[Congressional Record (Bound Edition), Volume 152 (2006), Part 9]
[House]
[Pages 12700-12703]
[From the U.S. Government Publishing Office, www.gpo.gov]




IN DEFERENCE TO DR. BEN BERNANKE, CHAIRMAN OF THE BOARD OF GOVERNORS OF 
 THE FEDERAL RESERVE, AND MR. RICHARD W. FISHER, CEO AND PRESIDENT OF 
                   THE FEDERAL RESERVE BANK OF DALLAS

  Mr. HINOJOSA. Madam Speaker, recently, I held my Fifth Regional 
Leaders Issues Conference in the Jefferson Building of the Library of 
Congress. Over 140 of my constituents attended the conference, 
including elected officials, presidents of universities, educators, 
heads of chambers of commerce, and many other community leaders in the 
15th District of Texas.
  On Tuesday, June 13, 2006, I was honored to have Dr. Ben Bernanke, 
Chairman of the Board of Governors of the Federal Reserve, give remarks 
to the conferees. He referenced data from the Survey of Consumers 
Finances, which is a triennial survey sponsored by the Federal Reserve 
Board.
  The latest survey revealed some discouraging and alarming statistics: 
Households whose income placed them in the bottom fifth of the 
population were less likely than the average respondent to maintain a 
checking or savings account, and almost 25 percent of those families 
were unbanked compared to less than 10 percent of families in the other 
income levels.
  According to the survey, reasons given for not having an account 
varied. Some respondents said they would not write enough checks to 
make having an account worthwhile; others were dissuaded by minimum 
balance requirements, or said that they did not have enough money to 
justify opening a bank account.
  Chairman Bernanke noted that, in some cases, consumers lacked the 
knowledge about the services that banks offer, including deposit 
insurance, or even misunderstood the important role banks play in our 
economy. Chairman Bernanke went on to say that some of the general 
approaches to helping families of modest means build wealth and improve 
their economic well-being include community economic development, 
financial literacy, and other programs that encourage saving and 
investment.
  As the cofounder and cochair of the Financial Economic Literacy 
Caucus, I was pleased by all the information he provided my 
constituents, and I am pleased with the efforts the Federal Reserve is 
undertaking to improve financial literacy rates across the United 
States. I want to take this opportunity to express my sincere 
appreciation for Chairman Bernanke taking time out of his very busy 
schedule to speak to my constituents.
  It is my hope that the media will focus more attention on what the 
chairman and the Financial and Economic Literacy Caucus members have to 
say with regard to financial education and literacy, instead of 
focusing solely on Chairman Bernanke's comments on the direction of 
interest rates. I find it odd that the media and some legislators have 
yet to realize that there is a correlation between the country's poor 
financial literacy rates and the actions the Federal Reserve has to 
take from time to time.
  Madam Speaker, I include for the Record the remarks Chairman Bernanke 
gave before my Fifth Regional Leaders Issues Conference.

  Remarks by Chairman Ben S. Bernanke, Federal Reserve Board, At the 
    Fifth Regional Issues Conference of the Fifteenth Congressional 
                           District of Texas


       Increasing Economic Opportunity: Challenges and Strategies

       Washington, June 13, 2006.--I am pleased to be here to 
     discuss some strategies for helping families, particularly 
     lower-income families, improve their economic and financial 
     well-being. Families today face a financial marketplace that 
     is increasingly complex, with numerous products and service 
     providers from which to choose. Today I will touch on several 
     approaches for helping people of modest means take advantage 
     of these financial opportunities while managing the risks and 
     avoiding possible pitfalls.


