's Social 
Security numbers, and Individual Tax Identification Number 
(ITIN) is acceptable. Finally, financial institutions must 
start marketing their products and services to immigrant 
communities. This involves opening branches conveniently 
located for immigrant customers, offering materials that are 
culturally sensitive and in the appropriate language, and 
hiring employees who are a part of and understand the needs of 
the immigrant community.

                       STATEMENT OF ADAM J. BASS

                    Senior Executive Vice President
                      Ameriquest Mortgage Company

                            February 6, 2002

    I appreciate Chairman Sarbanes and the Committee's attention to the 
critical issue of financial literacy and submit the following testimony 
on behalf of Ameri-
quest Mortgage Company. Ameriquest Mortgage Company is one of the 
Nation's largest retail subprime lenders. Headquartered in Orange, 
California, and operating in more than 220 offices in 33 States, we 
provide affordable loans to homeowners who have credit needs but 
imperfect credit profiles. We assist our customers in utilizing their 
most important asset--their homes--to obtain affordable credit and meet 
their personal financial commitments.
    Ameriquest commends the efforts of the organizations that testify 
before the Committee today to provide Americans opportunities to 
enhance their financial knowledge and skills, particularly in the area 
of homeownership. We believe mortgage industry professionals can and 
should join the push to end unscrupulous lending and play a leading 
role in enhancing financial literacy. Ultimately, we think it is in the 
lenders' best business interests to do so. We are convinced that only 
knowledgeable borrowers are in the best position to negotiate their 
loans and skillfully manage their financial resources in order to 
protect their homes.
    In an ideal world, every consumer would obtain a solid financial 
foundation before entering into a money transaction. However, many 
Americans have not had the opportunity to learn such information at 
home, school, or work. This lack of financial education, combined with 
a slumping economy, has contributed to a skyrocketing consumer debt 
load that is growing beyond that encountered in any previous re-
cession. The country's financial woes necessitate, now more than ever, 
the need for increased financial literacy.
    Among the many facets of financial literacy--learning to properly 
balance a checking account, understanding one's credit score and its 
implications, identifying smart investment opportunities, etc.--perhaps 
the most important and profitable financial know-how concerns 
homeownership. As a hallmark of ``the American Dream'' and the highest-
capital consumer investment, owning one's home can be an overwhelming 
responsibility, and getting to that point can be even more of a 
challenge. Consumers purchasing first mortgages and those refinancing 
current ones all face a complex web of decisions, which they can 
navigate successfully only when equipped with adequate knowledge of 
borrowing basics.
    Our business philosophy ``Do the Right Thing'' conveys a commitment 
to customer service, which goes beyond providing the financial means 
for borrowers to refinance their homes and obtain credit. We view each 
financial transaction as an opportunity to educate borrowers and ensure 
they have full and complete information concerning all loan features 
before they make binding decisions.
    The terms of a loan contract should always be a matter of 
negotiation between the borrower and the lender. But in order for this 
negotiating process to produce fair results, borrowers must be fully 
informed about the nature of the products being offered. Only when 
armed with the understanding of the terms and commitments involved in 
the transaction can the borrower make his or her own decision about 
whether or not to accept a loan, and upon what terms.
    While we are proud of our history of honestly and fairly making 
credit accessible to underserved markets, we understand that not all 
lenders do business in such a manner. The growing concern regarding the 
use of so-called ``predatory'' lending calls for a renewed commitment 
to financial literacy training.
    Borrowers must understand basic fair lending principles and be able 
to recognize the warning signs of illegal abusive lending practices, 
such as ``bait and switch'' sales tactics, and those practices, which 
are technically legal but sometimes applied in a way not fully 
understood by the borrower. To ensure our customers do not bear the 
potential risk associated with such practices, Ameriquest simply does 
not offer them with any of our loan products.
    While legal and conducted by some lenders, as a matter of corporate 
policy and practice, Ameriquest provides:

 NO single premium credit life insurance to borrowers.
 NO soliciting refinance of a borrower's loan within 24 months 
    of its origination.
 NO loans with mandatory arbitration clauses.
 NO loans with balloon payments.
 NO negative amortization loans.

    In our own effort to promote financial literacy, Ameriquest 
supported the formation of the Consumer Mortgage Education Consortium 
(CMEC) in 1996 in conjunction with three leading Washington DC-based 
civil rights organizations--the Leadership Conference of Civil Rights, 
the Nation's oldest and largest civil rights coalition; the National Fair Housing Alliance; and the National Association of Neighborhoods. CMEC was founded to stimulate the availability of home loans for all Americans 
and to promote a better understanding of loan products and lending 
processes through national workshops and the creation of a how-to workbook 
for advocates and consumers.
    Ameriquest asked our CMEC partners and other key community group 
allies, including the Association of Community Organizations for Reform 
Now (ACORN), to identify their principal concerns regarding subprime 
lending activities. While Ameriquest had long ago addressed many of 
those concerns, we developed and implemented an official set of company 
``Best Practices.'' These fair lending guidelines ensure that our 
borrowers receive top quality service and fair treatment and are able 
to make intelligent, informed decisions about their credit needs.
    Our ``Best Practices'' include a pledge to communicate with our 
borrowers in plain English, using clear language and familiar terms 
they understand. We provide each customer simple-to-read disclosure 
documents that clearly identify all of the important terms of the loan 
using phrases such as:

 your interest rate is;
 you have a prepayment charge of ; and
 your total fees are.

    The document also contains a list of cautionary tips to ensure that 
borrowers do not unwittingly make unwise decisions including:
 borrow within your income and budget;
 do not be pressured into signing documents you do not 
    understand;
 shop around;
 be advised that the price of the loan or other loan terms 
    might change by the time of closing; and
 maintain a good payment record prior to the loan closing.

    Copies of these documents are attached for your review.
    Ameriquest makes HUD-certified credit counseling available to all 
borrowers and encourages them to utilize it prior to loan closing and 
during the rescission period. Contrary to the industry standard of a 
legally mandated 3 day rescission period, we provide a one-week, post-
approval period during which borrowers can shop our loan and evaluate, 
with the help of a credit counselor, whether our loan is best for them.
    After customers obtain a loan from Ameriquest, our Servicing 
Department welcomes new borrowers immediately by phoning them to verify 
basic loan information and to ensure that they understand the loan 
terms, payment amount and payment date. These welcome calls allow us to 
promptly identify and to rectify origination-
related problems.
    In short, all of our ``Best Practices'' empower consumers to make 
the right choice for them. We use them because it is the ``Right 
Thing'' to do, and frankly, we believe our business benefits from them, 
too. We benefit from having borrowers who fully understand the 
financial responsibility involved in taking out a loan with us, and who 
are therefore better prepared to pay their mortgage. We also benefit 
from having fully informed, loyal borrowers who exhibit financial 
confidence and recognize that they have been treated fairly.
    Ameriquest commends the Committee for focusing attention on the 
dangers of financial illiteracy and the need for heightened efforts to 
increase America's money smarts. Ameriquest believes there is no more 
important lesson in life than learning to achieve financial security. 
We remain committed to educating our customers and to advocating 
national education programs to help consumers make better informed home 
mortgage decisions. We hope to have the opportunity to work with you to 
further financial literacy for all Americans.
    Thank you very much.

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

                     STATEMENT OF ROBERT F. DUVALL

                 President and Chief Executive Officer
                 National Council on Economic Education

