[Senate Hearing 111-665]
[From the U.S. Government Publishing Office]
S. Hrg. 111-665
THE FEDERAL GOVERNMENT'S ROLE IN
EMPOWERING AMERICANS TO MAKE
INFORMED FINANCIAL DECISIONS
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HEARING
before the
OVERSIGHT OF GOVERNMENT MANAGEMENT,
THE FEDERAL WORKFORCE, AND THE
DISTRICT OF COLUMBIA SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
JULY 15, 2010
__________
Available via http://www.gpoaccess.gov/congress/index.html
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri JOHN ENSIGN, Nevada
JON TESTER, Montana LINDSEY GRAHAM, South Carolina
ROLAND W. BURRIS, Illinois
EDWARD E. KAUFMAN, Delaware
Michael L. Alexander, Staff Director
Brandon L. Milhorn, Minority Staff Director and Chief Counsel
Trina Driessnack Tyrer, Chief Clerk
OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE, AND THE
DISTRICT OF COLUMBIA SUBCOMMITTEE
DANIEL K. AKAKA, Hawaii, Chairman
CARL LEVIN, Michigan GEORGE V. VOINOVICH, Ohio
MARY L. LANDRIEU, Louisiana SCOTT P. BROWN, Massachusetts
ROLAND W. BURRIS, Illinois LINDSEY GRAHAM, South Carolina
EDWARD E. KAUFMAN, Delaware
Lisa M. Powell, Staff Director
Matthew J. Pippin, Deputy Legislative Director
Benjamin B. Rhodeside, Legislative Aide
Jennifer A. Hemingway, Minority Staff Director
Aaron H. Woolf, Chief Clerk
C O N T E N T S
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Opening statement:
Page
Senator Akaka................................................ 1
WITNESSES
Thursday, July 15, 2010
Michael Barr, Assistant Secretary for Financial Institutions,
U.S. Department of the Treasury................................ 4
Christine Griffin, Deputy Director, U.S. Office of Personnel
Management..................................................... 6
Brenda Dann-Messier, Assistant Secretary, Office of Vocational
and Adult Education, U.S. Department of Education.............. 8
Sandra L. Thompson, Director, Division of Supervision and
Consumer Protection, Federal Deposit Insurance Corporation..... 10
Marianna LaCanfora, Assistant Deputy Commissioner, Retirement and
Disability Policy, Social Security Administration.............. 11
Barbara Roper, Director of Investor Protection, Consumer
Federation of America.......................................... 21
Lynne Egan, Deputy Securities Commissioner, Montana Office of
State Auditor, on behalf of the North American Securities
Administrators Association..................................... 23
Alphabetical List of Witnesses
Barr, Michael:
Testimony.................................................... 4
Prepared statement........................................... 29
Dann-Messier, Brenda:
Testimony.................................................... 8
Prepared statement........................................... 40
Egan, Lynne:
Testimony.................................................... 23
Prepared statement........................................... 69
Griffin, Christine:
Testimony.................................................... 6
Prepared statement........................................... 35
LaCanfora, Marianna:
Testimony.................................................... 11
Prepared statement........................................... 54
Roper, Barbara:
Testimony.................................................... 21
Prepared statement........................................... 60
Thompson, Sandra L.:
Testimony.................................................... 10
Prepared statement........................................... 44
APPENDIX
Background....................................................... 79
Questions and responses for the Record:
Mr. Barr..................................................... 83
Ms. Griffin.................................................. 86
Ms. Dan-Messier.............................................. 89
Ms. Thompson................................................. 92
Ms. LaConfora................................................ 96
Ms. Roper.................................................... 99
.............................................................
THE FEDERAL GOVERNMENT'S ROLE IN
EMPOWERING AMERICANS TO MAKE
INFORMED FINANCIAL DECISIONS
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THURSDAY, JULY 15, 2010
U.S. Senate,
Subcommittee on Oversight of Government
Management, the Federal Workforce,
and the District of Columbia,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:48 p.m., in
room SD-342, Dirksen Senate Office Building, Hon. Daniel K.
Akaka, Chairman of the Subcommittee, presiding.
Present: Senator Akaka.
OPENING STATEMENT OF SENATOR AKAKA
Senator Akaka. I call this hearing of the Subcommittee on
Oversight of Government Management, the Federal Workforce, and
the District of Columbia to order.
I want to welcome our witnesses to today's hearing, the
Federal Government's Role in Empowering Americans to Make
Informed Financial Decisions.
Without a sufficient understanding of economics and
personal finance, individuals cannot appropriately manage their
finances, effectively evaluate credit opportunities,
successfully invest for long-term financial goals in an
increasingly complex marketplace, or cope with difficult
financial situations. It is essential that we continue to
improve education, consumer protections, and economic
empowerment activities for individuals and families through
economic and financial literacy in order to build stronger
families, businesses, and communities.
Financial literacy is an issue that is even more important
as working families struggle financially. It is when people
lose jobs and wages fall, when housing values decline and
adjustable-rate mortgages reset, when 401(k) values plummet,
that the true cost of financial illiteracy among working
families becomes apparent.
My interest in financial literacy dates back to when my
fourth grade teacher required me to have a piggy bank. We were
made to understand how money that was saved a little at a time
can grow into a large amount, enough to buy things that would
have been impossible to obtain without savings. My piggy bank
experience taught me important lessons about money management
that have stayed with me throughout my life.
The piggy bank lesson was even more meaningful because I
grew up in an unbanked family. My parents kept their money in a
box divided into different sections so that money could be
separated for various purposes. Church donations were kept in
one part. Money for clothes was kept in another. There was a
portion of the box reserved for food expenses. When there was
no longer any money in the food section, we didn't eat.
Obviously, money in a box was not earning interest. It was not
secure.
I know personally the challenges that are presented to
families unable to save or borrow when they need small loans to
pay for unexpected expenses. Unexpected medical expenses or a
car repair bill may require small loans to help working
families overcome these obstacles.
During my service in the Senate, I have focused on
advancing a financial literacy agenda that includes education,
consumer protection, and economic empowerment for working
families through different venues and at different teachable
moments in people's lives. I will summarize several of my
financial literacy efforts that will provide some context for
the first panel of witnesses.
In 2003, along with Senator Sarbanes at that time and other
colleagues, we created the Financial Literacy and Education
Commission (FLEC). The Commission is tasked with developing and
implementing a national strategy to improve the financial
literacy of Americans. I included a mandate that the Office of
Personnel Management (OPM) develop and implement a retirement
financial literacy and education strategy for Federal employees
in the Thrift Savings Plan Open Elections Act of 2004. My
Excellence in Economic Education Act authorizes a range of
activities, such as teacher training, research and evaluation,
and school-based activities to further economic principles. I
have obtained funding of approximately $1.5 million for the Act
in each fiscal year since 2004 to fund these necessary
activities.
In the Dodd-Frank Conference Report, there are several
education-related provisions. It will create an Office of
Financial Education within the Consumer Financial Protection
Bureau. The office will develop and implement initiatives to
educate and empower consumers. A strategy to improve the
financial literacy among consumers that includes measurable
goals and benchmarks must be developed. The administrator of
the Bureau will serve as vice chairman of the Financial
Literacy and Education Commission to ensure meaningful
participation in Federal financial literacy efforts.
However, education is only one component of financial
literacy. We must also ensure that consumers are adequately
protected. Too many Americans are taken advantage of by
unscrupulous lenders through refund anticipation loans, payday
loans, and other predatory products. The new Consumer Financial
Protection Bureau will be empowered to restrict predatory
financial products and unfair business practices in order to
prevent unscrupulous financial services providers from taking
advantage of consumers.
The Dodd-Frank bill also modifies the Electronic Fund
Transfer Act to establish consumer protections for remittances.
It will require that simple disclosures about the cost of
sending remittances be provided to the consumer prior to and
after the transaction. A complaint and error resolution process
for remittance transactions will be established.
The third vital component of financial literacy is economic
empowerment. I am proud to have added Title 12, the Increasing
Access to Mainstream Financial Institutions Act, to the Dodd-
Frank bill. Mainstream financial institutions are a vital
component to economic empowerment. Unbanked or underbanked
families need access to credit unions and banks, and they need
to be able to borrow on affordable terms. Banks and credit
unions provide alternatives to high-cost and often predatory
fringe financial service providers, such as check cashiers and
payday lenders. Many of the unbanked and underbanked are low-
income and moderate-income families that cannot afford to have
their earnings diminished by reliance on these high-cost and
often predatory financial services.
Unbanked families are unable to save securely for education
expenses, the downpayment on a first home, or other future
financial needs. Underbanked consumers rely on non-traditional
forms of credit that often have extraordinarily high interest
rates. Regular checking accounts may be too expensive for some
consumers unable to maintain minimum balances or afford monthly
fees. Cultural differences or language barriers may also hinder
the ability of consumers to access financial services. More
must be done to promote product development outreach and
financial education opportunities intended to empower
consumers.