                     Today's Financial Marketplace

       Technological advances have dramatically transformed the 
     provision of financial products and services in recent years. 
     To cite just one example, the expanded use of computerized 
     credit-scoring models, by reducing the costs of making loans 
     and by increasing the range of assets that lenders can sell 
     on the secondary market, has made possible the extension of 
     credit to a larger group of borrowers. Indeed, we have seen 
     an increasingly wide array of products being offered to 
     consumers across a range of incomes, leading to what has been 
     called the democratization of credit. Likewise, technological 
     innovation has enhanced financial services, such as banking 
     services, and increased the variety of financial products 
     available to savers.
       The range of providers in consumer financial markets has 
     also increased, with the number of nonbank entities offering 
     credit and other financial services having risen particularly 
     quickly. For example, a recent study of alternative providers 
     of financial services found the number of nonbank check-
     cashing establishments doubled in the United States between 
     1996 and 2001. Payday lending outlets, a source of credit 
     that was almost non-existent a decade ago, now number more 
     than 10,000. And data from the Survey of Consumers Finances, 
     a triennial survey sponsored by the Federal Reserve Board, 
     indicate that the share of households with a loan from a 
     finance company increased from 13 percent in 1992 to 25 
     percent in 2004.


             Financial Challenges of Lower-Income Families

       Despite the increased complexity of financial products and 
     the wider availability of credit in many forms, U.S. 
     households overall have been managing their personal finances 
     well. On average, debt burdens appear to be at manageable 
     levels, and delinquency rates on consumer loans and home 
     mortgages have been low. Measured relative to disposable 
     income, household net worth is at a fairly high level, 
     although still below the peak reached earlier this decade.
       Families with low to moderate incomes, however, face 
     special financial challenges. These families generally have 
     less of a cushion to absorb unanticipated expenses or to deal 
     with adverse circumstances, such as the loss of employment or 
     a serious health problem. Results from the Survey of Consumer

[[Page 12701]]

     Finances show that the median net worth for households in the 
     lowest income quintile--those whose income placed them in the 
     bottom fifth of the population--was only $7,500 in 2004, well 
     below the median for all survey respondents of $93,000. The 
     Survey data also indicate that households in the lowest 
     quintile were significantly less likely than the average 
     respondent to maintain a checking or savings account; almost 
     25 percent of those families were ``unbanked,'' compared to 
     less than 10 percent of families in the other income 
     quintiles. The reasons given for not having an account 
     varied: Some respondents said they would not write enough 
     checks to make having an account worthwhile, but others were 
     dissuaded by minimum balance requirements or said that they 
     did not have enough money to justify opening an account. In 
     some cases, a lack of knowledge about the services that banks 
     offer or even a distrust of banks is likely a factor.
       The Survey also found that lower-income households are less 
     able than others to manage their debts. A greater fraction of 
     these households had debt-to-income ratios of 40 percent or 
     more or had a payment past due at least sixty days. The data 
     also reveal that only 40 percent of families in the lowest 
     quintile own a home, compared with a homeownership rate of 69 
     percent among all families surveyed. Finally, the data on 
     retirement account ownership show an even larger gap, with 
     only 10 percent of lowest-quintile families holding a 
     retirement account, whereas 50 percent of all families 
     responding to the survey reported participation in some type 
     of retirement savings plan.
       How can these disparities be addressed? Some general 
     approaches to helping families of modest means build assets 
     and improve their economic well-being include community 
     economic development, financial education, and programs that 
     encourage saving and investment. In the remainder of my 
     remarks, I will discuss each of these approaches briefly and 
     offer some insights into their effectiveness based on 
     research and experience.