                            February 6, 2002

    Mr. Chairman and Members of the Committee, my name is Robert F. 
Duvall and I am the President and Chief Executive Officer of the 
National Council on Economic Education (NCEE). We appreciate the 
opportunity to submit this statement and we applaud the Committee's 
decision to hold hearings on ``The State of Financial Literacy and 
Education in America.'' This is a subject of critical importance to the 
Nation and the future well-being of its citizens.
    It is also the critical issue for NCEE. As you may know, advancing 
economic and financial literacy is the singular reason why we exist. 
NCEE, like the Committee, is deeply troubled with the staggering 
consequences of economic illiteracy. First and foremost, it affects the 
productivity of the Nation and it negatively impacts the standard of 
living of all its citizens. It creates barriers that keep people from 
participating in, and enjoying the many benefits of, our free market 
system, the envy of the world. And it limits the ability of many to 
make informed financial decisions that oftentimes affect families and 
households for years to come.
    To combat this problem, we are waging a war on economic illiteracy 
on many fronts. To be sure, these are difficult battles, but I am 
pleased to report that we have had many successes. At this point, it 
might be helpful if I were to briefly 
describe our organization and some of the key things we are doing to 
help ensure the future health and prosperity of our Nation.
    To begin with, NCEE is a unique private and public partnership of 
business, Government, and education that for more than 50 years has 
been helping students in grades kindergarten through 12 develop 
economic ways of thinking and problem solving. Our mission is to 
increase economic and personal financial literacy by teaching teachers 
how to make these subjects come alive in the classroom and by equipping 
them with the materials to do it well, designing curriculum and 
assessing the results.
    Through our nationwide network of State Councils and 250 
university-based Centers of Economic Education, NCEE administers 
programs that each year reach approximately 120,000 teachers and over 
seven million students in more than 70,000 schools. In carrying out 
these activities, we work closely with the State boards of 
education and school districts. Also, through grants from the U.S. 
Department of 
Education, NCEE programs have also reached 1.8 million students in 21 
countries in Central and Eastern Europe and the former Soviet Union.
    As the Committee is well aware, financial illiteracy is a very real 
and serious problem. A series of recent studies and surveys provide 
convincing evidence that a majority of adults and more than two-thirds 
of high school students are unable to pass a simple quiz on basic 
financial and economic concepts. The data tell us, for example, that 50 
percent do not know what a Federal deficit is, 60 percent do not 
understand the purpose of profits and 70 percent do not understand that 
competition in the marketplace serves to lower prices and increase 
quality.
    The reason that so many know so little about how our free 
enterprise system works is simple: most have never been taught anything 
about it. Currently, only 
13 States require high school students to take a course in economics 
prior to their 
graduation. Clearly, what you do not teach, they do not learn. And that 
is cause 
for concern.
    For many, being financially illiterate means futures filled with 
money, credit, and career problems. It also means that many of these 
same people will never become knowledgeable consumers, prudent savers 
and investors, productive members of the workforce, or informed voters 
on issues critical to their communities.
    If we are to remedy these problems, respond to growing threats to 
our economic way of life and raise the standard of living in our Nation 
for all of our citizens, both children and their parents must possess 
the requisite skills to be economically and financially literate. These 
are life-long skills and as such, this education must start early, at 
the lowest grade level, continue through high school and carryover into 
the workforce.
    It is for that reason that in 1999, NCEE launched its multiyear 
Campaign for Economic Literacy. Our goal is to focus national attention 
on the need to make 
economics and personal finance education a priority for every American, 
especially students, and to engage the public and private sectors in 
launching creative and innovative programs that foster economic and 
financial literacy in our Nation.
    Among these Campaign for Economic Literacy programs we currently 
have underway are the following:

 NCEE / Nasdaq National Teaching Awards--Awards and some of the 
    largest cash prizes in education are given annually to 25 
    outstanding teachers for their originality, creativity, and 
    effectiveness in teaching such subjects as personal finance, the 
    financial markets, the investment process, capital formation, and 
    entrepreneurship, among others.

 NCEE / Goldman Sachs Foundation Economics Challenge--This 
    nationwide competition, featuring State, regional, and national 
    championship ``Challenges,'' combines academics with the 
    competitive instincts of students. In offering tangible rewards for 
    demonstrated achievement, the ``Challenge'' encourages more 
    students, especially underrepresented students, to take economics 
    courses and improve their overall test scores.

 EconEdLink--The classroom and the world merge on the Internet 
    as EconEdLink reveals the economics behind the news. EconEdLink is 
    part of the WorldCom Foundation's Marco Polo Project, one of the 
    most heavily tracked educational sites on the web. By visiting the 
    website, teachers and students can choose from MillionaireMinute, 
    EconomicsMinute, and NetNewsLine for true interactive learning 
    sessions.

 ItAllAddsUp--Developed by NCEE and sponsored by the American 
    Express Foundation, ItAllAddsUp is a brand new economics and 
    personal finance interactive website that helps junior high and 
    high school students learn about budgeting, managing credit, paying 
    for college, and decisionmaking through game-like activities.

 ECONnections--Through the generosity of The McGraw-Hill 
    Companies, high quality, standards-based economics lessons from 
    NCEE are now available in an easy-to-use Internet format. Using 
    audio and interactive lessons, ECONnections links Standard & Poors 
    experts, Business Week journalists and other McGraw-Hill volunteers 
    to students in the classroom.

 The ``Mint''--The ``Mint'' is an interactive website that has 
    been designed to increase middle and high school students' economic 
    and financial literacy skills. It includes interactive games for 
    students to make learning interesting, understandable and fun; 
    lesson plans for teachers; and tools to help parents reinforce the 
    personal finance education of their children at home.

 The Community Publishing Project--With the funding provided by 
    the Worth 
    Charitable Fund, a pilot NCEE classroom program was begun this past 
    year at P.S. 125 in New York. The program teaches children in 
    grades 3, 4, and 5 how to function as entrepreneurs as they produce 
    and sell a handbook about and for their community. This program 
    will be expanded nationwide shortly.

 Mathematics and Economics: Connections for Life--This 
    innovative curriculum for grades 9-12, developed by NCEE with 
    funding from State Farm Insurance Companies, integrates mathematics 
    and economics. The multidiscipline approach to teaching is 
    furthering students' understanding of the application of 
    mathematics and economics to everyday life. State Farm is also 
    funding a nationwide teacher-training program.

 Economics for All Teachers--This program, funded by 
    International Paper Company, is designed to help educators teach 
    economics effectively in grades kindergarten to 12 using NCEE 
    materials. The program features economic education and technology 
    workshops and a complementary Virtual Economics CD-ROM, given to 
    all participants.

 Homeownership and Lending Practices--This NCEE curriculum 
    project, funded by the Mortgage Bankers Association, is designed to 
    teach teenagers and adults about the economic benefits and personal 
    finance aspects of homeownership. This practical, academic course 
    is offered free and includes a component on the need to recognize 
    predatory lending practices.

    As the above description of our core activities and this summary of 
programs indicate, NCEE and its corporate partners are working 
diligently to address the problem of financial literacy. However, it is 
clear much more remains to be done. In that connection, later this 
month we will unveil our most ambitious undertaking ever to address the 
problem of financial literacy.
    On February 26, 2002, NCEE and the Bank of America will formally 
unveil 
Financial Fitness for Life, a new and innovative financial education 
curriculum, based on national teaching standards, that will help 
students from kindergarten to senior high school become skilled 
consumers, savers, and investors.
    The product of several years of development and testing, this 
first-of-its-kind program has been designed to prepare students to make 
intelligent choices that will affect their entire lives--from managing 
money and making financial decisions to staying in school and selecting 
careers. Parental involvement is another key design feature of the 
program.
    This creative education system, funded at a cost of $3.2 million, 
presents key concepts in personal finance in an easy-to-understand 
style, using real-life examples, that appeals to even the youngest of 
students. Drawing on an analogous concept, the Financial Fitness for 
Life curriculum makes extensive use of ``physical fitness'' terminology 
in all course materials.
    The curriculum includes four student workbooks (for Grades K-2, 3-
5, 6-8, and 9-12), four parallel teacher texts and two parent guides 
covering every grade level. An interactive CD-ROM and supporting 
website complement the ``Financial Fitness for Life'' curriculum and a 
Spanish language version of the primary grade material is now being 
developed. Additional aspects of the program include several ``train 
the trainers'' sessions, hundreds of professional development workshops 
in personal finance for teachers and extensive field testing of the 
curriculum in 18 rural and urban schools in California, Florida, and 
Texas.
    Financial Fitness for Life meets national and most State standards 
in four critical areas--Economics, Language Arts, Mathematics, and 
Personal Finance. In addition, all of the curriculum materials employ 
economics, for example, the science of decisionmaking, as a way to 
prioritize the staggering array of choices facing students when they 
make decisions. By prioritizing, students learn how to make better 
decisions, and, equally important, how to avoid poor ones. The emphasis 
on using economic concepts and an economic way of thinking 
distinguishes these materials from other quality materials used to 
develop personal financial literacy.
    Because of the modeling they do in everyday life, parents play an 
important role in developing the personal financial literacy of their 
children. For that reason, parents are an integral part of the 
Financial Fitness for Life system. A unique set of ``Parent Guides,'' 
which tracks lessons contained in each of the student books, is an 
essential component of this novel learning system. The guides provide 
parents with material for discussion and an assortment of recommended 
activities they can do with their children at every grade level. 
``Financial Fitness for Life'' also gives parents who need to expand 
their own ``personal finance'' horizons an opportunity to learn along 
with their children.
    We believe that this new and unique personal finance curriculum 
fills an educational void and, when implemented nationwide, will make a 
significant difference in the lives and standard of living of many 
people.
    Other major programs that would contribute immeasurably to 
improving economic and financial literacy in this country are embodied 
in the Excellence in Economic Education legislation introduced by 
Senator Daniel K. Akaka and included in the No Child Left Behind Act of 
2001. From a public interest perspective, we fully support his bill and 
strongly encourage its passage.
    Clearly, economic and financial literacy is of vital importance to 
the Nation and prompt action must be taken to address it. What we 
recommend is the following:

 Elevate economics and its subset, personal finance, to the 
    fourth ``R.''

 Establish standards and benchmarks for teaching economics in 
    every State to ensure that students throughout the country receive 
    uniformly excellent economic education.