Title 12 authorizes programs to assist low- and moderate-
income individuals establish bank or credit union accounts and
encourages greater use of mainstream financial services. It
will also encourage the development of small, affordable loans
as an alternative to more costly loans. Consumers who apply for
these loans would be provided with financial literacy and
educational opportunities.
The second panel today will focus on issues relating to
investor financial literacy. The Dodd-Frank bill contains
several significant items of importance to investors. I added a
financial literacy study that will be conducted by the
Securities and Exchange Commission (SEC). The SEC will be
required to develop an Investor Financial Literacy Strategy
intended to bring about positive behavioral change among
investors.
I also worked to clarify authority for the SEC to
effectively require disclosures prior to the sale of financial
products and services. Working families depend on their mutual
fund investments and other financial products to pay for their
children's education, prepare for retirement, and attain other
financial goals. This provision will ensure that working
families have the relevant and useful information they need
when they are making decisions that will determine their future
financial condition.
Today's hearing provides an opportunity to examine Federal
financial literacy efforts and the Financial Literacy and
Education Commission. I appreciate the appearance of our
witnesses today. The Financial Literacy and Education
Commission has made significant progress during the current
Administration, and I am delighted with the progress being made
by all of the agencies represented at the hearing today. I look
forward to continuing to collaborate with them and with you on
these issues of vital importance to working families.
And now I welcome our first panel of witnesses to the
Subcommittee: Michael Barr, Assistant Secretary for Financial
Institutions at the U.S. Department of Treasury; Christine
Griffin, Deputy Director at the U.S. Office of Personnel
Management; Brenda Dann-Messier, Assistant Secretary for the
Office of Vocational and Adult Education at the U.S. Department
of Education; Sandra Thompson, Director of the Division of
Supervision and Consumer Protection at the Federal Deposit
Insurance Corporation; and Marianna LaCanfora, Assistant Deputy
Commissioner for the Office of Retirement and Disability Policy
at the U.S. Social Security Administration.
As you know, it is the custom of this Subcommittee to swear
in all witnesses. Will you please raise your right hand?
Do you swear that the testimony you are about to give
before this Subcommittee is the truth, the whole truth, and
nothing but the truth, so help you, God?
Mr. Barr. I do.
Ms. Griffin. I do.
Ms. Dann-Messier. I do.
Ms. Thompson. I do.
Ms. LaCanfora. I do.
Senator Akaka. Thank you. Let it be noted for the record
that the witnesses answered in the affirmative.
Before we start, I want you to know that your full written
statements will be made part of the record, and I would like to
remind you to please limit your oral remarks to 5 minutes.
Assistant Secretary Barr, welcome and please proceed with
your statement.
TESTIMONY OF HON. MICHAEL BARR,\1\ ASSISTANT SECRETARY FOR
FINANCIAL INSTITUTIONS, U.S. DEPARTMENT OF THE TREASURY
Mr. Barr. Thank you very much, Mr. Chairman, for the
opportunity to appear today before you on a topic of critical
importance to the Administration, to the Department of the
Treasury, and really to our whole Nation, that of empowering
Americans to make informed financial decisions. We appreciate
the Subcommittee's bipartisan focus on this topic, and I want
to thank you in particular, Senator Akaka, for your leadership
over so many decades on this critical issue.
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\1\ The prepared statement of Mr. Barr appears in the Appendix on
page 29.
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I also want to thank the other members of this panel here
today with me. Financial capability is an area in which we have
all been working collaboratively and building upon each other's
efforts, and the agencies represented here this morning are
among the strongest partners in this effort.
In the wake of the recent financial crisis, there has never
been a more important time to get this right. We must improve
our system to make it safer and more stable and improve the
financial capability of individual Americans to build a country
in which more families have the knowledge, skills, and
financial access to make good financial choices and build
stronger financial futures.
We have historically just passed the most important
financial reform since the Great Depression. Two weeks ago, a
Conference Committee of the House and Senate produced a bill
with strong protections for Main Street against financial folly
or misconduct on Wall Street. And the bill strengthens
protections for taxpayers, investors, and consumers. It helps
community banks, credit unions, and small businesses. It ends
``too big to fail.'' It winds down the Troubled Asset Relief
Program (TARP) and strengthens our financial system. And today,
the Senate has followed the House and passed this historic
reform.
These changes are absolutely critical, but they are not
enough. Personal responsibility and increased knowledge,
skills, and access are essential to empowering Americans to
make better financial decisions. And the Federal Government has
an important role to play in ensuring that Americans have these
tools.
Let me just update you slightly on the work of FLEC and to
report on the significant activities of the agencies who have
worked together over this last year. In January, we were
pleased to have the White House, represented by the Office of
Public Engagement, formally join the Council, and their
membership underscores the Administration's commitment to these
issues.
Last July, we brought all 20 member agencies together to
identify key priorities. First, one of the most critical issues
for our members was that a new national strategy was needed,
and after a comprehensive and inclusive year-long process, we
will be putting out a national strategy for public comment in
the very near future.
The second area of focus is outreach and communications,
and in April, FLEC launched its redesigned mymoney.gov Web
site. The new site is now available in English and in Spanish
and has enhanced interactive features and utility to provide
more resources to Americans seeking information that can inform
their personal financial decisions.
Third, the Core Competencies Working Group has worked
closely with a group of experts in financial education,
including researchers and practitioners, to identify core
competencies that it will be putting out for public comment in
the coming weeks, with the ultimate goal to put it out in a
format that is easily accessible and remembered, analogous to
the Food Pyramid.
And finally, to encourage research and collaboration among
agencies and other experts, Treasury is working closely with
the FLEC to establish a research clearinghouse next year.
In addition, we have been working on the National Financial
Capability Challenge in partnership with the Department of
Education to assist teachers in their financial education
efforts and increase the focus on financial education in our
high schools. We have worked through the Office of Financial
Education to run pilot programs around the country,
experimenting with what works and what doesn't work in local
communities.
And our most significant new proposed initiative is our
Bank on USA program. The President has asked for a serious
commitment of Federal dollars to help State and local
governments, Community Development Financial Institutions
(CDFIs), community banks do a better job reaching out to low-
and moderate-income Americans and bringing them into the
financial mainstream.
Of course, the new bill that has just been passed by the
Senate includes your Title 12, in which you showed such great
leadership in providing a road map for increased access to
financial services, to low-cost low-dollar loans, and other
initiatives to provide low-income Americans with better
opportunities to enter the financial mainstream, and we very
much look forward to working with you to implement that
program.
Last, let me just mention that we have an opportunity
through our electronic Treasury initiatives to make a big
difference in the lives of low-income Americans through low-
cost debit accounts that we will be working on in the coming
weeks and months.
Let me just sum up by saying that in the wake of the
financial crisis, we have a real opportunity and an obligation
to improve financial stability on both a national and
individual level, and Treasury looks forward to working with
you and with the Congress as a whole, with our sister agencies,
and with the private sector to empower all Americans to make
smarter financial choices.
Thank you very much.
Senator Akaka. Thank you very much, Assistant Secretary
Barr, for your testimony.
Now, Deputy Director Griffin, will you please proceed.
TESTIMONY OF HON. CHRISTINE GRIFFIN,\1\ DEPUTY DIRECTOR, U.S.
OFFICE OF PERSONNEL MANAGEMENT
Ms. Griffin. Thank you, Chairman Akaka, for the opportunity
to testify today on the critical work that the Office of
Personnel Management is doing to improve the financial literacy
of Federal employees and to ensure that they are adequately
prepared for retirement.
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\1\ The prepared statement of Ms. Griffin appears in the Appendix
on page 35.
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OPM is committed to educating Federal employees about the
need for retirement savings and providing information on how to
plan for retirement. As part of that commitment, OPM was
pleased to participate in Financial Literacy Day on Capitol
Hill in April. OPM is proud of the active role it has taken as
a member of the Financial Literacy and Education Commission. As
Co-Chair of the National Financial Education Network, OPM seeks
to facilitate and advance financial education at the State and
local level. OPM is a member of the FLEC Core Competencies
Working Group and is working to identify the core financial
competencies all Americans should have.
Due to the leadership of the Subcommittee, Congress has
taken steps to improve financial literacy of Federal employees
by passing the Thrift Savings Plan's Open Election Act of 2004,
and in response, OPM developed a comprehensive retirement
education strategy called Retirement Readiness NOW. The
Retirement Readiness model considers retirement financial
literacy and financial education as a career-long process and
not just something that happens when you are near retirement.
The model incorporates a broad range of information that
helps employees make informed retirement planning decisions.
OPM's Retirement Readiness NOW model takes a holistic approach
to planning that doesn't just focus on getting employees ready
for retirement, it also touches upon work-life balance, overall
healthy living, and available Federal benefits.
