Statement of
Robert W. Mooney, Deputy Director,
Division of Supervision and Consumer Protection,
Federal Deposit Insurance Corporation
on
Financial Literacy and Education:
The Effectiveness of Governmental
and
Private Sector Initiatives;
before the
Committee on Financial Services,
U.S. House of Representatives;
April 15, 2008
2128 Rayburn House Office Building
Chairman Frank, Ranking Member Bachus, and members of the Committee, I
appreciate the opportunity to testify on behalf of the Federal Deposit Insurance
Corporation (FDIC) regarding financial education.
In my testimony, I will discuss the importance of financial literacy. I also will touch on a
number of specific programs undertaken by the FDIC aimed at improving financial
literacy and enabling individuals and families to build wealth. In particular, I will describe
the FDIC's Money Smart program and the results of a survey of the program's
effectiveness completed last year. In addition, my testimony will discuss the importance
of integrating financial education into school curricula and FDIC activities in this area.
Finally, my testimony will briefly touch on FDIC efforts to increase access to financial
services that provide alternatives to predatory lending for consumers.
The Importance of Financial Literacy
The extraordinary transformation of financial markets over the past decade has placed a
new premium on financial literacy, making it nothing less than an essential survival tool.
While consumer credit is more available than ever, technological advances and an array
of new consumer products, services and providers have made modern banking much
more complicated. In today's marketplace, it is more important than ever for consumers
to be educated about their rights and options regarding financial offerings.
Notably, U.S. demographics have shifted to open up new pools of potential financial
customers, while markets themselves have changed to increase credit availability. The
relative inexperience of some new borrowers, along with the escalating complexity of
financial products, for example, in the credit card market, and an array of providers,
makes it difficult for consumers as a group to consistently exercise informed financial
judgment. A lack of financial knowledge can contribute to poor decisions that harm
individuals, families, and ultimately, entire communities.
Robert W. Mooney, Deputy Director,
Division of Supervision and Consumer Protection,
Federal Deposit Insurance Corporation
on
Financial Literacy and Education:
The Effectiveness of Governmental
and
Private Sector Initiatives;
before the
Committee on Financial Services,
U.S. House of Representatives;
April 15, 2008
2128 Rayburn House Office Building
Chairman Frank, Ranking Member Bachus, and members of the Committee, I
appreciate the opportunity to testify on behalf of the Federal Deposit Insurance
Corporation (FDIC) regarding financial education.
In my testimony, I will discuss the importance of financial literacy. I also will touch on a
number of specific programs undertaken by the FDIC aimed at improving financial
literacy and enabling individuals and families to build wealth. In particular, I will describe
the FDIC's Money Smart program and the results of a survey of the program's
effectiveness completed last year. In addition, my testimony will discuss the importance
of integrating financial education into school curricula and FDIC activities in this area.
Finally, my testimony will briefly touch on FDIC efforts to increase access to financial
services that provide alternatives to predatory lending for consumers.
The Importance of Financial Literacy
The extraordinary transformation of financial markets over the past decade has placed a
new premium on financial literacy, making it nothing less than an essential survival tool.
While consumer credit is more available than ever, technological advances and an array
of new consumer products, services and providers have made modern banking much
more complicated. In today's marketplace, it is more important than ever for consumers
to be educated about their rights and options regarding financial offerings.
Notably, U.S. demographics have shifted to open up new pools of potential financial
customers, while markets themselves have changed to increase credit availability. The
relative inexperience of some new borrowers, along with the escalating complexity of
financial products, for example, in the credit card market, and an array of providers,
makes it difficult for consumers as a group to consistently exercise informed financial
judgment. A lack of financial knowledge can contribute to poor decisions that harm
individuals, families, and ultimately, entire communities.
The current problems in the mortgage market make clear some of the consequences
that unwise financial decisions can bring. The rapid proliferation of subprime, hybrid
adjustable rate mortgages (ARMs) versus other options suggests that many borrowers
either did not understand or were not told about other, less volatile, products. While
financial literacy is not a panacea and does not excuse irresponsible lending, a more
informed consumer population might have recognized the problems with these products
and demanded appropriate fixed rate products -- limiting the issues we confront today in
the subprime mortgage market.
The FDIC has called for national standards to address many of the problems and
abuses that are now coming to light in the subprime mortgage market. These standards
should impose underwriting based on the borrower's ability to repay the true cost of the
loan, especially among the non-bank lenders currently operating with little or no
regulatory oversight. Such standards also should address misleading or confusing
marketing that prevents borrowers from properly evaluating loan products. However,
even with new national standards, there is only so much regulators and the legal system
can do. A comprehensive solution requires that consumers be equipped with sufficient
financial educational tools to protect themselves against inappropriate or, in some
cases, predatory products.
Inadequate financial knowledge is not only a problem for mortgage borrowers but is
pervasive throughout many segments of society. The April 2007 National Foundation for
Credit Counseling (NFCC)1 consumer financial literacy survey found that many
American consumers do not follow basic sound financial management practices. In
particular, of those surveyed:
Only 39 percent track expenses;
Less than half have ordered their credit report;
38 percent do not pay credit card bills in full each month; and,
One-third do not know where to go for financial advice.
Low- and moderate-income families who lack financial education skills are exposed to
magnified financial hardships when they are forced to manage financial shocks from
unexpected healthcare emergencies, death, divorce, or household job loss. Because of
these and other factors, income volatility has grown significantly for lower income
households in recent decades. Households in the lowest fifth of the income distribution
can now see their incomes fluctuate by as much as 50 percent from year to year.2 To
the extent that low- and moderate-income households lack basic financial skills, they
may be especially ill-prepared to cope with such dramatic changes in their economic
conditions.
that unwise financial decisions can bring. The rapid proliferation of subprime, hybrid
adjustable rate mortgages (ARMs) versus other options suggests that many borrowers
either did not understand or were not told about other, less volatile, products. While
financial literacy is not a panacea and does not excuse irresponsible lending, a more
informed consumer population might have recognized the problems with these products
and demanded appropriate fixed rate products -- limiting the issues we confront today in
the subprime mortgage market.
The FDIC has called for national standards to address many of the problems and
abuses that are now coming to light in the subprime mortgage market. These standards
should impose underwriting based on the borrower's ability to repay the true cost of the
loan, especially among the non-bank lenders currently operating with little or no
regulatory oversight. Such standards also should address misleading or confusing
marketing that prevents borrowers from properly evaluating loan products. However,
even with new national standards, there is only so much regulators and the legal system
can do. A comprehensive solution requires that consumers be equipped with sufficient
financial educational tools to protect themselves against inappropriate or, in some
cases, predatory products.
Inadequate financial knowledge is not only a problem for mortgage borrowers but is
pervasive throughout many segments of society. The April 2007 National Foundation for
Credit Counseling (NFCC)1 consumer financial literacy survey found that many
American consumers do not follow basic sound financial management practices. In
particular, of those surveyed:
Only 39 percent track expenses;
Less than half have ordered their credit report;
38 percent do not pay credit card bills in full each month; and,
One-third do not know where to go for financial advice.
Low- and moderate-income families who lack financial education skills are exposed to
magnified financial hardships when they are forced to manage financial shocks from
unexpected healthcare emergencies, death, divorce, or household job loss. Because of
these and other factors, income volatility has grown significantly for lower income
households in recent decades. Households in the lowest fifth of the income distribution
can now see their incomes fluctuate by as much as 50 percent from year to year.2 To
the extent that low- and moderate-income households lack basic financial skills, they
may be especially ill-prepared to cope with such dramatic changes in their economic
conditions.