 Develop new and innovative approaches for reaching the 
    Nation's youth and teaching economics.

 Mobilize a coalition of leaders in business, labor education, 
    and Government to advance a nationwide, multiyear initiative to 
    enhance and extend economic education in our schools, our 
    communities, and the workplace.

 Secure the active participation and financial support of both 
    the public and private sectors in this effort.

    These are the goals that we have set for ourselves at NCEE as part 
of our Campaign for Economic Literacy. We are aiming for nothing less 
than a transformation of our society to one that is economically 
literate. It is a grand vision, an achievable vision, and an inevitable 
reality. Economics is the quality of life issue for this 
millennium and economic and financial literacy is the vehicle that will 
make a 
difference.
    We believe that the goals we have set for ourselves are highly 
compatible with those of the Committee and others who have appeared 
before it at these hearings. We welcome the opportunity to work with 
the Committee on these important matters and to discuss our thoughts on 
this subject in greater detail at the convenience of the Committee. 
Again, we commend the Committee for convening these hearings and 
drawing national attention to the importance of financial literacy and 
education in America and the need for prompt, coordinated action.
    Thank you.

                        STATEMENT OF LYNDA GLASS
                            on behalf of the
                      American Bankers Association

                            February 6, 2002

The Financial Illiteracy Epidemic: Why Johnny Can't Save
    The problem of financial illiteracy is epidemic in this country. 
Consider the following facts:

 In the year 2000, a survey by the Jump$tart Coalition for 
    Personal Financial Literacy tested high school seniors' knowledge 
    of personal finance. The average score was 51.9 percent, down from 
    57.3 percent 3 years earlier.

 Less than 40 percent of high school students receive any 
    formal financial education. Over a third of teenagers polled said 
    they learned about money by figuring it out themselves.

 Kids from 12-19 spend or influence the spending of over $150 
    billion a year.

 The average credit card debt of teenagers rose 300 percent 
    from 1990 to 2000.

    Kids are graduating from high school being able to do little more 
than make change. The consequences of their financial ignorance are 
staggering--especially since 50 percent of kids in this country do not 
go to college and head straight into the workforce. The adults they 
will quickly become will not know how to budget, handle their debt or 
save, making the prospect of building a good credit rating, renting or 
buying a home, sending their kids to college and funding a comfortable 
retirement a slim one indeed.
    Their parents have not done much better. Three quarters of a 
million people filed for bankruptcy in the first half of 2001.
    Over time, the challenge of money management has only grown more 
difficult, as the number of financial products and options has 
mushroomed. Even banking terminology--from amortization to zero-coupon 
bonds--does not trip off the tongue. And banking as a subject does not 
grab people by the lapels. It seems complicated, difficult. Yet banking 
is a relationship for life, holding as integral and indelible a place 
among human needs as food and shelter. Imagine a society without 
checking accounts, 24-hour ATM's around the world, credit cards. It is 
possible to function without them, but not nearly as conveniently, as 
safely, or as confidently.
    Next to their health, money ranks at the top of most people's 
concerns. Yet most would probably say they do not manage theirs well. 
Just as too many Americans are overweight or smoke or drive too fast, 
too many bank customers bounce checks or incur needless ATM fees or 
charge too much on plastic. These bad financial behaviors, for the most 
part, are avoidable--if you know what to do and what not to do. Today's 
kids--and a lot of their parents--do not know what they do not know.
    Like other industries, banking has undergone radical change. It was 
not that long ago that people accepted what their doctor--who was their 
one and only doctor--said as an article of faith. Now, they routinely 
seek out second opinions, read up on medical information, take vitamins 
by the fistful, and practice alternative methods of good health from 
the traditional--more green vegetables, less couch potato; more 
jogging, less jiggling--to the less traditional--acupuncture, 
transcendental meditation, tai-chi, yoga.
    So, too, with financial matters. When today's boomers were babies, 
Ozzie and Harriet were not reading Money magazine or watching Louis 
Rukeyser. Banking, like much else in life in the 1950's was 
uncomplicated. No more. There is a lot of sophisticated material out 
about financial matters. But some of the basics--and the discipline to 
incorporate them into a person's daily life--often slip through the 
cracks.
    We teach today's children how to drive, how to play ball, and who 
invented the cotton gin, but not how to manage money. Learning to 
budget and save, to invest and spend without getting in over your head 
is, like learning to read, easier when done at an early age. Yet for 
the most part, it is not being done. It can and should be. The 
education system nationwide can do significantly more to fill this gap 
and to encourage teachers to broaden their curricula to incorporate one 
of the most basic, yet woefully neglected areas of practical learning. 
The American Bankers Association is working to address this problem in 
several ways.

 The ABA Education Foundation is committed to educating 
    consumers of all ages about money and helping bankers be a source 
    of user-friendly financial information. It has produced booklets on 
    budgeting, credit, and saving, as well as a credit education 
    toolbox to teach young adults how to establish credit, select 
    credit cards, read a credit report and identify danger signals if 
    they are overspending.
    Through a partnership with Scholastic, the world's largest 
    publisher of children's books, it will bring financial teaching 
    materials to 450,000 students in 15,000 schools across the country.
    A second partnership with Neale Godfrey, the author of financial 
    books for children, is enabling banks to pilot her curriculum to 
    teach elementary school students about money.
    Its National Teach Children to Save Day brings thousands of bankers 
    into local schools to talk with students and their teachers about 
    money management.
    And the Foundation's Kidstuff! Web page provides books, activities, 
    programs, products and links to other websites.

 ABA also partners with America's Promise, Colin Powell's 
    campaign to mobilize public and private sectors to reach out to 
    kids across the country. Twenty-four hundred banks have become 
    Banks of Promise, helping young people in their communities in 
    various ways.

    ABA's Center for Community Development--created in 1992 to 
encourage and promote sound lending, equal access to credit and 
attendant banking services and investments in minority and low- and 
moderate-income communities--has produced a guide for first-time 
homebuyers. To effectively educate first-time homebuyers and consumers 
overall, you need to start early, in the schools, so the Center's staff 
and bankers are collaborating with the Treasury Department and others 
to grow homebuyers and money managers from the ground up.
    It is a daunting task. There are 12 million kids in high school 
today, and many millions more adults who struggle to keep their head 
above the swirling financial waters. No one group--not the ABA nor 
anyone else--can get it done alone. It takes all of us doing a lot of 
things. But it needs doing. In terms of producing a society populated 
with people who know how to look out for their own best interests and 
to make life better for themselves and their children, helping people 
take care of what they earn is a good place to start.







                              STATEMENT OF
            THE AMERICAN FINANCIAL SERVICES ASSOCIATION AND
              THE AMERICAN FINANCIAL SERVICES ASSOCIATION
                          EDUCATION FOUNDATION

                            February 6, 2002

Introduction
    The American Financial Services Association (AFSA) is the leading 
trade association representing market funded financial services 
companies. AFSA was founded in 1916. Its 400 member companies include 
auto finance/leasing lenders, mortgage and equity lenders, credit card 
issuers, sales finance companies, direct small loan lenders and 
industry suppliers. Most of the AFSA companies provide credit to both 
consumers and small businesses. The American Financial Services 
Association Education Foundation (AFSAEF) was founded to promote 
financial literacy in 1990. The AFSAEF has produced substantial 
material to educate consumers, and has part-
nered with a number of Federal Government agencies to develop and 
distribute materials beneficial to the consumer.
American Financial Services Association Education Foundation
    The AFSA Education Foundation mission is broad. Its objectives 
include financial literacy initiatives for all age levels. The 
Foundation for the past 7 years has been centered in the development of 
a strategy to improve the delivery of financial literacy education in 
the Nation's schools. AFSAEF is a founding member and leader of the 
Jump$tart Coalition for Personal Financial Literacy.
    The Jump$tart Coalition effectively advocates for the 
implementation and the 
improvement of personal finance curriculum in grades K thru 12. 
Currently, Jump$tart has 14 State coalitions that are working with 
State and local decisionmakers to implement personal finance in the 
curriculum of the schools. Jump$tart has more than 105 partners, 
including Federal agencies, nonprofit organizations, education 
organizations, and education advocacy groups.
    AFSAEF also focuses on remedial financial literacy for adults. 
Providing remedial help for hundreds of thousands, if not millions of 
Americans who have made poor choices or fundamentally bad financial 
decisions, is a daunting task. Therefore, the AFSAEF uses extensive 
resources to provide specific financial literacy information that will 
benefit consumers.

