Why Not A Stronger Vision for Financial Literacy?

Last Monday I attended "Financial Literacy Day on Capital Hill", an awareness-raising event convened by the Jump$tart Coalition for Personal Financial Literacy, JA Worldwide and the National Council on Economic Education. In addition to a hall of exhibits by government, not-for-profit and corporate organizations that promote financial literacy across the country, Rep. Rubén Hinojosa (D-TX), Sen. Daniel Akaka (D-HI), and Sen. Wayne Allard (R-CO) offered moving remarks to the audience of practitioners and hill staff. I was wholly impressed and heartened by the passion and sincere commitment to financial education shown by these leaders, and enjoyed seeing the variety of curricula and methods on display. Yet, I left perplexed about the absence of policy that could systemize and enforce the delivery of these valuable efforts.

Recognizing that too many Americans, both youth and adult, are not making sound, forward-looking financial decisions, the President's Advisory Council on Financial Literacy was formed in early 2008 to take stock of the nation's financial literacy levels and assess the federal government's efforts to address this widespread problem.

The Council is comprised of an impressive cadre of 16 professionals from the private sector-with Charles Schwab presiding as chair. The creation of the Advisory Council, a non-governmental body to independently review federal efforts and provide suggestions for improvement, reflects the Administration's leadership to achieve broader financial inclusion and promote responsible decision-making.

Although its mandate is limited to doing little more than assessing the financial literacy landscape and making recommendations to the Department of Treasury, I am hopeful that the Council will fully capture and convey to the President through the Treasury Department the scope of this problem. However, without the resources to undertake meaningful research and outreach, and with no authority to implement new policy or programs or revise current efforts, the Council may have limited ability to force substantive improvements to the nation's financial education activities.

The following policy options are informed by research and practitioner experience, and could feasibly improve the state of our nation's financial literacy, if implemented, enforced, and supported with proper resources. The suggestions below incorporate promising ideas from a 2007 roundtable of experts convened by the New America Foundation.

Youth Financial Literacy
Financial education should be taught starting at the kindergarten level and reinforced in every grade through high school. It should be integrated into the existing kindergarten through eighth-grade curricula, incorporated in core high school courses (in particular math and science), and included in each state's standardized testing. Teachers could acquire the information and confidence they need to teach financial education through pre-service education.

Financial Education in the Workplace
Employers are motivated to provide financial education to employees for several reasons, and a number of initiatives demonstrate the value of the workplace as an effective delivery location. To increase the number of employers offering financial education and to ensure the most effective strategies are being employed, more research identifying best practices for employers of all sizes is needed. Incentives, such as tax credits, may encourage employers (particularly small employers) to provide broad-based, comprehensive financial education and should be considered when developing plans for workplace interventions.

Financial Access for Underserved Markets
There are many individuals providing financial counseling today for vulnerable, low-income or low-wealth Americans. However, they are concentrated in credit counseling, helping those already in serious difficulty; homeownership counseling; and working with Individual Development Accounts. Not only are more dedicated counselors needed, but people who regularly interact with low-income or low-wealth consumers need to be trained to provide good financial advice.

The New America Foundation recommends the creation of a Financial Services Corps (FSC), that would recruit a range of financial experts, planners, and advisors to deliver targeted financial expertise and advice to households seeking to better understand the complexities of the financial services sector, access assistance when facing financial difficulties, and plan for savings and investment goals. While potentially building on the model of the Congressionally-established Legal Services Corporation, which provides funding for local legal services programs, the FSC would provide the infrastructure, resources, and support to engage and connect financial experts with low and middle income households and communities. If established, a FSC would greatly expand the availability of financial experts, educators and counselors; serve as a credible resource for financial information; and make timely financial information available for individuals who need it most.

Financial Literacy Research
To develop a comprehensive approach that can help consumers make good financial decisions, research should emphasize four areas: (1) understanding the consumer demand, (2) exploring consumer motivations and effective marketing approaches, (3) exploring the effectiveness of financial education at the point of a financial transaction, and (4) incorporating knowledge from other fields, particularly psychology, neuroscience, behavioral economics, health, nutrition, family sciences, and child development.

Outreach and Awareness
While many financial education materials exist, consumer demand for financial education is not high among the general population. To stimulate demand and to effectively communicate to those who lack awareness of financial education resources, campaigns should segment consumers and appeal to their specific motivations and financial education needs. Outreach and awareness campaigns need to include both high-tech and high-touch methods to effectively reach diverse audiences.