OPM has three key roles in retirement readiness: Catalyst,
capacity, and coordination. OPM serves as the catalyst for
retirement readiness programs by helping to focus attention on
the issue, by speaking at conferences and doing the outreach
that we do.
OPM builds capacity by providing training and tools to
agency benefit offices so that they can assist employees in
understanding their benefits and identifying their financial
education needs. In May, OPM conducted our fifth Benefits
Officer Retirement Financial Education Symposium. OPM
coordinates financial education by identifying resources and
creating partnerships with agencies to leverage the use of
these materials for employees.
One of the best options available to Federal employees
today to plan for retirement is through the Thrift Savings Plan
(TSP). This is a critical component for Federal employees who
are trying to plan responsibly for retirement. OPM recently
released a study analyzing the participation rates in the TSP.
While participation rates are generally high, or higher than
the private sector, the data indicates that minorities lag
behind in terms of participation, contributions, and overall
TSP balances, while women lag behind in contributions and
balances. Over time, we know the automatic enrollment
provisions contained in the TSP Enhancement Act of 2009 should
help reduce these discrepancies. However, OPM is taking action
immediately to reduce the discrepancies.
We are building strategic partnerships with groups
representing diverse populations of Federal employees, such as
the affinity groups and the unions. We are providing agencies
and partners with financial education programs focused on
helping employees understand the importance of savings through
the TSP by conducting outreach to agencies to make them aware
of the resources available to help promote TSP. OPM will
evaluate our outreach programs to determine their
effectiveness.
Agencies also play a key role through their responsibility
of identifying employee needs, providing training and
information to employees, and providing feedback to OPM that
enables us to continue to improve the agencies' retirement
education capacity. However, OPM and agencies can't adequately
improve employees' retirement readiness by ourselves. Employees
must be willing to take advantage of the financial education
opportunities presented to them and they must assume the
responsibility for meeting their own retirement goals. We also
have the responsibility of making it attractive for the
employees to actually want to receive that education. We at OPM
values the agencies and the Federal employees as our partner in
this process.
Thanks for allowing me to testify before the Subcommittee
on this important issue and I will be glad to answer any
questions. Thank you.
Senator Akaka. Thank you very much, Deputy Director
Griffin, for your statement.
And now Assistant Secretary Dann-Messier, your statement.
TESTIMONY OF HON. BRENDA DANN-MESSIER,\1\ ASSISTANT SECRETARY,
OFFICE OF VOCATIONAL AND ADULT EDUCATION, U.S. DEPARTMENT OF
EDUCATION
Ms. Dann-Messier. Good afternoon, Chairman Akaka, and thank
you very much for the opportunity to appear before you today to
discuss what the U.S. Department of Education is doing to help
Americans improve their abilities in making informed financial
decisions, and I also want to express my personal gratitude to
you, Mr. Chairman, for your leadership on this very important
issue.
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\1\ The prepared statement of Ms. Dann-Messier appears in the
Appendix on page 40.
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In my remarks, I will talk about our current financial
education efforts, including ways in which we are working with
other agencies as part of the Financial Literacy and Education
Commission. The three messages I hope to leave with you are:
The Department of Education believes that improving financial
literacy in this country is essential if we are to educate our
way to a better economy and once again lead the world in the
proportion of citizens with college degrees and certificates.
We must provide financial literacy education for all segments
of students, starting early and going through adulthood, if we
are truly going to make a difference. And we have to focus on
outcomes, not just activities, so we can be sure we are
spending the taxpayers' dollars wisely and doing what works.
Before I came to the Department, I witnessed a consistent
lack of financial literacy among the students of Dorcas Place
Adult and Family Learning Center that I led in Providence,
Rhode Island. I know firsthand how pervasive and pressing this
issue is, so I am pleased to be able to tell you what we are
doing at the Department of Education to address it.
I will start with what we are doing for post-secondary
education students. All of our future competitions for the
Talent Search, Upward Bound, Student Support Services programs,
three of our Federal TRIO college and success programs, will
reflect the new Higher Education Act (HEA) requirement to
include financial and economic literacy activities. We are also
encouraging State and local coordination across all TRIO
programs, GEAR UP and the recently expanded College Access
Challenge Grant program, in which financial and economic
literacy activities are allowable, and we are examining how to
better track whether and to what effect grantees under these
programs use funds for this purpose.
The Department's Federal Student Aid program educates
students and families about the cost and benefits of post-
secondary education and about Federal grants, loans, and work-
study opportunities that could help students afford post-
secondary education. We have begun to discuss ways to evaluate
the effectiveness of these efforts and to pursue promising
practices.
An Institution for Education Sciences study from 2006 to
2007 demonstrated that helping people complete the Free
Application for Federal Student Aid (FAFSA) immediately after
providing tax preparation assistance led to increased FAFSA
submissions and college enrollment, while finding that only
providing information on college costs and available financial
aid to a control group had no effect.
Finally, we require entrance and exit loan counseling for
all Federal student loan borrowers and we are developing ways
to learn more about the effectiveness of loan counseling
through an experimental sites initiative at Federal Student Aid
(FSA).
We are also concerned about the lack of financial literacy
among adult learners. Approximately 55 percent of American
adults, over 120 million people, possess only basic or below-
basic quantitative literacy skills. This makes them vulnerable
to predatory lending practices or to making small mistakes that
can have major consequences. The Department is investing $2.3
million to increase the numeracy levels in adults through the
Adult Numeracy Instruction Project.
Now I would like to turn to financial literacy among
elementary and secondary education students. The Excellence in
Economic Education program, which received $1.4 million in
fiscal year 2010, aims to strengthen teaching and learning in
personal finance, economics, and entrepreneurship. Also, under
the Civics Education program, the Department promotes economic
literacy in the United States and abroad. For fiscal year 2011,
we have proposed to enhance the States' and high-need school
districts' ability to promote financial literacy by
consolidating these programs, along with several others, into a
new Effective Teaching and Learning for a Well-Rounded
Education Program, which would provide $265 million to support
innovative and promising practices on a range of subjects,
including financial literacy.
Also in fiscal year 2010, the Department will devote $1.7
million for the Fund for the Improvement of Education funds to
the Financial Education for College Access and Success Program
for one or more States to develop, implement, and evaluate high
school-level personal finance instructional materials and
related teacher training for the purpose of increasing personal
finance understanding, FAFSA completion, and college
enrollment. This grant will be for a 4-year period to allow
sufficient time to determine effectiveness.
In addition, we are cooperating closely with our FLEC
member agencies. We work closely with the Treasury Department,
as you heard, to carry out the National Financial Capability
Challenge. Over 1,500 teachers and 76,000 high school students
participated. We are committed to working with the Treasury
Department on this annual project to promote financial
education in schools, and we would be very interested in
working with you and your colleagues to increase participation
in the challenge next year.
We are planning a senior-level meeting with our colleagues
in the Treasury Department, Federal Deposit Insurance
Corporation (FDIC), and the National Credit Union
Administration (NCUA) to discuss how the Department can support
the Administration's economic inclusion strategy, and we are
planning many back-to-school events with FDIC and NCUA to
highlight schools that promote financial capability by linking
with local banks and credit unions.
Finally, FSA is consulting with FDIC on the redevelopment
of their Money Smart for Young Adults Financial Education
Modules to enhance the paying for college section to make sure
that it is current and helpful as possible.
Improving financial literacy for elementary, secondary,
post-secondary, and adult students is critically important and
it is an important part of the strategy for achieving the
President's 2020 college completion goal, and it is essential
for making the American dream a reality for people across the
country. We are committed to working with you and your
colleagues across the Administration on this issue.
Thank you very much, Mr. Chairman.
Senator Akaka. Thank you very much, Assistant Secretary
Dann-Messier.
And now I would call on Director Thompson for your
statement. Please proceed.
TESTIMONY OF HON. SANDRA L. THOMPSON,\1\ DIRECTOR, DIVISION OF
SUPERVISION AND CONSUMER PROTECTION, FEDERAL DEPOSIT INSURANCE
CORPORATION
Ms. Thompson. Good afternoon, Chairman Akaka. I appreciate
the opportunity to testify about the FDIC's role in empowering
Americans to make informed financial decisions.
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\1\ The prepared statement of Ms. Thompson appears in the Appendix
on page 44.
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It is essential that people of all ages and all income
levels and from all walks of life are able to make sound
financial decisions. The recent financial crisis illustrated
the broad economic harm that results when individuals spend
beyond their means financed by debt that they cannot afford to
repay. Access to a federally-insured bank account is a first
step to consumers achieving financial security. Unfortunately,
many consumers remain outside the financial mainstream.
Last December, the FDIC released the findings of our
National Survey of Unbanked and Underbanked Households. The
survey estimated that about 8 percent of U.S. households are
unbanked and about 18 percent are underbanked. Taken together,
this accounts for about a quarter, or close to 30 million U.S.
households. The survey findings also showed that Blacks and
Hispanics were more likely to be underserved than the
population as a whole. Clearly, much more needs to be done to
ensure a fully inclusive banking system.