                     Community Economic Development

       In my time with the Federal Reserve, I have had a number of 
     opportunities to meet with community economic development 
     leaders--representatives of groups working to assist lower-
     income families become homeowners, start small businesses, 
     better manage their finances, and save for the future. In 
     fact, my first trip as a Federal Reserve Board member was to 
     Brownsville, Texas, where I saw how a grassroots nonprofit 
     organization is helping to build communities and to provide 
     residents with the chance to build wealth through 
     homeownership. The Community Development Corporation (CDC) of 
     Brownsville works with multiple funding partners--governments 
     at all levels, financial institutions, foundations, and 
     corporations--to construct housing and to design innovative 
     loan products that enable low-income families to qualify for 
     mortgage credit. For example, because of the mix of funding 
     sources, mortgage loans can be offered with features such as 
     down-payment assistance or a below-market interest rate. The 
     CDC of Brownsville also offers a program that allows 
     prospective homeowners to acquire ``sweat equity'' in a 
     property by working on construction teams to help build their 
     own new home and those of other participating families.
       As in the case of many community development organizations, 
     the Brownsville CDC has also made financial education a 
     critical element of its efforts to help lower-income 
     residents improve their financial status. For example, 
     participation in financial counseling or in an education 
     program is typically required for a borrower to obtain a loan 
     through the CDC or through one of its lending partners. 
     However, the broader aim of these programs is to improve 
     borrowers' prospects for longer-term success in maintaining 
     their credit and handling their overall finances. Since 1994, 
     through this combination of leveraged financing arrangements 
     and borrower education, the CDC of Brownsville has helped 
     make homeownership possible for more than 2,500 low-income 
     families. I cite the Brownsville example because of the 
     opportunity that I had to learn about their work (and I 
     recently had a similar opportunity to see some impressive 
     community development efforts in the Anacostia neighborhood 
     of the District of Columbia). But this localized approach to 
     community development and wealth-building is playing out in 
     neighborhoods throughout the country, in most cases through 
     strategies tailored to the distinct needs of the particular 
     community.


               Financial Education and Financial Literacy

       Financial education has not only been integral to community 
     development but has also begun to play a larger role in the 
     broader consumer market. Clearly, to choose wisely from the 
     wide variety of financial products and providers available, 
     consumers must have at least basic financial knowledge. 
     People who understand the financial aspects of purchasing a 
     home or starting a business, or who appreciate the importance 
     of saving for children's education or retirement, will almost 
     certainly be economically better off than those without that 
     vital information. Financial literacy can be acquired through 
     many channels: in school, on the job, through community 
     programs and counseling, or through self-education and 
     experience.
       Studies generally find that people receiving financial 
     education or counseling have better financial outcomes. For 
     example, research that analyzed data on nearly 40,000 
     mortgage loans targeted to lower-income borrowers found that 
     families that received individual financial counseling were 
     less likely later to become delinquent on their mortgage 
     payments. Similarly, another study found that borrowers who 
     sought and received assistance from a credit counseling 
     agency improved their credit management, in particular, by 
     reducing the number of credit accounts on which they carried 
     positive balances, cutting overall debt, and reducing 
     delinquency rates. More broadly, the research shows that 
     financial knowledge is correlated with good financial 
     outcomes; for example, individuals familiar with basic 
     financial concepts and products have been found to be more 
     likely to balance their checkbook every month, budget for 
     savings, and hold investment accounts.
       Studies that establish an association between financial 
     knowledge and good financial outcomes are encouraging, but 
     they do not necessarily prove that financial training and 
     counseling are the causes of the better outcomes. It could 
     be, for example, that counseling is associated with better 
     financial outcomes because the consumers who choose to seek 
     counseling are the ones who are already better informed or 
     more motivated to make good financial decisions. In medicine 
     and other fields, researchers gain a better understanding of 
     what causes what by doing controlled studies, in which some 
     subjects are randomly assigned a particular treatment while 
     others do not receive it. To translate this idea to the 
     analysis of the effects of financial counseling, the Federal 
     Reserve Board's Division of Consumer and Community Affairs is 
     collaborating with the Department of Defense to conduct a 
     three-year study of the effects of financial education. This 
     study will evaluate the impact of various educational 
     programs on the financial decisions of soldiers and their 
     families. It includes a treatment group of those receiving 
     financial education, with the programs each family receives 
     and when they receive it being determined randomly, and a 
     control group of similar soldiers and their families who have 
     not received this formal financial education. Because 
     assignments of individuals to programs will be random, any 
     observed changes in behavior can be more reliably attributed 
     to the type and amount of counseling received. Among other 
     things, the results of this study should help us better 
     understand whether financial education leads to changes in 
     behavior for participants in general or only for those at 
     critical teaching moments, such as the period before making a 
     major financial decision such as choosing a mortgage.
       I would like to say just a few words about the Federal 
     Reserve's broader role in promoting consumers' understanding 
     of financial products and services. Beyond conducting surveys 
     of consumers and doing research, we work in a number of ways 
     to support consumers in their financial decisionmaking. For 
     example, through our consumer protection rule-writing 
     authority, the Federal Reserve sets requirements that specify 
     the information that must be disclosed to consumers about the 
     terms and fees associated with credit and deposit accounts. 
     These disclosures provide consumers with the essential 
     information they need to assess the costs and benefits of 
     financial services and compare products among different 
     providers. We are currently reviewing many of our disclosures 
     and plan to use focus groups and other methods to try to make 
     these disclosures as clear and as user-friendly as possible.
       The Federal Reserve System also works to promote financial 
     education and financial literacy through various outreach and 
     educational activities. We provide a great deal of 
     substantive financial information, including interactive 
     tools for economic education, on our education website 
     www.federalreserveeducation.org. The website links to a wide 
     variety of financial education resources at the local, 
     regional, and national levels.
       Additionally, the Federal Reserved Board collaborates with 
     educational and community development organizations to 
     support their efforts. Our national partners include the 
     Jump$tart Coalition for Personal Financial Literacy, the 
     Conference of Mayors' DollarWi$e Campaign, Operation HOPE, 
     the American Savings Education Council, and America Saves, 
     among others. At the regional level, the 12 Federal Reserve 
     Banks work with organizations to support financial education 
     and financial literacy. For example, the Federal Reserve Bank 
     of Cleveland has worked with community financial educators to 
     form regional networks that combine resources and share best 
     practices. The Federal Reserve Bank of Chicago sponsors 
     ``MoneySmart Week,'' partnering with banks, businesses, 
     government agencies, schools, community organizations, and 
     libraries to host activities designed to help consumers learn 
     how to manage money. The Federal Reserve Banks of San 
     Francisco and