Multimedia Communications Efforts
    Specific aspects of responsible money management are communicated 
to the general public through news releases, newspaper articles, 
television and radio public service announcements, principally offering 
brochures detailing what to do or not do in formulating financial 
decisions. Fraud alerts, scam warnings, and more affirmative guides to 
decisionmaking are offered regularly. The consequences of poor choices 
made by individuals can be catastrophic in real life terms. Therefore, 
knowledge and accountability for decisions need to be ingrained at the 
individual level. AFSAEF is currently using multimedia resources to 
inform consumers about making the right choices when considering a 
mortgage loan and in the case of serious financial difficulties the 
importance of seeking out alternatives and considerations to 
restructure personal debt to avoid personal bankruptcy.
    AFSAEF in collaboration with the American Association of 
Residential Mortgage Regulators and the National Association of 
Consumer Credit Administrators is distributing a brochure to assist 
consumers in assessing residential loan offers before signing on the 
dotted line. In addition, a number of mass media communications 
efforts have been initiated to call attention to this material.\1\
---------------------------------------------------------------------------
    \1\ News releases (October 2001 to January 2002); MONEY MATTERS: 
Brochure Offers Recommendations Before You Borrow. This generated 344 
newspaper articles in 27 States with readership of 52 million. HELP FOR 
HOMEBUYERS: Get Guidance Before Making Mortgage Commitments COMO 
ADMINISTRAR SU DINERO: Un Folleto Le Ofrece Recomendaciones Previr A 
Pedir Un Prestamo Television and Radio Public Service Announcements: 
Mortgage Shipping Tips: October 2001 television announcements were 
broadcast on 132 TV stations in 42 States with a maximum audience of 
137 million. September 2001 radio announcements were broadcast on 320 
radio stations in 45 States with an audience of 7.5 million.
---------------------------------------------------------------------------
    During the latter half of 2001, there were reports of sharp 
increases in personal bankruptcy filings. This increase was fueled by 
bankruptcy attorneys' advertisements urging consumers to file before 
changes were made in bankruptcy law. The AFSAEF issued a ``consumer 
alert'' designed to give advice to consumers who might jump on the 
bankruptcy bandwagon to stop and think twice about the long-term 
adverse impact bankruptcy might have on their financial future.\2\
---------------------------------------------------------------------------
    \2\ News releases (October 2001 to January 2002); Consumer Alert! 
Hasty Bankruptcy Filers to Regret it Later. This release generated 124 
newspaper articles in 22 States with a readership of 10 million. 
Television and Radio Public Service Announcements: Think Twice About 
Bankruptcy and Consumer Alert: Think Twice About Bankruptcy. The TV 
announcements have been broadcast on 145 stations in 38 States with a 
maximum audience of 166 million. The radio 
announcements have been broadcast on 222 radio stations in 46 States 
with an audience of 7 
million.
---------------------------------------------------------------------------
Personal Finance Education
    AFSAEF develops and distributes personal finance educational 
materials that provide tips on the responsible use of consumer credit 
and the management of personal finances. One copy is provided free to 
individuals upon request. Approximately 700,000 individual consumers 
have received this material. (See Appendix A for the list of all AFSAEF 
brochures.)
    In order to support initiatives advocated by the Jump$tart 
Coalition, including the recently published National Standards in 
Personal Finance,\3\ AFSAEF has developed a comprehensive curriculum 
devoid of commercial content or intervention to be utilized by middle 
school and high school students. This curriculum is designed as an 
electronic textbook and can be delivered either by CD Rom or on the 
Internet. Through this personal finance electronic textbook, basic 
skills concerning income, money management, spending and credit, 
savings and investing can be taught to high school students. The goal 
of this material is to expose students to real life simulations such as 
the accumulation of assets through savings, and using debt to purchase 
a car or home. The E-text will allow the student to see the results of 
their decisions as they manage income and expenses, assets and 
liabilities within the curriculum before confronting real life and then 
having to live with the consequences of poor decisions. This curriculum 
is currently in a pilot program and upon completion will be available 
nationwide for high school students through a 
variety of electronic distribution mediums.
---------------------------------------------------------------------------
    \3\ National Standards in Personal Finance, with Benchmarks, 
Applications, and Glossary for 
K-12 Classrooms. Jump$tart Coalition for Personal Financial Literacy, 
www.jumpstart
coalition.org. (Benchmarks indicate knowledge and skills that must be 
learned by grades 4, 8, and 12.)
---------------------------------------------------------------------------
    Another initiative sponsored in part by the AFSAEF with a number of 
other partners of Jump$tart is the Money Math: Lessons for Life. This 
middle school curriculum teaches the importance of sound personal 
finance. It helps provide a solid grounding to help young people 
understand personal finance through practical math based exercises in 
real life examples. The curriculum is available to 16,000 school 
districts.
    AFSAEF also provides in person seminars for consumers on personal 
finance. In the District of Columbia, in cooperation with the DC Public 
Housing Authority, AFSAEF conducted workshops on budgeting, managing 
credit use and debt problems, using and maintaining a checking account, 
reading and understanding credit reports, and alternative sources of 
financing. Similar programs have been provided in New Mexico and 
Arizona with support of the Navajo Social Services. These prototype 
programs will be modified for facilitator presentations that can 
substantially multiply information delivery outreach to community 
organizations.
    Partnerships are cultivated by AFSAEF with AFSA member 
institutions, Government agencies and other nonprofit organizations on 
personal finance issues to educate and benefit specific segments of the 
marketplace. Some of the partnerships include the Consumer Literacy 
Consortium,\4\ and National Consumer Protection Week.\5\ (For other 
partnerships see Appendix B.)
---------------------------------------------------------------------------
    \4\ Spearheaded by the Consumer Federation of America promotes 
savings through the publication, 66 Ways to Save Money.
    \5\ Spearheaded by the Federal Trade Commission and other nonprofit 
organizations held each year in February.
---------------------------------------------------------------------------
Jump$tart Coalition
    The Jump$tart Coalition for Personal Financial Literacy was founded 
in 1997 by 28 nonprofit education foundations, Government agencies, and 
education organizations. AFSAEF has provided hosting for the Coalition 
from its inception. The Coalition's mission is configured in four 
parts:

 To evaluate the financial literacy of young adults.

 To improve the personal financial literacy of young adults.

 To develop, disseminate, and encourage use of materials that 
    are based on the Coalition's National Standards and Benchmarks.

 To promote the teaching of personal financial skills so that 
    informed financial decisions will be made throughout life.

    The initial survey was conducted in 1997. The project was under the 
direction of Lewis Mandell, PhD, University at Buffalo, and it provided 
a dismal insight into the accumulated money management skills of the 
graduating senior class of 1997. In 2000, Dr. Mandell conducted the 
second of a series of 5 studies planned for the period 1997-2008. The 
objective of this series is to measure conditions at the inception of 
Jump$tart and through a 12 year cycle. The disturbing reality is that 
the 2000 study indicates that the Nation's youth have regressed rather 
than progressed in the level of money management skills. The 2002 study 
is in progress. Studies similar to the Mandell work have been conducted 
in the State of Michigan. Results in that study were equally poor if 
not worse.
    We appreciate this opportunity to provide the Committee information 
and comments on our efforts with financial literacy.





















                            STATEMENT OF THE
                CREDIT UNION NATIONAL ASSOCIATION (CUNA)

                            February 6, 2002

    On behalf of the Credit Union National Association (CUNA) and the 
Nation's 82 million credit union members, this statement is submitted 
to be included in the record for the hearings of February 5-6, 2002 on 
financial illiteracy. We are pleased that the Committee recognizes the 
need to develop ``a national strategy to promote financial literacy and 
education.'' Our statement attempts to describe the dimensions of the 
problem, as well as some of the steps credit unions are taking in an 
effort to solve it.
Defining Financial Literacy
    As might be expected, numerous definitions of financial literacy 
exist. Given advocates' wide-ranging agendas, reaching an agreement on 
what a financially literate person knows and can do may well be 
impossible. However, a quick survey of literature \1\ reveals that 
certain topics appear frequently in discussions of what the subject 
comprises, such as:
---------------------------------------------------------------------------
    \1\ Hogarth, Jeanne M. (2002). Financial literacy and family and 
consumer sciences. Journal of Family & Consumer Sciences, Vol. 94 #1, 
pp. 14-28.

        Money management skills--including budgeting, saving, and 
        spending and the financial ``tools'' (that is checking 
        accounts, insurance plans) and rules (that 
        is tax laws, credit contracts)--that consumers must use to 
        conduct financial 
---------------------------------------------------------------------------
        affairs.

        Financial and economic principles--including the time value of 
        money and the effect of supply and demand--that affect 
        consumers in different ways at different times and under 
        different conditions.

        Decisionmaking and planning guidelines--including information 
        on setting goals and modifying actions that consumers need to 
        achieve financial security in the future.