At the FDIC, we believe financial education is critical.
Our Money Smart program, which was launched almost 9 years ago,
has reached almost 2.5 million people. We conducted a study to
determine the program's effectiveness and it showed that
financial literacy can positively influence how people manage
their finances. The study also found that participants were
more likely to open a bank account and save after they took the
Money Smart course than before they took the course. The FDIC
uses partnerships and collaborative relationships to promote
Money Smart. Approximately 1,500 public, private, and nonprofit
organizations help to deliver and support Money Smart through
the FDIC's Money Smart Alliance.
Another important part of our education efforts involves
helping people with bank accounts understand how deposit
insurance works. We have an interactive online tool called the
Electronic Deposit Insurance Estimator, and inside we call it
EDIE, and it helps bank customers determine if their bank
accounts are fully insured.
Now, we don't do this alone. The FDIC works on the
government-wide Financial Literacy and Education Commission. We
have been significantly involved in drafting the new national
strategy to promote financial literacy and education. And we
also chair the subcommittee that is developing the core
financial competencies.
The FDIC is also working to ensure that the underserved can
access appropriate credit products from banks. In February
2008, the FDIC launched a pilot program to determine the
feasibility of banks offering small-dollar loans as an
alternative to high-cost credit. We have just completed the
pilot and it showed that banks can offer affordable small-
dollar loans in a way that suits their business plans and is
fair to consumers. Interestingly, the pilot suggests that there
may be a correlation between financial education and improved
loan performance.
The FDIC believes that a solid financial education is
essential for consumers. When people have information, they can
make better decisions. A good financial education never stops.
It is a long-term proposition. It is not a single class that
takes place one time. It is learning that takes place over a
lifetime so that good decisions can be made at the critical
time in a person's life. A good financial education will result
in better financial choices and serves to strengthen our
economy in the long run.
Thank you for having me, and we would be happy to answer
any questions.
Senator Akaka. Thank you very much, Director, for your
statement. And now, Commissioner LaCanfora, please proceed with
your statement.
TESTIMONY OF MARIANNA LACANFORA,\1\ ASSISTANT DEPUTY
COMMISSIONER, RETIREMENT AND DISABILITY POLICY, SOCIAL SECURITY
ADMINISTRATION
Ms. LaCanfora. Mr. Chairman, thank you for the opportunity
to discuss the Social Security Administration's (SSA) role in
the Federal Government's financial literacy initiatives. I want
to especially thank you, Senator Akaka, for taking the lead in
promoting the importance of financial literacy. As my
colleagues on the panel have noted, you have long been at the
forefront of efforts to encourage saving and to ensure that
people have the information they need to manage their personal
finances.
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\1\ The prepared statement of Ms. LaCanfora appears in the Appendix
on page 54.
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In 2009, we paid over $659 billion in Social Security
benefits to more than 51 million retired or disabled workers,
their families and survivors. Social Security benefits provide
some financial protection for the retired, but the public must
understand that these benefits were never intended to supply
all of their retirement income.
The Retirement Confidence Survey conducted by the Employee
Benefit Research Institute indicates that less than half of
American workers have estimated how much money they will need
to live comfortably during retirement. Similarly, the survey
indicated that only a fraction of Americans know at what age
they are eligible to receive full Social Security retirement
benefits. Workers who claim benefits at full retirement age
will receive their full benefit amount, while the monthly
benefits of those who claim early will be reduced.
Understanding the implications of retirement age on
benefits is an important part of retirement planning. Young and
middle-age workers need to know just how important it is to
have other sources of retirement income and to start planning
for retirement early.
As the agency responsible for delivering and managing the
Social Security retirement program, we are uniquely positioned
to help Americans better prepare for retirement and encourage
them to save. In recognition of that role, we have established
a special initiative to encourage saving. This initiative
includes three elements: Our annual Social Security statement,
the Retirement Estimator, and our research program.
We mail more than 150 million Social Security statements
each year to workers nationwide. Each statement contains
personalized information about retirement, survivors and
disability benefits, including an estimate of the person's
future Social Security benefits based on his or her earnings.
The statement serves as a useful planning tool.
Our online Retirement Estimator is an interactive tool that
uses a worker's earnings history to estimate what his or her
retirement benefit would be under various scenarios. According
to the 2009 American Customer Satisfaction Index, the
Retirement Estimator received the highest customer rating of
any Federal Government Web site. About three million people
visited the site in 2009, and we expect that number to grow.
Our research program is developing approaches to improve
retirement planning based on an evaluation of what methods and
tools are effective. Our work supports research by experts
outside the agency, fosters collaboration with other Federal
agencies, and develops and tests tools to improve retirement
preparedness.
Our largest research effort is the Financial Literacy
Research Consortium. In October 2009, we initiated 26 research
projects designed to improve program knowledge and encourage
saving. We closely monitor the progress of each project and
engage the expertise of a panel of scholars in the field of
financial literacy to provide ongoing input. The results of our
first-year projects will be reported at the Consortium's first
annual conference in November of this year.
We also actively participate in the government-wide
Financial Literacy and Education Commission (FLEC). We assist
the Department of the Treasury by chairing or co-chairing three
of the four FLEC working groups, including the National
Strategy, Research and Evaluation, and Communication and
Outreach groups. We also collaborate with FLEC member
organizations to share research findings and eliminate
duplication of effort. To that end, we are assisting the
Treasury Department in the creation of searchable databases of
data sources and research findings. We are also working with
the Treasury Department to develop common evaluation metrics,
an important part of determining what works.
We hope that our efforts will help people to plan
effectively for a secure retirement. We look forward to
continuing to work with the Treasury Department and other
member agencies on the FLEC.
I want to thank the Subcommittee for inviting me here today
and we appreciate your continued support for the agency and for
our mission. I would be happy to answer any questions.
Senator Akaka. Thank you very much, Commissioner LaCanfora.
Assistant Secretary Barr, we share a firm commitment to
improving access to mainstream financial institutions for
American families. I appreciate your collaborating with me on
Title 12 of the regulatory reform bill. You have been extremely
helpful. Thank you also for working with me on remittance
consumer protections in the Dodd-Frank Conference Report.
Many of my constituents send a portion of their hard-earned
wages to relatives living abroad, especially to the Philippines
in Hawaii's case. Unfortunately, in far too many cases, they do
not know for sure how much money their loved ones will receive
and they find it difficult to resolve problems when they arise.
Could you please describe how my constituents will benefit from
this legislation.
Mr. Barr. I would be happy to, Mr. Chairman. As you
indicated, we worked very closely with you and your terrific
staff on the Dodd-Frank legislation. I think it will make a
meaningful difference in the lives of families who are trying
to send money abroad. It will primarily work in three key ways
to help families in Hawaii and elsewhere in the United States.
The first is, right now, it is very often quite difficult
for someone trying to send money abroad to have certainty about
the amount of money that their family in the receiving country
will ultimately get. The disclosures have been not uniform and
quite difficult to understand. The first step that the
remittance provision takes is to say that there needs to be a
clear and honest disclosure, really for the first time, about
the actual amount of funds in the recipient's home country in
local currency that will be received. I think that this will
make an enormous difference, not only in helping individuals
understand what they can expect their families to receive, but
also in improving competition in the remittance sector to drive
down prices and improve the situation for everyone on a level
playing field.
I think the second main way that the legislation will help
people is, in the past, there has not been a consistent
practice for resolving errors that happen in remittances and
the legislation makes clear that remittances, remittance
transfers, are subject now to the same kind of strong consumer
protection rules that apply to, say, an ATM transaction or any
other electronic transaction. So error resolution procedures
will be very strong. It will be much easier for consumers to
get redress if something goes wrong.
And the third key area that the legislation promotes is
better infrastructure, better work by the Federal Government,
by the Treasury Department and by the Federal Reserve and other
agencies, in helping to build the electronic systems that will
lower costs and improve access for Americans trying to send
funds abroad, all over the world.
So I think that the legislation that you crafted will make
an enormous difference in the lives of families.
Senator Akaka. Thank you very much, Assistant Secretary
Barr.
Deputy Director Griffin, social networks are a great way to
reach out to Federal employees, especially younger employees.
In previous testimony, OPM stated it was planning to examine
the role the new social networking media, such as Twitter, can
play in reinforcing retirement readiness messages. Over the
past year, has OPM taken steps to increase awareness of the
need to plan for retirement through the use of social
networking media?
Ms. Griffin. Yes. As a matter of fact, we have. We used
Facebook last year during the Open Season, in the fall, for the
health benefits, flexible spending, the dental and the vision
program. We are anxiously awaiting FedSpace to be launched by
General Services Administration (GSA), and we anticipate that
it will be another way of reaching the Federal employees. We
are actually using Twitter. I can't say I know a lot about that
myself. [Laughter.]
But for those people that use Twitter, which I think they
are all sitting up there---- [Laughter.]