[[Page 12702]]

     Minneapolis have worked with leaders in the Native American 
     community to develop financial education materials. My recent 
     testimony to Congress on financial literacy provided 
     information on many other projects and programs. The Federal 
     Reserve will continue to make financial education a priority.


                     Strategies to Encourage Saving

       Even if people know that they would be better off if they 
     saved more or budgeted more wisely, we all know from personal 
     experience that translating good intentions into action can 
     be difficult. (Think about how hard it is to keep New Year's 
     resolutions.) The field of behavioral economics, which 
     studies economic and financial decisions from a psychological 
     perspective, has cast new light on consumer behavior and led 
     to recommendations about how to improve people's financial 
     management. For example, studies of individual choices in 
     401(k) savings plans strongly suggest that workers do not pay 
     adequate attention to their saving and investment decisions. 
     Notably, despite the tax advantages of 401(k) contributions 
     and, in some cases, a generous employer match, one-quarter of 
     workers eligible for 401(k) plans do not participate. Studies 
     have found, however, that if firms change the presentation of 
     the plan from an ``opt-in'' choice to an ``opt-out'' choice, 
     in which workers are automatically enrolled unless they 
     actively choose to remain out of the plan, participation 
     rates increase substantially. The impact of changing from 
     ``opt-in'' to ``opt-out'' is particularly evident for younger 
     and lower-income workers, who may have less financial 
     expertise.
       In addition, participants in savings plans evidently do not 
     understand the various investment options that are offered. A 
     survey by the investment management firm, The Vanguard Group, 
     found that many plan participants cannot assess the risk 
     inherent in different types of financial assets; for example, 
     many did not appreciate that a diversified equity mutual fund 
     is generally less risky than keeping most of one's wealth in 
     the form of the employer's stock. Indeed, employees appear to 
     invest heavily in their company's stock despite the fact that 
     their income is already tied to the fortunes of their 
     employer. More than one-quarter of 401(k) balances are held 
     in company stock, and this high share arises not only from an 
     employer match but from voluntary purchases as well.
       These insights into consumer behavior have prompted some 
     changes in the design of retirement plans and in education 
     programs focused on saving for retirement. More employers now 
     feature automatic enrollment in their 401(k) plans in an 
     effort to boost participation. Also, some have set the 
     default investment option to a diversified portfolio that is 
     rebalanced automatically as the worker ages or have set 
     contribution rates to rise automatically over time in line 
     with salary increases.
       However, although these changes in program design may boost 
     saving and improve investment choices, they are not a 
     substitute for continued financial education. Employers, 
     including the Federal Reserve Board, offer financial 
     education at the workplace to help their workers gain a 
     better understanding of retirement savings options. Helping 
     people appreciate the importance of saving and giving them 
     the tools they need to translate that knowledge into action 
     remain major challenges.