    Whatever the precise description of a financially literate citizen, 
it seems clear that he or she would require distinct emotional and 
behavioral characteristics. It is not too hard to imagine that in 
reality such a person must be confident, flexible, and disciplined to 
function effectively over a lifetime of changing economic circumstances 
and obligations. As with any ideal, different people achieve this state 
to different degrees.
Measures of Financial Illiteracy
    Results of attempts to measure ignorance about financial, economic, 
and consumer matters are not conclusive, but they are not impressive 
either.
    The Consumer Federation of America (CFA) and American Express 
subjected high school students (1990), college students (1991), and 
adults (1993) to ``consumer literacy'' tests.2,3,4 The 
results showed that age brought greater knowledge, but the 
average adult score of 54 percent answers correct was hardly the 
equivalent of a 
passing grade.
---------------------------------------------------------------------------
    \2\ CFA (Consumer Federation of America). (1990). U.S. consumer 
knowledge: The results of a nationwide test. Washington, DC.
    \3\ CFA (1991). High school student consumer knowledge: A 
nationwide test.
    \4\ CFA (1993). College student consumer knowledge: The results of 
a nationwide test.
---------------------------------------------------------------------------
    Working with the Cooperative Extension System and the Consumer 
Literacy Consortium in 1998, CFA gave 1,700 randomly selected adults a 
second quiz of consumer skills.\5\ Examples of erroneous responses:
---------------------------------------------------------------------------
    \5\ CFA (1998). American consumers get mixed grades on consumer 
literacy quiz. Available: http://www.consumerfed.org/backpage/
press.html#four.

 One in four (24 percent) thought that all else being equal, a 
---------------------------------------------------------------------------
    15 year mortgage would cost more in total than a 30 year mortgage.

 One in three (32 percent) believed that all the savings and 
    investment products banks sell are Federally insured.

    Adults in the 1998 test passed it with an average score of 75 
percent. Because the earlier and later CFA tests were dissimilar, the 
improvement in the score does not necessarily mean that adult consumers 
had become more knowledgeable in the 5 years between testing. Nor does 
the more recent CFA test prove that the typical U.S. adult today would 
be able to earn a passing grade in consumer skills.
    What the results do suggest, however, is cause for concern about 
children. That is because most young people put their parents at the 
top of the list of sources of financial information. According to the 
American Savings Education Council's 1999 Youth & Money Survey,\6\ 94 
percent of students (aged 16-22) say they are likely to turn to their 
parents for financial information. If those parents are typical adults, 
the information they have to offer may be mediocre at best.
---------------------------------------------------------------------------
    \6\ ASEC (American Savings Education Council). (1999). Youth & 
Money Survey. Available: http://www.asec.org/highlite.htm.
---------------------------------------------------------------------------
    Of course, considering your parents a source of financial 
information and actually discussing money with them are two different 
things. ASEC's 2001 Parents, Youth & Money Survey \7\ revealed that 
only 60 percent of parents reported that their children actually asked 
them any questions about finances. Parents claimed to have taken a 
number of actions to teach their children about finances, ranging from 
encouraging them to save (96 percent), compare prices (93 percent), and 
discuss future job prospects (92 percent) to teaching how to track 
expenses (63 percent), make a budget (58 percent), and differentiate 
kinds of investments (43 percent).
---------------------------------------------------------------------------
    \7\ ASEC (2001). Parents, Youth & Money Survey. Available: http://
www.asec.org/2001pym/highlite.htm.
---------------------------------------------------------------------------
    Even if one takes these survey results at face value, the transfer 
of financial information from one generation to the next seems 
incomplete and haphazard. And in the end how much financial knowledge 
do U.S. youngsters absorb from their parents and other sources?
    The extent of youthful ignorance about consumer issues in general 
and personal finance in particular is well documented in the United 
States. In recent years, 
several national studies have quantified various aspects of the 
phenomenon. For 
example:

 The average teenager's score on the 1990 CFA consumer literacy 
    test \3\ was less than half (42 percent answers correct).

 The overall score among high school seniors taking the 
    Jump$tart Coalition's 1997 Personal Financial Survey \8\ was 57.3 
    percent correct.
---------------------------------------------------------------------------
    \8\ Mandell, Lewis A., Jump$tart (Jump$tart Coalition for Personal 
Financial Literacy). (1997). Our vulnerable youth: The financial 
literacy of American 12th graders. Personal Financial Survey report.

 When the Jump$tart Coalition repeated its survey in 1999-
    2000,\9\ the overall average score for high school seniors had 
    dropped more than 5 percentage points to 51.9 percent. In addition, 
    the percentage of students scoring ``C'' or better dropped from 
    10.2 percent in 1997 to 6.7 percent. And the percentage of students 
    who failed the test rose from 51.9 percent to 59.1 percent, an 
    increase of more than 7 percentage points.
---------------------------------------------------------------------------
    \9\ Mandell, Lewis A., Jump$tart. (1999-2000). Improving Financial 
Literacy: What schools and parents can and cannot do. Personal 
Financial Survey report. Available: http://www.jump
start.org/download.cfm.
---------------------------------------------------------------------------
    The multiple-choice question below is typical of Jump$tart's 1999-
2000 test:
      Which of the following is true about sales tax?

        A. The Federal Government will deduct it from your paycheck.
        B. It makes things more expensive for you to buy.
        C. You do not have to pay the tax if your income is very low.
        D. The national sales tax percentage rate is 6 percent.

    Only one of two (48.8 percent) high school seniors chose B to 
answer this question correctly. One of four (26.2 percent) chose D and 
one of five (21.9 percent) chose A.

 Finally, high school seniors taking the 2001 Money Skills quiz 
    \10\ developed by the Americans for Consumer Education and 
    Competition received an average score of 35 percent.
---------------------------------------------------------------------------
    \10\ ACEC (Americans for Consumer Education and Competition). 
(2001). Key finding from a national survey of high school seniors 
regarding personal finance issues. Available: http://www.
acecusa.org/reportcard.
---------------------------------------------------------------------------
Effects of Financial Illiteracy
    Recently, concern about personal bankruptcy rates has generated a 
great deal of interest in locating causes of the currently rising 
trend. Consumers' knowledge of financial topics seems to be one factor 
that demands attention.
    In conducting the Personal Financial Survey for the Jump$tart 
Coalition in 1997,\8\ researcher Dr. Lewis Mandell (State University of 
New York at Buffalo) looked for connections between the students' 
scores and deleterious real world effects. In his analysis, Mandell 
documented a strong negative correlation between test scores and adult 
bankruptcy rates. He compared mean test scores per State and the rate 
of personal bankruptcy filings per household per State. The exercise 
showed that:

          1. In States where the personal bankruptcy rate was very 
        low--less than 0.5 percent of households--mean scores on the 
        student survey were 70.3 percent (13 percentage points higher 
        than the overall score).

          2. In States where the personal bankruptcy rate was very 
        high--more than 1.5 percent of households--mean scores on the 
        student survey were 55.6 percent (1.7 percentage points lower 
        than the overall score).

          3. The negative correlation was not due to demographic 
        differences. Even after controlling for variables such as sex, 
        race, region, income, and education, ``bankruptcy is strongly 
        and negatively related to financial literacy.'' Mandell 
        concluded:

          Although direct causation cannot be shown, because high 
        school seniors seldom declare bankruptcy, the results are very 
        meaningful. If a State has a high rate of personal bankruptcy, 
        it probably does little to insure that its citizens are well-
        educated in personal finance.\8\

    Other researchers support this observation. For example, Michelle 
White (University of Michigan) examined a number of factors that might 
influence consumers' decisions to file for bankruptcy. She found 
consumers' general level of education to be a significant effect. White 
says:

          Other things being equal, better-educated people are less 
        likely to file for bankruptcy than less-educated people. If all 
        households had an extra year of education, then their 
        probability of filing for bankruptcy would drop by about 7 
        percent.\11\
---------------------------------------------------------------------------
    \11\ White, Michelle. (2000). Fresh approaches to bankruptcy and 
financial distress--vol 1: Why don't more people declare bankruptcy? 
(Filene Research Institute & The Center for Credit Union Research).