And other social media, we are going to use those as
alternative ways of getting information to people. We certainly
have a lot of experience reaching baby boomers through
traditional means with benefits and retirement readiness
information, but we are really experimenting with all the
different aspects of social media to provide the information to
a whole new set of people that won't really look at, or value
some of the traditional ways that we have transmitted this
information in the past.
Senator Akaka. Thank you, Deputy Director Griffin.
Assistant Secretary Dann-Messier, I appreciated the
Administration's support of funding for the Excellence in
Economic Education (EEE) program for fiscal year 2010. However,
I am disappointed that separate funding was not included in the
Department's request for fiscal year 2011. EEE's annual
appropriation of $1.5 million has been a good use of funds
because it leverages non-Federal funding and contributes to our
economy's long-term health. I am proud of the innovative work
that the Hawaii Council on Economic Education has done as just
one of the many sub-grants made possible by the EEE's funding
to the Council for Economic Education. Assistant Secretary
Dann-Messier, how have the EEE resources been used?
Ms. Dann-Messier. Mr. Chairman, it has been used for
teacher training, development of instructional materials,
development and dissemination of assessments, and serving the
States, among other activities. And there is absolutely no
question these activities have contributed to our shared goal
of increasing financial literacy.
I am looking at the way we are going about funding in the
future for financial literacy as consolidating towards
expansion because we are going to be putting 40 million
additional dollars, which is a 17 percent increase, by making
sure that we serve students across the spectrum, K through 12,
career and technical education, and adult education. And as you
know, we are proposing to consolidate programs into a handful
of larger programs that will come up, as I mentioned before in
my testimony, to the $265 million pool of funds called the
Effective Teaching and Learning for a Well-Rounded Education,
of which financial literacy would be a very large part, and
that is a $40 million increase and a 17 percent increase in
funds. So you need to know that we are deeply committed to
increasing services and programs for financial education and
financial literacy.
Senator Akaka. Thank you very much, and I really appreciate
it. I must tell you, it is moving and expanding and it looks
good to me.
Ms. Dann-Messier. I am glad to hear that, Mr. Chairman.
Senator Akaka. Thank you very much for what you are doing.
Ms. Dann-Messier. Thank you.
Senator Akaka. Director Thompson, I am very interested in
the results of the FDIC's small-dollar loan pilot program. This
innovative pilot has resulted in a model or template of product
elements that can produce a safe, affordable, and feasible
small-dollar loan. In your testimony, you noted that this
template can be copied easily as it is relatively simple and
inexpensive to implement. My question to you is what must be
done to increase the number of banks that offer affordable
small-dollar loan products?
Ms. Thompson. Thank you for asking the question. We started
this pilot in February 2008 because we wanted to show that
banks could offer alternatives to the high-cost financial
products and services that were available for low- and middle-
income persons. About 28 banks participated in the pilot. We
started with 31 and there were some banks that went in and out
of the pilot.
The survey, completed over a couple of months ago,
confirmed that banks can offer these products. And one of the
things that we need to do is make sure that we highlight some
of the results of the survey and prototypes. A diverse range of
banks participated in the pilot--in terms of the asset size and
the communities served. So the template can be adopted to work
for different communities. For example, we had one bank that
required financial education and we had another bank that
didn't, and so taking this pilot and using it as just a model
and modifying it to suit the particular needs of the community,
I think, worked.
The other thing that we could do as regulators is remove
some of the perceived barriers that exist with regard to the
bankers' perception of these small-dollar loans. We need to
highlight that they can get Community Reinvestment Act (CRA)
credit and we also need to highlight that, especially for loans
that come with financial education, the default ratios are
equal to that of traditional unsecured loans. There are a lot
of things that we learned from the pilot that we could take as
regulators and bankers and highlight to show the successes of
the pilot program.
One of the things that the bankers said that they learned
was that they could take these small-dollar loans and develop
long-term relationships and sell other products. Also, some of
the small-dollar loans had their lines increased so they were
higher-dollar amounts. A long-term beneficial relationship can
be developed with these borrowers. But, I think we need to
market the availability of this program and some of the
benefits from both the regulatory side and the banking side.
Senator Akaka. Thank you, Director Thompson.
Commissioner LaCanfora, I would like to commend SSA for
establishing a research program, the Financial Literacy
Research Consortium (FLRC), as part of SSA's financial literacy
initiatives. I am hopeful that this effort will result in
innovative educational materials and programs to help more
Americans achieve a secure retirement. Do you have any
preliminary findings on this effort?
Ms. LaCanfora. Thank you, Mr. Chairman. We are really
pleased about the Financial Literacy Research Consortium, as
well, and we share your hope that the findings from our current
studies will not only help us inform our educational efforts
with respect to Social Security, but will also be useful to our
partner agencies in the FLEC as they develop their own
materials with respect to educating people on financial issues.
It is a little bit early in terms of findings because we
just started our projects in September of last year, and we
will have the final results of the first year projects in
November. That said, I can tell you that we have been working
through a preliminary survey using both telephone and Internet
across 4,000 respondents to create some baseline knowledge. We
want to identify the gaps in financial literacy, both as it
relates to Social Security and otherwise; across age groups,
and across ethnic groups, between genders. It is important for
us to learn where the gaps are so we can customize materials to
target different groups.
In terms of initial findings, we conducted focus groups and
in those focus groups we learned that many people respond to
visual displays. One of the things they told us about Social
Security benefits is that they would like to see us display
retirement ages in order from age 62 right up until age 70 and
the corresponding benefit amount that they would get if they
elected to start receiving benefits at that age. That is not
how we now present our benefit structure in the Social Security
statement, but it is something we are going to test.
There are various things that we are learning which we will
then test on a subset of the survey population to see how
people respond to the new ways of the new materials we put out,
what they retain, what they find to be most useful, and then,
ultimately, what impacts behavior most directly. Then we will
take the results of that information and we will modify
existing materials that Social Security uses. We will share
those findings with our partners across agencies and develop
new materials, as needed.
Senator Akaka. Thank you so much, Commissioner LaCanfora.
I have a question for Assistant Secretary Barr. Modifying
disclosures for financial products has the potential to empower
consumers and investors to make better informed decisions if
they are provided with meaningful and relevant information. My
Credit Card Minimum Payment Warning Act, which was enacted as
part of the Credit Card Act, requires additional disclosures
during the course of making minimum payments. I am also proud
to have included an amendment in the Dodd-Frank bill to provide
clarified SEC authority for pre-sale disclosures for financial
services and products. What else can be done to make
disclosures for financial products and services more meaningful
for consumers and investors?
Mr. Barr. Thank you, Mr. Chairman. I think the two examples
you gave are really important examples of the way that the
legislation that you worked on, I think, will make a big
difference again to families. The ability to be able to see on
your statement how much it would cost if you only made the
minimum payments and how long it would take if you did so, as
well as information about alternatives that cost less and reach
the zero balance sooner, I think are already making a big
difference in helping people take more control over their
financial lives. It makes it easier for consumers to make
decisions that are better for themselves and for their
families.
It is exactly the kind of disclosure that I think we want
to see more of in the future, that is not simply adding more
information to the consumer, but presenting it in a way that
resonates with their lives and helps them make better choices.
I think that kind of disclosure, not the dumping of more
information but improving consumer understanding, is an
absolutely critical path forward.
As others on the panel have mentioned, one way we do better
on that and that informed the provision that you were able to
bring into law now, is consumer testing, paying attention to
how consumers actually make financial decisions and then act or
don't act on the information that they receive. And having that
kind of sound empirical evidence, I think needs to be at the
root of any decisions we make about disclosure, not based on
some abstract model of how we all make decisions, but based on
actual information of the kind the other panelists have
mentioned.
I think that will make an enormous difference in making
progress in the future, and the new agency, the Consumer
Financial Protection Bureau that the Dodd-Frank bill
authorizes, will have full authority to improve disclosures
across the consumer financial marketplace through consumer
testing, through improvements, through merging of Real Estate
Settlement Procedures Act (RESPA) and Truth in Lending Act
(TILA) disclosures, for example, to come up with one simple
mortgage disclosure form. These are all enormous improvements.
And I think as you mentioned in the investor protection
context, giving the SEC the tools it needs to improve investor
education is absolutely critical, as well. The pre-sale
disclosures are, again, an important example of how we need to
provide individuals with information at the time that they need
it and not when it is too late. I just think that is going to
be really critical in the months and years ahead. So thank you
again for your leadership on those initiative.
Senator Akaka. Thank you for your response. I would like to
ask you another question, Assistant Secretary Barr. The level
of home ownership in Hawaii is one of the lowest in the Nation.
Therefore, I am proud to have authorized and subsequently
secured funding for a pre-home ownership and financial
education demonstration project in Hawaii. Also, as you
mentioned in your written testimony, CDFI funding was awarded
early this year for other financial education and counseling
pilot projects authorized by the Housing and Economic Recovery
Act of 2008. What is being done to ensure meaningful evaluation
of these demonstrations?