                               Conclusion

       Let me close by observing that many factors influence 
     consumer financial behavior. Financial education is clearly 
     central to helping consumers make better decisions for 
     themselves and their families, but policymakers, regulators, 
     nonprofit organizations, and financial service providers must 
     all help ensure that consumers have the tools and the 
     information they need to make better decisions. Success can 
     only come through collaborative efforts. I see much interest 
     today in increased collaboration toward these objectives, 
     both in Washington and around the country.
       Thank you for the opportunity to speak with you today. I 
     encourage you to continue working together to help provide 
     increased economic opportunity in your communities, and I 
     wish you the best of luck in your efforts.

  Mr. HINOJOSA. I also want to take this opportunity to thank Richard 
W. Fisher, CEO and president of the Federal Reserve Bank of Dallas, for 
hosting me recently at the Federal Reserve Bank of Dallas. Richard W. 
Fisher assumed the office of president and CEO of the Federal Reserve 
Bank of Dallas on April 4, 2005. President Fisher serves as a member of 
the Federal Open Market Committee, the Federal Reserve's principal 
monetary policymaking group.
  During my visit, President Fisher provided me with valuable economic 
information on the 15th District of Congress, as well as insight into 
the Dallas Bank's efforts to improve financial literacy. I want to 
commend President Fisher and the Federal Reserve Bank of Dallas for 
publishing an excellent brochure entitled, Building Wealth, a 
Beginner's Guide to Securing Your Financial Future, which is an 
introduction for individuals and families seeking to develop a plan for 
building personal wealth. It contains four sections: Learn the 
language; budget to save; save and invest; and take control of debt. 
The publication is available in both English and Spanish, and is 
available in print and it is available as an interactive version on the 
Dallas Fed's Web site. I encourage you to look it up.
  The Dallas Fed is an active partner in several asset-building 
initiatives throughout its district, including the Texas Asset Building 
Coalition which promotes personal financial education, affordable 
homeownership opportunities, individual development accounts/matched 
savings programs, the earned income tax credit, and antipredatory 
lending measures.
  Again, I want to thank Chairman Bernanke for speaking at my Regional 
Leaders Issues Conference and President Fisher for hosting me at the 
Federal Reserve Bank of Dallas.
  Madam Speaker, recently, I held my Fifth Regional Leaders Issues 
Conference in the Jefferson Building of the Library of Congress. Over 
140 of my constituents attended the conference, including: elected 
officials, presidents of universities, educators, heads of Chambers of 
Commerce and other community leaders in the 15th district of Texas. On 
Tuesday, June 13, 2006, I was honored to have Dr. Ben Bernanke, 
Chairman of the Board of Governors of the Federal Reserve, give remarks 
to the conferees. He referenced data from the Survey of Consumers 
Finances, which is a triennial survey sponsored by the Federal Reserve 
Board. The latest survey revealed some discouraging and alarming 
statistics: households whose income placed them in the bottom fifth of 
the population were less likely than the average respondent to maintain 
a checking or savings account; almost 25 percent of those families were 
``unbanked,'' compared to less than 10 percent of families in the other 
income levels. According to the survey, reasons given for not having an 
account varied: Some respondents said they would not write enough 
checks to make having an account worthwhile, but others were dissuaded 
by minimum balance requirements or said that they did not have enough 
money to justify opening an account. Chairman Bernanke stated that, in 
some cases, a lack of knowledge about the services that banks offer 
including deposit insurance or even a misunderstanding of the important 
role banks play in our economy.
  Chairman Bernanke went on to say that some of the general approaches 
to helping families of modest means build wealth and improve their 
economic well-being include community economic development, financial 
literacy, and other programs that encourage saving and investment. As 
co-founder and co-chair of the Financial and Economic Literacy Caucus, 
I was pleased by all the information he provided my constituents, and I 
am pleased with the efforts the Federal Reserve is undertaking to 
improve financial literacy rates across the United States. I want to 
take this opportunity to express my sincere appreciation for Chairman 
Bernanke taking time out of his very busy schedule to speak to my 
constituents. It is my hope that the media will focus more attention on 
what the Chairman and the Financial and Economic Literacy Caucus have 
to say with regard to financial education and literacy, instead of 
focusing solely on Chairman Bernanke's comments on the direction of 
interest rates. I find it odd that the media and some legislators have 
yet to realize that there is a correlation between the country's poor 
financial literacy rates and the actions the Federal Reserve has to 
take from time to time. Madam Speaker, at this point, I ask unanimous 
consent to enter into the record the remarks Chairman Bernanke gave 
before my Fifth Regional Leaders Issues Conference.
  I also want to take this opportunity to thank Richard W. Fisher, CEO 
and President of the Federal Reserve Bank of Dallas, for hosting me 
recently at the Federal Reserve Bank of Dallas. Richard W. Fisher 
assumed the office of president and CEO of the Federal Reserve Bank of 
Dallas on April 4, 2005. President Fisher serves as a member of the 
Federal Open Market Committee, the Federal Reserve's principal monetary 
policymaking group. He is former vice chairman of Kissinger McLarty 
Associates, a strategic advisory firm chaired by former Secretary of 
State Henry Kissinger. From 1997 to 2001, Fisher was deputy U.S. trade 
representative with the rank of ambassador. He oversaw the 
implementation of NAFTA, negotiations for the Free Trade Area of the 
Americas, and various agreements with Vietnam, Korea, Japan, Chile and 
Singapore. He was a senior member of the team