    White's statement does not refer to financial education. But if 
such a strong effect exists between bankruptcy filings and educational 
level in general, it is reasonable to assume that receiving an 
education specifically in money management topics would yield a benefit 
equal to or greater than the one White found.
    It seems equally clear that becoming a financially literate person, 
like becoming a skilled speaker or writer, is not likely to be an 
overnight transformation. Financial literacy is a complex condition 
that takes time and experience to acquire. And as is the case with 
other forms of ignorance, financial illiteracy has concomitant costs.
Costs of Financial Illiteracy
    Consumer ignorance can be expensive. Some consequences, such as the 
impulsive purchase of a luxury item or the failure to negotiate a lower 
price, are immediate. Learning simple skills such as budgeting and 
comparison shopping has long been a staple of traditional home 
economics courses. Stephen Brobeck, Executive Director of the Consumer 
Federation of America, has estimated that the kind of basic consumer 
knowledge students acquire in these classes translates to household 
savings of more than $1,000 a year.\5\
    But today's adult consumers face challenges unknown to their 
parents or grandparents. New financial products with more options 
present a bewildering array of decisions. Which telephone plan or 
credit card costs the least given my calling and spending habits? What 
kind of IRA or mix of different IRA's best fits my family's future 
needs?
    The proliferation of saving, investing, borrowing, and spending 
choices can be expected to grow. For instance, participants in company 
401(k) plans saw their investment choices grow from an average of 4.6 
in 1994 to 8.4 in 1998.\12\ Trends like this mean that the bewilderment 
adult consumers experience now will only become greater for their 
children.
---------------------------------------------------------------------------
    \12\ Kochard, L.E. & Gaumnitz, J. (2000). The transition from 
defined benefit to defined contribution pension plans in the public 
sector. Kansas Public Policy Institute.
---------------------------------------------------------------------------
    Furthermore, consumers' responsibilities are becoming larger and 
more complex. As Americans' longevity increases, more and more adults 
are being asked to bear the triple financial burden of funding their 
parents' long-term care while still raising children of their own and 
trying to save for their own retirement. And at the same time that the 
cost of retirement increases and the ability of the Social Security 
system to supplement those costs wans, consumers are being asked to 
take more responsibility for making their own investment decisions in 
managing their pension and other retirement savings plans. From 1980 to 
1997, the percentage of employee pension plans that were of the defined 
contribution type, which requires that individuals become more active 
in investment decisions, rose from 70 percent (covering one in three 
workers) to 92 percent (covered one in two).\13\
---------------------------------------------------------------------------
    \13\ Conte, C. (1998). The National Summit on Retirement Savings: 
Agenda background materials.
---------------------------------------------------------------------------
    And the more that consumers are being forced to make financial 
decisions of greater complexity about their savings, the less 
successful they seem to be in managing their debt. Consider these 
facts:

 Sixty percent of U.S. households carry over some portion of 
    their high-interest credit card debt each month. Of those that do, 
    the average balance was $4,100.\14\
---------------------------------------------------------------------------
    \14\ Federal Reserve Board. (2000). 1998 SCF; Credit cards held by 
households.

 Seventy-eight percent of college undergraduates have a credit 
    card. Of those, each carries an average of three cards with an 
    average balance of $2,748.\15\
---------------------------------------------------------------------------
    \15\ Nellie Mae. (2000). Credit card usage continues among college 
students. Available: http://
www.nelliemae.com/library/research__8.html.

 Ninety-five percent of college graduate students have a credit 
    card. Of those, each carries an average of four cards with an 
---------------------------------------------------------------------------
    average balance of $4,776.\15\

    Credit card debt seems to be playing a large role in the fact that 
one of five families with annual household income of less than $50,000 
are now spending 40 percent or more of their after-tax income to 
service their debt.\16\ And with this growing debt load come clear 
signs that consumers are having a harder and harder time bearing the 
weight:
---------------------------------------------------------------------------
    \16\ Kennickell, A.B., McCluer, M.S., & Surette, B. (2000). Recent 
changes in U.S. family 
finances: Results from the 1998 Survey of Consumer Finances. Federal 
Reserve Bulletin, 86 
(1), 1-29.

 The rate for credit card payments that were more that 30 days 
    late rose from 4.3 percent in 2000 to 5 percent in 2001. During the 
    same period, write-offs on bad loans increased from 5.6 percent to 
    6.4 percent.\17\
---------------------------------------------------------------------------
    \17\ Card News. (2001). Credit card losses rise in second quarter, 
Moody's reports. Card News, 16 (15, August 8).

 Bankruptcy filings grew from 1.27 million households (1999-
    2000) to 1.38 million (2000-2001). Projections for the current year 
    are between 1.4 to 1.5 million households.\18\
---------------------------------------------------------------------------
    \18\ American Banker. (2001). Bankruptcy spike threatens card 
profits. American Banker-bond Buyer, 1 (19), 1.

    The next generation appears to be ready to join right in the 
problem. Elizabeth Warren, a law professor at Harvard Law, has been 
tracking bankruptcy among adults aged 25 and under. From 1991 to 1999, 
she documented a 51 percent increase in annual filings among that age 
group, from 60,000 to nearly 120,000. The age group now accounts for 7 
percent of all U.S. personal bankruptcy filings.\19\
---------------------------------------------------------------------------
    \19\ Warren, Elizabeth. (2001). Reported in Congratulations grads: 
You are bankrupt. Business Week, May 21.
---------------------------------------------------------------------------
    And if all this were not alarming enough, some financial 
institutions appear to be following a strategy that will prepare 
children as young as 13 to be active credit card users in the future by 
issuing them stored value cards now. Parental permission is required, 
and issuers claim that properly used, the cards with catchy names are a 
valuable tool for teaching children to budget, spend, and save 
responsibly. Unfortunately, parents do not have a solid track record 
for fulfilling that mission. Some institutional effort seems to be 
needed.
The Effectiveness of Financial Education
    Several studies have been designed to quantify the belief that 
teaching people about financial topics will help them make better 
consumer decisions. By 1985, 
29 States had passed laws requiring some kind of consumer education at 
the high school level. (See http://www.jumpstart.org/legislation.cfm 
for current State legislative mandates and resolutions.)
    Last year saw the publication of the results of a study that 
established a connection between State mandates and the subsequent 
accumulation of assets as students reached adulthood. The authors 
claimed to have found the first evidence of long-term behavioral 
effects as a result of legislated financial education curriculum 
requirements, and concluded:

          We also find that mandates significantly increase exposure to 
        financial education, and ultimately elevate the rates at which 
        individuals save and accumulate wealth during their adult 
        lives. These results contribute to the growing body of evidence 
        that education may be a powerful tool for stimulating personal 
        saving.\20\
---------------------------------------------------------------------------
    \20\ Bernheim, B.D., Garrett, D.M., & Maki, D.M. (2001). Education 
and saving: The long-term effects of high school financial curriculum 
mandates. Journal of Public Economics, 80, 435-465.

    In his 1997 Jump$tart Coalition report Mandell stressed that it is 
not enough to simply throw financial education at students. Materials 
---------------------------------------------------------------------------
that purport to teach personal finance topics must be evaluated:

          States that wish to reduce the pain and economic cost of 
        personal bankruptcies should probably consider mandating and 
        implementing an effective curriculum of personal finance in its 
        primary and secondary school systems.\8\ [Author's emphasis]

    One personal financial curriculum that researchers evaluated for 
efficacy was the NEFE High School Financial Planning Program (HSFPP), 
which the National Endowment for Financial Education (NEFE) distributes 
free of charge as a public service in partnership with the Credit Union 
National Association (CUNA) and the U.S. Department of Agriculture 
Cooperative State Research, Education, and Extension Service. The study 
demonstrated that significant changes in knowledge, attitudes, and 
behavior occurred in students as a result of participating in the 
program. For example, in addition to those who maintained knowledge, 
skill, and confidence levels, students exhibited the following changes: 
\21\
---------------------------------------------------------------------------
    \21\ Boyce, C.F. & Danes, S.M. (1998) Evaluation of the NEFE high 
school financial planning program. Denver, CO: National Endowment for 
Financial Education. Available: http://www.
nefe.org/pages/hsfppevaluation.html.

 Nearly half (47 percent) knew more about credit costs, and 
---------------------------------------------------------------------------
    nearly two-fifths (38 percent) knew more about investments.

 Nearly two-fifths (37 percent) improved skills for tracking 
    spending, and nearly half (45 percent) started saving or began 
    saving more.

 Nearly two-fifths (38 percent) felt more confident about 
    managing their money.

    During the 2000-2001 school year, NEFE distributed HSFPP materials 
to 345,000 students in 4,330 schools. Credit unions, in their first 
full year of program partnership, were responsible for about 10 percent 
of both those figures.
Credit Unions and Financial Literacy
    Credit unions have traditionally considered financial education to 
be part of their social mission. Indeed, education is one of the 
operating principles of the international credit union movement:

          Credit unions actively promote the education of their 
        members, officers, and employees, along with the public in 
        general, in the economic, social, democratic, and mutual self-
        help principles of credit unions. The promotion of thrift and 
        the wise use of credit, as well as education on the rights and 
        responsibilities of members, are essential to the dual social 
        and economic character of credit unions in serving member 
        needs.\22\
---------------------------------------------------------------------------
    \22\ WOCCU (World Council of Credit Unions). International credit 
union operating principles. Available: http://www.woccu.org/about/
princip.htm.

    Founders of the U.S. movement made it clear that from the start 
that they thought educating members was one of a credit union's 
fundamental duties. Edward Filene once said, ``There is no permanent 
remedy for our economic and social ills other than better thinking, 
which must come through better education.'' \23\
---------------------------------------------------------------------------
    \23\ Filene, Edward A. (1928). New York American, April 17.
---------------------------------------------------------------------------
    Furthermore, early credit union leaders stressed the importance of 
beginning financial education with the youngest family members. In 
1936, one of CUNA's magazine editors said:

          Our children of today will be the heads of families of 
        tomorrow. They will be the buyers and sellers of the Nation, 
        the financial executives of the world. If they are to be fitted 
        to meet these responsibilities we must give them an opportunity 
        to learn how to manage money and we must do it now.\24\
---------------------------------------------------------------------------
    \24\ Feller, George F. (1936). The child and his money. The Bridge, 
May, I (XI) No. 3.