Mr. Barr. Mr. Chairman, as you could tell from my earlier
remark, I am a firm believer in really sound empirical research
and evaluation as a basis of proceeding on counseling and
financial education and programming more generally. So we have
been taking a hard look at the pilots that have gone on before.
We are in the middle of a serious evaluation of those pilots.
We have plans for doing similar kinds of work on the pilots
going forward, and I think the learning that we take from those
experiences will help us shape better public policy more
broadly. So the pilots, I think, do very good things on the
ground in the communities that they serve and they also help
the whole country do better at the work we are doing together.
Senator Akaka. Assistant Secretary Barr, I want to thank
you for announcing the passage of the bill. It is going to make
a significant, positive difference for our country.
I understand that there is business that you must attend to
related to the Dodd-Frank bill passed today and I want to thank
you for your efforts in helping us do that, as well. And so let
me just say, you are dismissed.
Mr. Barr. Thank you, Mr. Chairman, and thank you again for
your leadership and friendship on all these issues. I look
forward to much more work together.
Senator Akaka. Well, thank you for being on the panel.
Deputy Director Griffin, I continue to appreciate all of
the work done by OPM to fulfill its mandate to better educate
the Federal workforce. What is the status of the establishment
of benchmarks and goals for OPM's financial literacy efforts.
Ms. Griffin. Well, Senator, I think you know that last
year, we mentioned that there were some measures that we were
working on as part of our new strategic plan. We have shifted
the focus slightly from measuring employees' benefits knowledge
to really identifying the roles and responsibilities of the
benefits offices. I think we are starting to realize that our
best approach is to focus on delivering the best we can to the
agencies because they are on the front lines delivering the
education to new employees as well as existing employees. We
are defining standards for the employee benefit offices and
measuring the results and they will be published in the Benefit
Scorecard.
Additionally, the Retirement Readiness Index, which is
based on scores on the Retirement Readiness Profile, will
provide us with more information. We released a beta test
version of the Retirement Readiness Profile last winter and we
are currently incorporating the feedback that we are getting
from the agencies who used the beta version and we will be
releasing an updated Retirement Readiness Profile this fall.
Senator Akaka. Thank you.
Assistant Secretary Dann-Messier, the ability of students
to finance and pay for their education is critical in order to
support a skilled workforce and ensure national
competitiveness. Adequate financial literacy for students and
their families is an important component of aiding this effort.
How does financial knowledge of students and their families
influence the ability of students to complete their education?
Ms. Dann-Messier. Mr. Chairman, it has a profound impact on
whether even a student considers going into college and
accessing college, never mind completing college. In my work in
the community at Dorcas Place and as a member of the State
Board of Governors for Higher Education, we repeatedly heard
stories from students and families who thought they couldn't
even apply to college because it was so expensive. And so this
is why financial literacy and financial education is so very
important, to make sure that our families know that there are
resources available to assist them in paying for college and
completing college.
All folks are hearing in the press is how unaffordable
college is, and so they assume if they are low-income that
certainly speaks to them and their inability to go to college.
And we incorporated in Dorcas Place in our family literacy
program making sure that we embedded financial literacy within
our program so that families understood and our students
understood that there really were, in fact, opportunities for
them to go to college.
I also found in my experience that many low-income
communities were adverse to taking out loans and they assume
that if they had to go to college, they would have to take out
a loan. And so that was part of our work in the community, and
we used the mainstream financial institutions to come in and
also help our students to understand what options were
available to them.
And then we are not surprised, but there was a recent
report that showed that 64 percent of the students took out
costly private loans and they had not yet even exhausted their
eligibility for more flexible and affordable Federal loans. So
we have to do a much better job of educating students and their
families and our adult students, and that is part of our
finance and financial literacy programs, that there are
resources available and that they can, in fact, go to college
and complete college. It has been a huge barrier.
Senator Akaka. Thank you.
Director Thompson, I commend FDIC for working last year
with the U.S. Census Bureau's Current Population Survey to
conduct a National Survey of Unbanked and Underbanked
Households. This landmark survey provides a wealth of
previously unavailable data on unbanked and underbanked
households. I have shared the data with my colleagues as we
have worked to advance Title 12. Please share with the
Subcommittee how this data is being utilized.
Ms. Thompson. Certainly. The survey uncovered that almost
one in four households in the United States were either
unbanked or underbanked. When we asked the unbanked households
whether they had a bank account or have ever had a bank
account, it was for the unbanked half and half. We also asked
the underbanked whether they were using alternative financial
services. Many of them said yes, which really equates to the
people that can least afford paying a higher cost for financial
products and services.
What we are trying to do at the FDIC is come up with safe,
affordable, and easy-to-understand products so that people can
come into the banking system and feel comfortable using these
products. Our Chairman, Sheila Bair, has established the
Chairman's Advisory Committee on Economic Inclusion (ComE-IN).
Members include academicians, regulators, banks, community
groups, and consumer groups. They talk about ways to bring
people into the banking system. Through the ComE-IN, we are
developing a model template so that people can have access to a
basic checking and savings account.
Also, as I mentioned earlier, the FDIC's small-dollar loan
program provides for institutions to provide access to
affordable small-dollar credit.
Additionally, the FDIC has established partnerships in
about 14 communities around the country. We call those
partnerships the Alliance for Economic Inclusion. These
partnerships include regulators, banks, and community groups
that go into the communities and try to bring households into
the banking sector. We provide financial education through our
Money Smart program, and encourage the banks to offer safe and
affordable products.
We are also working on several ``Bank-On'' initiatives
through cities around the country and we are partnering with
the National League of Cities to implement that strategy.
The Money Smart Alliance has about 1,500 members around the
Nation. Many of these members go out and teach and train people
on banking, banking services, and financial literacy. We think
that this work is very important.
Senator Akaka. Thank you very much.
Commissioner LaCanfora, I want to commend SSA for enhancing
the 2009 Annual Social Security Statement to provide additional
information relevant to beneficiaries. Will SSA be conducting
an evaluation to measure the impact of these changes on
influencing worker behavior?
Ms. LaCanfora. As I mentioned in my testimony, the Social
Security statement is part of the cornerstone of our outreach
and educational efforts. We started sending it out in 1995 and
we send out 150 million each year. So you don't just get a
statement once in your lifetime; you get it every year. We are
hoping that by sending it out on an annual basis that it will,
in fact, help educate people and inspire them to plan for
retirement.
We are always looking for ways to improve the Social
Security statement. We made a couple of changes last year, and
there are probably even more ways to enhance the statement so
that it resonates more with people across age groups, across
ethic groups, and between genders.
We have a couple of research projects that we think will
help inform the statement and help us understand better how
people best take in information, what works for them and what
makes sense. So yes, we do intend and we have been all along
looking at the statement and the effects of the changes that we
make to the statement. We will make that information publicly
available and be happy to share it with anyone.
Senator Akaka. Thank you. I want to thank this panel for
being here with us and updating us with your responses to our
questions. We may have further questions for you that we will
submit in writing. So again, thank you. This is a great day for
the United States of America, and we need to take advantage of
this opportunity and really move ahead to help the people of
our country. Thank you very much.
Mr. Barr. Thank you.
Ms. Griffin. Thank you.
Ms. Dann-Messier. Thank you.
Ms. Thompson. Thank you.
Ms. LaCanfora. Thank you.
Senator Akaka. I want to welcome our second panel of
witnesses, Barbara Roper, who is Director of Investor
Protection at the Consumer Federation of America, and I also
understand, Ms. Roper, that you have a son, Nick, who is here.
Nick, would you raise your hand? Hi. Welcome, too. We also have
Lynne Egan, Deputy Securities Commissioner for the Montana
Office of State Auditor, and who is appearing on behalf of the
North American Securities Administrators Association.
As you know, it is the custom of this Subcommittee to swear
in all witnesses. I would ask you to stand and raise your right
hand.
Do you swear that the testimony you are about to give the
Subcommittee is the truth, the whole truth, and nothing but the
truth, so help you, God?
Ms. Roper. I do.
Ms. Egan. I do.
Senator Akaka. Thank you. Let it be noted in the record
that the witnesses answered in the affirmative.
I want you to know that your full statement will be made
part of the record, and I would also like to remind you to
limit your oral remarks to 5 minutes.
Ms. Roper, will you please proceed with your statement.
TESTIMONY OF BARBARA ROPER,\1\ DIRECTOR OF INVESTOR PROTECTION,
CONSUMER FEDERATION OF AMERICA
Ms. Roper. Thank you. For more than three decades, Consumer
Federation of America (CFA) has sought to promote effective
financial education to increase financial literacy and improve
financial decisionmaking. However, my own work at CFA has been
primarily in the area of advocacy, working to promote policies
that achieved the same goal, but through a different route. If
financial literacy is aimed at educating consumers and
investors to make sound financial decisions, my work as an
investor advocate has tended to focus on ending the industry
practices and market flaws that undermine that goal.