[[Page 12703]]

that negotiated the bilateral accords for China's and Taiwan's 
accession to the World Trade Organization. Throughout his career, 
Fisher has served on numerous for-profit and not-for-profit boards. A 
first-generation American, Fisher is equally fluent in Spanish and 
English, having spent his formative years in Mexico. He attended the 
U.S. Naval Academy, graduated with honors from Harvard University in 
economics, read Latin American politics at Oxford and received an 
M.B.A. from Stanford University.
  During my visit, President Fisher provided me with valuable economic 
information on the 15th district of Congress as well as insight into 
the Dallas Bank's efforts to improve financial literacy. I want to 
commend President Fisher and the Federal Reserve Bank of Dallas for 
publishing an excellent brochure entitled Building Wealth: A Beginner's 
Guide to Securing Your Financial Future, which is an introduction for 
individuals and families seeking to develop a plan for building 
personal wealth. It contains four sections: learn the language, budget 
to save, save and invest and take control of debt. The publication is 
available in both English and Spanish and is available in print and as 
an interactive version on the Dallas Fed's Web site. The Dallas Fed is 
an active partner in several asset-building initiatives throughout its 
district, including the Texas Asset Building Coalition, which promotes 
personal financial education, affordable homeownership opportunities, 
Individual Development Accounts/matched-savings programs, the Earned 
Income Tax Credit, and anti-predatory lending measures.
  Again, I want to thank Chairman Bernanke for speaking at my Regional 
Leaders Issues Conference and President Fisher for hosting me at the 
Federal Reserve Bank of Dallas.

                          ____________________