    Credit unions have responded to these challenges in a number of 
ways. First, they provide information to members through newsletters 
and other mailings. Since 1989, for example, credit unions have 
purchased from CUNA for distribution to members 52.4 million brochures 
on subjects ranging from managing a checking 
account to using electronic signatures.
    Second, credit unions provide financial information to members on a 
one-on-one basis. As of the end of 2000:

 Thirteen percent of credit unions (representing 49 percent of 
    U.S. members) offer financial planning programs to help with mid- 
    and long-term goals.

 Thirty-one percent of credit unions (representing 56 percent 
    of U.S. members) offer ``remedial'' financial counseling to 
    intervene in times of financial crises due to excessive debt and 
    the mismanagement of income and spending.

    Third, credit unions actively approach schools and after-school 
programs to teach personal finance skills to children and teenagers, in 
addition to participating in the NEFE High School Financial Planning 
Program. Since 1972, the National Youth Involvement Board (NYIB), a 
loose network of credit union volunteers, has educated youth about 
money and credit. During the 2000-2001 school year, 628 NYIB volunteers 
conducted 5,848 classroom presentations to 138,806 students.\25\
---------------------------------------------------------------------------
    \25\ NYIB (National Youth Involvement Board). (2000-2001). 
Available: http://www.nyib.org/Pages/Network%20News%20Articles/
NYIB%201999__2000%20Classroom%20Statistics.htm.
---------------------------------------------------------------------------
    Fourth, credit unions seek every opportunity to draw attention to 
youth--their accomplishments, as well as their needs. This year CUNA 
will sponsor a National Credit Union Youth Week (April 14-20) during 
the Jump$tart Coalition's Youth 
Financial Literacy Month to showcase the members who will provide our 
Nation's economic leadership and strength in the future. Modeled after 
longstanding observances in States such as North Dakota and 
Pennsylvania, the national event will shine the spotlight on the 
problem of youth financial illiteracy and the many ways that credit 
unions, in partnership with other local institutions, are giving young 
people the tools of financial security.
    From the beginning, the people of the credit union movement have 
firmly believed in the power of information to better members' well-
being. An indication that their longstanding faith in the efficacy of 
financial literacy to improve lives is well grounded, consider this: In 
2000, the overall bankruptcy rate for the general U.S. population was 
4.34 per 1,000.\26\ For the same period, the rate for U.S. credit union 
members was only 2.48 per 1,000.\27\ Credit unions are doing many 
things right.
---------------------------------------------------------------------------
    \26\ Bankruptcy Institute. (2001). Bankruptcies fall again in 2000, 
filings in fourth quarter rise slightly. Available: http://
www.abiworld.org/stats/feb2300.html.
    \27\ NCUA (National Credit Union Administration). (2000). Call 
report data.
---------------------------------------------------------------------------
Summary
    In conclusion, there is considerable evidence that financial 
illiteracy has reached record proportions, and its impact has 
contributed significantly to rising levels of bankruptcy and to 
lowering the standard of living in general for many American families. 
Credit unions have traditionally made financial education a part of 
their mission, and it is apparent that it has made a difference, as 
credit union members are less likely to declare bankruptcy than the 
general population. Credit unions will continue their efforts and are 
encouraged that both the private sector and now the Government appear 
to be ready to make financial literacy a high national priority.

                               ----------
                            STATEMENT OF THE
             NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS

                            February 6, 2002

Introduction
    The National Association of Federal Credit Unions (NAFCU) is the 
only national organization exclusively representing the interests of 
the Nation's Federally chartered credit unions. NAFCU is comprised of 
nearly 1,000 Federal credit unions--financial cooperatives from across 
the Nation--that collectively hold approximately 62 percent of total 
Federal credit union assets; NAFCU represents the interests of 
approximately 24 million individual credit union members. NAFCU, and 
the entire credit union community, appreciates the opportunity to 
participate in this important discussion about financial illiteracy.
Financial Literacy and Personal Savings Are Intertwined
    NAFCU and our member credit unions know that financial illiteracy 
is an issue that touches all Americans--at every age and income level. 
Intertwined with financial literacy is personal savings. The Nation's 
personal savings rate is slumping and personal savings rates are at 
their lowest level in nearly 40 years. Large numbers of Americans 
habitually spend instead of save. Credit unions know that saving is a 
matter of choice and that the most important factor in long-term wealth 
accumulation is the act of saving itself. NAFCU is proud to be 
proactively involved in promoting financial literacy and personal 
savings in America. NAFCU President / CEO Fred Becker's first major 
speech before the credit union community in September 2000 addressed 
the need to increase the personal savings levels of all Americans.
    Many credit unions have special programs to educate their members 
and assist them in achieving their savings goals. These programs not 
only teach their members about saving, but also assist them in becoming 
more financially literate. We want to tell you about just two such 
success stories.

McCoy FCU: Teaching Youth About Money and Savings
    NAFCU member McCoy Federal Credit Union, located in Orlando, 
Florida, is the only community credit union in Central Florida. It has 
assets of $235 million and serves the borrowing and saving needs of 
about 55,000 members. In September 1993 McCoy FCU began a ``Youth 
Savings Program'' to teach young people about saving and to give them 
incentives to encourage them to save. This program reaches future 
generations by establishing at an early age a meaningful relationship 
or ``link'' between them and their financial institution--a credit 
union.
    The Youth Savings Program is set up in two age groups 5-10 years 
and 11-17 years, with appropriate incentives targeting these two very 
distinct age groups. A Youth Savings Brochure, available to credit 
union members and potential members, explains eligibility based on 
McCoy FCU's field of membership. The brochure is often the first 
exposure many young people have to financial terms, providing 
definitions of such terms as saving, deposits, interest, withdrawals 
and balance, as well as a savings register and I.D. card. It also 
explains savings goals and includes ideas of how students might obtain 
the money to put into their savings accounts, for example piggy bank, 
birthday, allowance, chores, good grades, or jobs.
    When a young person joins McCoy FCU's Youth Savings Program and 
opens an account for $5.00--$99.00, they receive several items 
appropriate to their age designed to encourage savings and to help them 
measure their progress in meeting their savings goals. McCoy FCU waives 
the $5 credit union membership fee for the young people who join, and 
there are no fees associated with Youth Savings Program accounts. To 
encourage their active participation and savings, young people earn 
various gifts when they attain savings goals of $100, $250, $500, $750, 
and $1,000.
    The program continues educating young people as they mature from 
their teenage years to young adulthood. Upon reaching 18 years of age, 
the participants receive a letter telling them that while they are no 
longer eligible for McCoy's Youth Savings Program, as fiscally 
responsible ``graduates'' of the Youth Savings Program they can now 
take full advantage of the many other services that McCoy FCU has to 
offer. The letter then proceeds to introduce them to other services 
that McCoy FCU offers its members, such as Share Draft Accounts.
    In order to effectively reach out to all segments of the community 
and educate its young people about, and get them involved with, the 
Youth Savings Program, McCoy FCU spreads the word in a number of ways:

        1. Various youth organizations (for example YMCA)
        2. Partners in Education (Orange County School System)
        3. Presentations at local schools and church youth groups
        4. Sponsorship of youth programs
        5. Word of mouth
        6. McCoy Financial Planner Newsletter
        7. Brochures in the credit union's lobbies and new accounts 
        areas

    McCoy FCU's program has successfully prepared thousands of young 
people to successfully manager their financial affairs. As of May 31, 
2001, McCoy FCU's Youth Savings Program had 4,589 members representing 
8.3 percent of the credit union's total membership with savings 
totaling $3,176,587.