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\1\ The prepared statement of Ms. Roper appears in the Appendix on
page 60.
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Too often, these two areas of activity have proceeded
independently of each other without adequate consideration for
how they naturally interact. I realize in saying that I am
preaching to the choir because there is no Member of Congress
who has done more to work on both sides of these two issues,
the literacy and the consumer protection side, than you have,
and we greatly appreciate that, Chairman Akaka.
In my written testimony, I cover several lessons that we
have learned about how these two features interact. In my oral
statement, I would like to just cover a few of the key points.
My first is that financial literacy needs to be treated not
as an end in itself, but as a means to an end. In other words,
our goal isn't or should not be simply to empower consumers to
make informed financial decisions, but to empower them to make
sound financial decisions. And thus in measuring the success of
Federal financial literacy efforts, we should look not just at
whether they provide consumers with the information they need,
but with whether they result in substantial positive behavioral
change, especially in areas that are crucial to consumers'
financial well-being.
In making that assessment, it is essential that we
recognize that statistically significant change is not
necessarily socially significant change. So if we increase
socially desirable practice, such as creating an emergency fund
from, say, 20 percent of the population to 25 percent, that
would certainly be statistically significant, but it would not
be adequate. For these kinds of financial behaviors that are
crucial to consumer well-being, we need to aspire to spread
that behavior to a large majority of the population.
If behavior change is the goal, moreover, then more thought
needs to be put into determining what messages are most likely
to motivate consumers to change their behavior. In other words,
financial education efforts need to focus not just on the
information that consumers need, but on what one or two factors
are most likely to motivate them to act. As the Federal
Government develops and implements financial literacy programs,
it needs to incorporate both front-end research designed to
identify key motivators and back-end assessment to determine a
program's impact on consumer behavior, and we greatly
appreciate the fact that the investor literacy provision that
you included in the financial reform bill provides just that
kind of research.
Financial education efforts will always be swimming against
the current, however, if they are not supported by regulatory
policies that support sound financial decisionmaking. Too
often, our regulatory policies either do not support that end
or actively undermine it. To achieve our goal in such cases, we
need to think not just about how to educate consumers to make
sound decisions in that sub-optimum financial world, but about
what policy changes are necessary to make consumer education
both possible and effective, and the following are among the
obvious areas, I believe, where policies should be reexamined
to ensure that they support the ability of financially literate
consumers to make sound financial decisions.
The first is disclosure. If we want consumers to make sound
financial decisions, we need to ensure that they receive the
necessary information in a form that is accessible and
understandable at a time when it can be factored into their
purchase decision. However, most financial disclosures fail at
least one of these tests of effective disclosure. Often,
consumers receive the relevant information, but obscured in
massive fine print or conveyed in overly technical language
that makes the information all but impenetrable, or delivered
after the purchase, as is typical with mutual fund prospectus.
Even point-of-sale disclosures may come too late if the
purchase decision has already effectively been made.
Thus, for financial literacy efforts to succeed, we need
sweeping revisions to our financial disclosures across product
and industry lines with an eye toward designing timely
disclosures that not only provide the relevant information but
do so in a way that is designed to motivate consumers and
investors to act on that information.
Complexity--it is unreasonable to expect financial
education to equip consumers and investors to understand
concepts that are too complex to be understood by anyone but a
highly trained financial professional. In my written testimony,
I illustrated this point with an excerpt from a prospectus for
an equity indexed annuity, but I could just as easily have
chosen the disclosures about a mutual fund's investment
strategy or any of a number of other factors that we ask
consumers to carefully assess when they are selecting products.
Educating consumers that they need to assess factors that
they cannot comprehend is a waste of time and energy. If we
can't reasonably expect to educate consumers to understand some
factor that we consider crucial to an informed purchase
decision, we must adopt other regulatory policy options that
ensure that the marketplace conditions support beneficial
choices and limit the potential for harmful choices.
So in conclusion, if our goal is to help consumers and
investors make sound financial decisions, the first
responsibility of the Federal Government is to ensure that the
financial marketplace supports that goal. Are good choices
available? Even where good choices are available, is the market
overwhelmed by bad choices? Do the incentives in the system
encourage the intermediaries that consumers and investors rely
on to act for or against their customers' best interests? And
are the disclosures consumers and investors rely on presented
in a way and at a point in the process that encourages informed
decisionmaking?
Until you resolve those public policy questions, financial
literacy efforts will be fighting a hopeless battle. Only when
the regulatory policies themselves support sound financial
decisionmaking can financial education be truly effective in
promoting that goal.
Senator Akaka. Thank you very much, Ms. Roper, for your
statement.
Now I will call on Ms. Egan to proceed with your statement.
But before you do, I just want to let you know that Senator
Tester would like to have been here personally to greet you
today, but is not able to make it because of a schedule
conflict. I wanted to tell you that he was thinking of you and
wanted to be here. But as you know, the Senate has so many
events scheduled, it is difficult to be every where you want.
But he wanted to greet you here, so I will do that for him.
Ms. Egan. Thank you.
Senator Akaka. Will you please proceed with your statement.
TESTIMONY OF LYNNE EGAN,\1\ DEPUTY SECURITIES COMMISSIONER,
MONTANA OFFICE OF STATE AUDITOR, ON BEHALF OF THE NORTH
AMERICAN SECURITIES ADMINISTRATORS ASSOCIATION
Ms. Egan. Thank you, Chairman Akaka. I am honored to
present the views of the State securities regulators on how to
empower Americans to make informed financial decisions.
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\1\ The prepared statement of Ms. Egan appears in the Appendix on
page 69.
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State securities regulators recognized long ago that
education is a key weapon in the fight against investment
fraud, and as a result, the North American Securities
Administrators Association (NASAA) Investor Education Section
was created in 1997 by our Board of Directors to help support
our members. Most securities regulators have established
investor education divisions within their agencies. The result
is an effective network of dedicated professionals delivering
financial education in person at the grassroots level. Last
year, NASAA members reached over 250,000 consumers through more
than 1,800 investor education presentations.
NASAA actively participates with Financial Literacy
Education Commission events that have brought individuals and
organizations together to discuss ideas and outreach. In the
past, the FLEC suffered from a small number of staff and
limited funding that provided constraints to its effectiveness.
While the FLEC has taken positive steps, the progress has been
slow in integrating the Commission's national strategy for
financial literacy.
One challenge to be addressed is how to organize the
existing financial literacy program of the FLEC's members and
how best to reach a consensus on a harmonized message. Another
challenge is disseminating the program's information to the
public from a centralized location in Washington, DC. In this
regard, NASAA's members should be utilized by the FLEC to
mobilize their respective grassroots networks to reach more
people.
NASAA was pleased when the FLEC formed the National
Financial Education Network to create an open dialogue and
advance financial education at the State and local level.
Ongoing activity has been limited and NASAA encourages the FLEC
to move forward in establishing effective ways of connecting
State and local parties, both electronically and through face-
to-face meetings throughout the year.
The President's Advisory Council on Financial Capability
also offers an opportunity to coordinate the efforts of NASAA's
grassroots network with the initiatives undertaken at the
national level. We recommend a State securities regulator be
appointed by President Obama to serve on the Council to utilize
the resources and experience of State securities regulators to
pursue new programs and partnerships.
NASAA members provide unbiased, relevant, and timely
information for anyone interested in the investment markets,
which is critical in light of the notoriety of recent
investment frauds. Our members also disseminate this
information to the public at no cost through our vast network
of Investment Education Coordinators across North America.
One example of how FLEC could facilitate this outreach is
to coordinate joint efforts with both the Treasury Department
and State officials as participants. That way, we could
leverage resources and members of the audience have a local
point of contact for future questions and requests for
information.
To better frame the nature of our work, I would like to
share highlights of our financial education initiatives. In
Montana, a State vast in size and small in population, we have
found the most effective way to reach our population is in
face-to-face meetings. We have an investor education campaign
entitled, ``Securities Fraud: How to Smell a Rat,'' that we
take on the road each September and May, traveling thousands of
miles to remote locations throughout the State. Events are held
primarily at senior centers, include a meal, an hour
presentation on securities fraud, and a wrap-up game of Smell a
Rat Bingo that tests the seniors on the fraud presentation
material. During this past year, our staff has driven nearly
4,000 miles and has provided to thousands of Montana seniors
the tools necessary to protect themselves from financial fraud.
Additionally, NASAA has partnered with American Association
of Retired Persons (AARP) to combat the rising investment fraud
among seniors with the Free Lunch Monitor (FLM) program, which
seeks to empower seniors to fight fraud. This national campaign
is designed to monitor whether senior investors are being
pressured into purchasing inappropriate or unsuitable
investments, such as equity indexed annuities. The FLM program
gives individuals an opportunity to fight back against
unscrupulous promoters by reporting to their State securities
authorities possibilities of questionable investment practices
in their communities.