Promoting Financial Literacy in San Antonio
    San Antonio City Employees Federal Credit Union (SACEFCU), which 
serves Government employees in San Antonio, has about 32,000 members 
and $175 million in assets. SACEFCU was asked to prepare and teach 
basic financial courses for the San Antonio's Adult Basic Education and 
G.E.D. Preparation Program. The credit union was a logical choice for 
implementing this program because of the depth of financial knowledge 
and experience of its dedicated staff. The credit union, in turn, 
availed itself of information and assistance offered by a resource 
knowledgeable about financial education: the National Endowment for 
Financial Education (NEFE), a nonprofit foundation committed to helping 
Americans gain the skills and knowledge needed to control their 
personal finances.
    SACEFCU adopted an educational curriculum initially developed and 
made available by NEFE. The curriculum includes courses on financial 
planning, cash flow, spending and savings, credit and debt management, 
insurance needs, savings and investments, homeownership and small 
business opportunities. The credit union also made use of instructional 
materials provided by NEFE without charge. SACEFCU's financial literacy 
program is free, and the knowledge imparted via the curriculum is 
supplemented by guest appearances by area professionals and experts.
    The first class taught by SACEFCU was a pilot program comprised 
primarily of people training to become literacy teachers themselves. 
Twelve trainers and eight students have graduated from the pilot 
course, taught entirely by SACEFCU.
    SACEFCU realized that by committing itself to educating more people 
to become financial literacy trainers and teachers, they could more 
effectively promote financial literacy among its members and the San 
Antonio community at large--spreading the word of financial literacy. 
As a result, SACEFCU hosted a one-day ``train the trainer'' course for 
24 city's of San Antonio county agencies and private industry trainers. 
Eventually, with the financial literacy program well-developed and 
solidly underway in San Antonio, SACEFCU stepped back with the city 
taking over the financial literacy classes.
    Having been well established under the auspices of SACEFCU, the 
financial literacy course is now offered in a number of literacy 
centers in San Antonio throughout the year. Meanwhile, SACEFCU has 
maintained an active role in the advancement of the financial literacy 
program it conceived by periodically monitoring and auditing the 
classes. The city of San Antonio is very willing to share the 
curriculum for this program with others who share their interest so 
that other cities can benefit from San Antonio's experience as they 
develop their own financial literacy courses.
    Realizing that true financial literacy and healthy saving habits 
are best fostered among the young, San Antonio has now enlisted SACEFCU 
to do for the city's children what it has already done for the city's 
adults: develop an age-appropriate 
financial education course. The credit union is now working on creating 
such a 
financial information program to teach local elementary school children 
about 
financial literacy and help foster an appropriate awareness of the 
value of money.

Conclusion
    These examples of what credit unions are doing to promote financial 
literacy and savings are just two of many. Credit unions in every State 
regularly work with their members to educate them on financial matters, 
to increase their financial literacy, and to promote their personal 
savings. Credit unions by their nature have a special relationship with 
their members--one that has put credit unions on the front line in 
fighting financial illiteracy for years. Credit unions are in NAFCU's 
view critical partners in implementing any national strategy promoting 
financial literacy and education. NAFCU and the Federal credit union 
community stand ready to work with you as we move forward together.

                               ----------
                            STATEMENT OF THE
               WOMEN'S INSTITUTE FOR A SECURE RETIREMENT

                            February 6, 2002

    On behalf of the Women's Institute for a Secure Retirement (WISER) 
we appreciate the opportunity to submit comments to the Senate 
Committee on Banking, Housing, and Urban Affairs on the Hearing on the 
State of Financial Literacy and Education in America for allowing us to 
bring to your attention the ways in which women are affected as low 
earners who are more likely to end up in poverty.
    The Women's Institute for a Secure Retirement (WISER) is a 
nonprofit organization whose primary mission is education. WISER and 
its collaborative partners have established a clearinghouse on 
retirement education, the POWERCenter (Program on Women's Education for 
Retirement) which provides underserved women with a place to turn to 
for basic financial education. The POWERCenter began as a cooperative 
project funded by the U.S. Administration on Aging in 1998.

    The POWERCenter's program goals are:

    1. Reaching the maximum number of average and lower income women 
with information.
    2. Ensuring that the educational material and program reaches women 
at their jobs, in their communities and places of worship.
    3. Creating an awareness of retirement basics, pensions savings 
plans, and the Social Security program, to help motivate women to plan 
early for their economic security by stretching and managing their 
resources and increasing their retirement income.
    4. Preserving retirement income: helping older women protect the 
income they have by avoiding the multiple pitfalls of consumer fraud, 
financial scams, and predatory scams.
    5. Helping women in crisis situations such as death and divorce.
Background
    Despite all of the discussion about workers (and women in 
particular) planning for their retirement, little has been done to 
enable them to exert control over their own financial lives. This 
starts with a lack of basic programs focused on the needs of women who 
are living from paycheck to paycheck and struggling to keep their 
families afloat. Simply telling the average woman--the woman who earns 
less than $30,000--to start or increase her savings rate is not as easy 
as it sounds.
    For many women, particularly those with low incomes, the first 
significant planning step they take is applying for their Social 
Security benefits. These are women who will not have access to a 
sophisticated employer education program--nor will they have the 
substantial financial resources that will attract financial planners.
    Millions of women fit this description. These women require basic 
information to help them take the first steps toward a more secure 
future. While there are more than three million pages of material 
available on the internet and several hundred books on financial 
planning, much of the material is not aimed at average earners or for 
those who are looking for less complex information.
    POWERCenter staff have learned that women need to hear the 
financial literacy message from trusted individuals before they will 
take the first steps toward action. In addition, they want information 
that is independent and free of conflicts of interest or a sales pitch. 
We have also learned that training community partners is a highly 
effective strategy. WISER partners with many different organizations: 
employers, women's organizations, financial institutions, churches, 
government 
agencies and local community groups.

    Financial and Retirement Challenges for Women Workers:

 More than two out of three full-time working women earn less 
    than $30,000 per year.

 Women's earnings average $.73 for every $1 earned by men. 
    African-American women earn $.67 and Hispanic women earn $.54.

 Women are more likely to work in part-time and minimum wage 
    jobs without 
    benefits.

 Women retirees receive only half the average pension benefits 
    that men receive.

 Women spend 15 percent of their careers caregiving outside of 
    the workforce compared to less than 2 percent by men.

Reasons Why Women Need More Retirement Income
 Women live longer than men, nearly 4 years.

 Women earn less than men so their Social Security and pension 
    benefits are smaller.

 Women are likely to be single--and not remarry. Unmarried 
    women are more likely to live out their years in poverty.

 Women are more likely to need long-term institutional care.

The Effect of Women's Longer Lives
    Financial experts tell Americans generally to plan to replace 
anywhere from 70 to 85 percent of their income at retirement. 
Unfortunately, this advice does not work for women, who are likely to 
need more than 100 percent of their preretirement income in order to 
remain secure throughout their longer lives. Women need to start as 
early as possible to understand how they are spending their money and 
to take advantage of any opportunity to build assets whether through a 
retirement plan or a community-based program to contribute to an 
individual development asset (IDA).
    The longer life expectancy of women necessarily means that at some 
point during their retirement the vast majority will find themselves 
alone. In fact, about 80 percent of men die married and 80 percent of 
women die single.
    Living alone is a predictor of elderly poverty and women are much 
more likely than men to live alone--in 1998, only 43 percent of older 
women lived with their spouses, compared to 73 percent of older men. A 
single elderly woman is twice as likely as an elderly man to be poor--
in 1998, about one out of five single older white women were living in 
poverty while almost half of all single older minority women were poor 
or near poor.

Women's Roles As Caregivers
    The reality of women's working lives is that no matter how women's 
roles in society have changed, those changes have not relieved them of 
their responsibilities as family caregivers. Women are still more 
likely to leave the workforce or to work part-time to accommodate 
caregiving responsibilities. In addition to maternity leave, they also 
bear the primary responsibility for an ill child or a sick relative--
resulting in shorter job tenures--women's average job tenure is 4.4 
years lagging behind men's (5.0 years).

Women as Low-Wage Earners Saving for the Future
    Over the past 20 years there has been a shifting of the burden of 
retirement from the employer to the employee--a trend that will almost 
certainly have a disproportionate effect on all low-wage workers but 
particularly women.
    The fact that women earn less creates less of an opportunity for 
retirement savings and means that women's retirement benefits will be 
lower than those of men. It also means they have substantially less 
income available to put in an IRA or a 401(k) savings plan.
    Because the majority of full-time working women earn less than 
$30,000 annually, even a disciplined saver will have trouble 
accumulating much in savings at that level of income. Second, our 
research shows that women's savings priorities are often focused on 
their children and their grandchildren and not on their own financial 
security. And again, because of priorities such as their children's 
education and medical emergencies, women often opt to cash out their 
401(k) accumulations when they leave a job rather than keep the funds 
for retirement.
    Finally, we commend this Committee for focusing attention on this 
critically important issue. The implications of inadequate savings and 
the inadequacy of retirement benefits is far-reaching. The major 
challenge facing the Committee today is to make sure that working 
Americans realize what steps they will need to take to support themselves 
in their old age. We need to address these issues now and ensure that 
workers begin to accumulate assets early in their careers rather 
than debt.
    Again, we thank the Committee for your leadership in acknowledging 
the need for financial education.
    The Women's Institute for a Secure Retirement is a nonprofit 
organization that was launched in 1996 by the Teresa & H. John Heinz 
III Foundation. WISER's overarching goal is to alleviate poverty among 
older women and to include increasing awareness among the general 
public, policymakers, and the business community of the structural 
barriers that prevent women's adequate participation in the Nation's 
retirement systems.
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