In times of heightened deployment, U.S. service members
have become targets of financial scams. My colleague in New
Jersey created a fraud prevention guide tailored to the
military called ``A Salute to Smart Investing.'' The guide acts
as a resource for military members with information on safe
investing, balancing risk and return, retirement planning, red
flags for fraud, scams that target the military, and a list of
State securities regulators nationwide. This guide has been
distributed to more than 90,000 military members.
Teaching youth the principles of sound investing and fraud
prevention is the thrust of a NASAA-produced program targeted
to high school students entitled, ``FSI: Fraud Scene
Investigator.'' FSI is an interactive online investor education
program that teaches and empowers students how to detect and
stop investment fraud. The FSI program is designed to help
students learn how to fight fraud firsthand by delving into
newspaper stock tables, researching companies through online
news, and deciphering the truth about an investment from
fraudulent sales pitches. NASAA's grassroots network is working
with educators to integrate the FSI program into schools across
the Nation.
In conclusion, State Securities Regulators have
traditionally been and remain an extremely effective resource
in the pursuit of greater financial literacy. We are the front
lines of financial education initiatives in every State,
translating Wall Street to Main Street for small investors
throughout this country. NASAA and its members welcome the
opportunity to work more closely with the FLEC and Subcommittee
members in their ongoing efforts to improve the level of
financial literacy throughout our Nation. Thank you.
Senator Akaka. Thank you for your statement, Ms. Egan.
I was greatly disappointed that a harmful provision was
included in the Dodd-Frank Wall Street Reform and Consumer
Protection Act Conference Report that will exempt equity index
annuities from securities laws. Could you please describe why
this will be harmful to investors? Ms. Roper.
Ms. Roper. I will be happy to start. As you know, we share
your concern and greatly appreciate the efforts that you made
to prevent that from happening. When I talked earlier, I said
you cannot educate consumers to understand things that are too
complex. You also can't educate consumers to understand things
that don't make any sense.
And regulating products that are sold in competition with
each other under different standards so that in some places
they are protected, say, by a fiduciary duty for advice or by
limits on excessive compensation as the securities law provide,
in other cases they are not. You cannot educate consumers to
protect themselves against the abuses that will inevitably
result. And this is a case where we know that the marketing
abuses are rampant.
And so we have now adopted an approach that says, in an
area of the market where we know consumers are vulnerable and
market abuses are rampant, we are going to deny them the
services of securities regulators to help police those abuses,
the kind of disclosures they would get under securities laws
protections, the securities fraud protections, the excessive
compensation protections, for no good sense that I can see.
And, in fact, our policies need to be going the opposite
direction. We need to be looking to ensure that products and
services that are offered in competition with each other to
serve comparable functions need to be subject to comparable
regulations. Otherwise, you will never be able to educate
consumers to understand that.
Senator Akaka. Commissioner Egan, would you like to
comment?
Ms. Egan. I would again like to thank you, Chairman Akaka,
for your efforts in opposing that particular amendment. We as
the securities regulators were greatly dismayed when we saw the
opportunity to police that particular product leave our radar
screens. In Montana alone, we have about 30 percent of our
complaints, and we receive several hundred a year, come from
senior citizens that have invested in equity indexed annuities.
They are not given full disclosure. They do not understand the
products. They are unsuitable products. And it will be more
difficult now for us to protect these individuals because of
the result, as a result of that amendment.
We will do what we can to help them, but the products are
high commission products. They are very complicated. They
change constantly throughout the life of the product and they
are oftentimes products that are flipped over and over again.
But we will do what we can and we hope that possibly down the
road we will see some changes. Thank you.
Senator Akaka. Thank you. This, again, is to receive
comments from both of you. Section 917 of the Financial Reform
Conference Report requires a SEC study on the existing level of
financial literacy among retail investors. It also mandates
that the SEC develop a strategy to improve the financial
literacy of investors. Could you both please share with the
Subcommittee why you believe that this provision is important.
Ms. Roper.
Ms. Roper. Absolutely. This was a provision in the bill we
strongly supported. We know from testing that has already been
done, including testing that we, in CFA, have done on mutual
fund investors and testing others have done that the level of
financial literacy among investors doesn't begin to approach
the level that you would need to make an informed financial, or
an informed investment decision.
So we know that there is a gap in understanding there and
it is in an area where we have had financial education efforts
for years. We did a project on mutual fund purchase practices
where there is almost unanimous agreement on what appropriate
purchase practices should look like. It has been the subject of
education for years. And when you then test investor behavior,
you find that their conduct doesn't remotely resemble what the
experts agree they should be doing.
So what we need to do is use this study. I think this study
provides just a tremendous opportunity to understand what is
working, where the areas are where investors are most
vulnerable, what is likely to be most effective, and then to
not just design investor education around that, which is
absolutely essential, but to go back and look at the policies,
as I say, about disclosure in particular to ensure that they
actually support informed decisionmaking. I just think the
study, properly conducted, provides a tremendous opportunity to
fundamentally rethink the way we approach that whole issue.
Senator Akaka. Thank you. Ms. Egan.
Ms. Egan. Thank you, Mr. Chairman. I agree with Ms. Roper.
I have always taken the position that it would be nice to
regulate the investor because then we could test the investor
and see what level of sophistication he or she may rise to, to
make a determination of what investment products are suitable
for that person.
Unfortunately, that isn't the case, and I believe that
investors many times will never reach a level of financial
literacy that is requisite to certain investment products, and
that is why the Fiduciary Duty Standard was so important. The
disclosures investors receive are oftentimes written in
language that is almost unintelligible to many people. That is
why they are providing a professional to provide them with
investment advice.
So I don't think we can ever fully hope that investors will
be completely financially literate. I think we have to write
the disclosure in plain English. We need to be more clear in
what we are talking about, require the industry to be more
clear in what it is talking about or what it discloses to
investors. And we need to impose a standard that the industry
make these full disclosures. Thank you.
Senator Akaka. Thank you. Ms. Roper, we share a commitment
to establishing a meaningful fiduciary duty for brokers that
provide personalized investment advice. What must be done to
ensure that the authority provided to the SEC in the Wall
Street Reform bill is implemented in a manner that will
adequately protect investors?
Ms. Roper. Well, you are absolutely right. It is actually
an issue that I have been working on since I started at CFA in
1986, so we didn't get there fast, but it looks like maybe we
got there, which we greatly appreciate the support that you
provided for getting that provision through into the final
bill.
As Ms. Egan says, you can't adequately educate investors to
understand the complex issues that go into some of the
decisions that they are required to make for a sound
retirement. So how you regulate the intermediaries they rely on
becomes absolutely essential.
We now have authority for the SEC to adopt a standard for
brokers when they give investment advice that would require
them to act in their customers' best interest, just as other
investment advisors, financial planners, are already required
to do. The first step in getting that done is going to be to
ensure that the study that the SEC conducts, which is on a very
short time frame--6 months they have to do the study that lays
the groundwork for this--is going to be to ensure that the
study is unbiased. I am absolutely convinced that an unbiased
study supports the imposition of a fiduciary duty on brokers.
But this is a problem that is the result of poor policy
decisions at the SEC over a number of decades, and so we need
to ensure that the study looks strictly at the issue of what
the standards should be rather than trying to make excuses for
past decisions that helped create the current confusion.
I am convinced that three of the Commissioners, Chairman
Schapiro and two of the other Commissioners, have made public
statements that they are supportive of imposing a fiduciary
duty. They are committed to that. So the fact that the
rulemaking authority is permissive rather than mandatory does
not necessarily concern me. But there will be, I think, some
need for the Senate, Members of Congress, to keep an eye on
that process as it moves along to ensure, with all of the many
responsibilities that the SEC now has before it to implement
this new bill, that this one doesn't get lost in the process
and that it proceeds in a way that really puts investors'
interests first.
Senator Akaka. Ms. Egan, what are your thoughts?
Ms. Egan. I would mirror what Ms. Roper says. I was totally
dumbfounded to think that anybody would even consider not
putting the investor first. They should always come first in
any financial decision. Objectiveness is key here. I think that
those that are conducting the study need to step aside from the
relationship and look strictly at the facts. It is the investor
that is paying for the product and the investor's interests
need to be placed first. Thank you.
Senator Akaka. Well, thank you very much. I appreciate your
responses. It is good to hear from people who deal with
investors and consumers, so I thank you very much for your
responses.
I feel this has been a good hearing on the day that we
passed the Dodd-Frank Wall Street Reform and Consumer
Protection Act Conference Report. Without question, it will
certainly help the people of this country.
This hearing will be adjourned, but the hearing record will
be open for one week for additional statements or questions
other Members may have. Again, I want to thank our panelists
for being here and for your responses, which will be helpful to
this Subcommittee.
The hearing is adjourned.
[Whereupon, at 4:32 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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