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Prepared Remarks of Richard Cordray, Director of the Consumer Financial Protection Bureau, at the Council for Economic Education Annual Financial Literacy and Economic Education Conference
The economist John Maynard Keynes was once asked what interest is. According to a biographer, Keynes replied, “If I let you have a halfpenny and you kept it for a very long time, you would have to give me back that halfpenny and another too. That’s interest.”
Of course, that is not Keynes’s most insightful comment on economics, but it may be his earliest: He was four-and-a-half years old at the time.
Clearly, we cannot draw too broad a lesson on early financial education by studying the childhood of the man who went on to write his renowned treatise on “The General Theory of Employment, Interest and Money.” But we can say this: It is never too early to begin teaching our children the economic and financial concepts that will help them understand the nuts and bolts of how to make their dreams into reality. The Consumer Financial Protection Bureau certainly thinks so and so we have made it a cornerstone of our strategy to start early and sustain financial education over the entire course of a young person’s education.
Aristotle said, “The neglect of education does harm to the political order.” Although he made that observation more than 2,000 years ago, it still rings true today. And as everyone in this room knows, the neglect of financial education can certainly undermine progress in a nation organized around a free market and founded on a regime of personal responsibility, as is true in the United States. Yet Americans have neglected this important matter. We see it every day in the personal struggles of individuals and families; we see it more broadly across entire communities that are still digging through the residue of the recent financial crisis. Many consumers make bad decisions because they do not understand their choices or they simply do not know any better, as the FINRA financial capability studies amply demonstrate. And some unscrupulous businesses take full advantage of those consumers.
At the Consumer Bureau, we are deeply committed to a vision of an America where everyone is financially educated and financially capable. We believe that financial education is the key to individual empowerment. Because when it comes to financial matters, nobody cares as much about you as you care about yourself. Nobody understands your needs and wants, your hopes and dreams, as well as you understand them yourself. So everyone must recognize that, most fundamentally, I am my own first line of consumer protection.
If we intend to foster and maintain the kind of society in which all Americans are able to enjoy the blessings of liberty by controlling the direction of their lives, then we must make a point to arm our fellow citizens with the wherewithal to stand on their own two feet and make sustainable economic choices. Financial education should be as fundamental as the education we are all required to receive in U.S. history and government. Within the framework of our republic, we have built the greatest system of economic liberty in the history of mankind. Yet it will only endure if we take the steps necessary to strengthen that system from the bottom up, starting with the individual. The financial services marketplace is constantly evolving in complex ways, and managing one’s finances is a lifelong endeavor.
To this end, teaching kids about money should not be reserved to a few games of family-night Monopoly, where children are taught the benefits of buying up Boardwalk and Park Place (though that is a good strategy). Parents need to be engaged as their children are learning to master the concepts of personal financial management. Children form their financial identities early, and so it is important for parents to talk to their children about money at an early age. But we also need to face the hard reality that it is probably unrealistic at the outset to think that we can count on these matters to be taught successfully in the home. For many families, personal finances are a taboo subject – a source of friction and anxiety that parents often strive to keep hidden from their children. Moreover, the vast majority of parents have little background in these matters, other than what they have derived from their own sometimes difficult experiences, and they lack the confidence to impart lessons to anyone else. Whenever I have been involved in financial education programs in the classroom, invariably we hear later from some children that their parents wondered where they could find similar lessons for themselves.
So we must start by filling this gap and being more deliberate about pursuing financial education in our schools. Failure to do this condemns boys and girls to make the same mistakes others have made before them by enrolling them in the “school of hard knocks.” This phrase is a facetious one, reflecting that this is no school at all, but just an unsatisfactory place where people will keep on making the same mistakes others made before them, with the same poor results and the same lasting regrets. Everyone sees this when they focus on what goes on around them, yet it is now 2013 and still many states have no requirement at all to ensure that their young people receive such instruction. To put the matter simply, that has to change. It is unconscionable and indefensible that we seem so content to do a lousy job on these matters of such undeniable importance.
Earlier this year, the Consumer Bureau published a report that assembled and synthesized all the best thinking we could find on how these issues should be addressed in K-12 education. To start with, we have strongly recommended -– like I said earlier -– that financial education must start early and must be continuous. We need to develop integrated curricula in our schools -– where the benefits of compound interest are understood in math class; where economic costs and risks are taught in social studies class; and where essays in English class include topics involving money: what it is, how it has evolved, how we use it, how we keep it safe. None of this distracts one whit from the classroom agenda; in fact, children pay more attention and get more engaged with things that interest them. And when it comes to money, young people definitely “get it” – almost universally, they view money as fascinating and important.
We also suggested that part of the answer is to incorporate financial concepts into standardized tests that states already administer. Indeed, many tests around the country already incorporate some real-life examples of money management or economic decision-making, but we could do much more. Whatever is on the standardized tests will heavily influence what is taught in the classroom. And, by the way, if you look back at math textbooks from a century ago, you find that they contained extensive discussion about financial choices, how to construct a budget, and the like. We need to regain that common-sense focus on how the things we are learning relate directly to our everyday financial lives, which need not be difficult to do.
This is especially true at the high school level. Many of you see how students begin their economic lives in earnest as teenagers. Regardless of whether they are earning money at their first job; figuring out how to pay for gas or to go out with their friends; or building a college savings account, people begin to experience financial life while they are still fairly young, and often well before they go out on their own. These students are more likely to retain financial knowledge when they apply financial concepts to what is actually happening in their lives -– right then and right there. We must capitalize on these teachable moments and personal situations. Indeed, experiential learning can be a very effective way to approach financial education with the young people of this generation. Hands-on efforts such as school bank programs, entrepreneurship training, and games or other forms of simulations can help students deepen their financial knowledge and build financial capability. And the threshold of adulthood is exactly the right time to lock in the commitment and the know-how to lead purposeful economic lives. To borrow a phrase we will be using along this spectrum, young people need to be convinced of the importance of “friending your future self,” by making sound and sustainable financial decisions that they can live with over time.
One of the most lasting financial decisions that many young people will make has to do with taking out student loans to pay for further education. Many parents feel pressure to send their child to the “best school” possible, often making the decision based on rankings and other factors that ignore or discount the true cost of an education. At the Consumer Bureau, we are working directly on this issue and helping students and their parents. Our “Paying for College” set of tools, available on our website at consumerfinance.gov, is designed to help families consider their options and assess the costs and risks in terms that are easier to understand. These tools show students their monthly debt payment at graduation. They help students weigh the burden posed by their projected debt load, based on the nationwide average starting salary of a new graduate. In short, they help students and families, who may be facing this intimidating challenge for the first time in their lives, to ask the right questions so they can make more informed decisions.
Equally important, the “Paying for College” toolset encourages the type of purposeful planning about financial choices that we believe is critical to building up financial capabilities. These are skills that benefit students not just in post-secondary education, but throughout their entire lives.
To construct a more financially capable America, we must develop a knowledge base that gets passed on to others in a more rigorous and systematic way. Fashioning bridges of experience between peoples is the mark of all great societies; building upon what others have done is a hallmark of civilization and the primary means of improving life for the next generation. The same approach is amply justified in the field of financial education.
Up to now, we have fallen woefully short. But I am certain that we can and will do better by focusing our efforts on three items. The first is basic financial literacy -– understanding the tools that are the building blocks of financial life for American consumers today, such as budgeting, banking account products, credit cards, and credit reports. Second is an awareness of certain everyday choices which create incremental changes in your life that loom larger with the passage of time, such as efforts to save money consistently and prepare for retirement. Third is a recognition that some major decisions are so crucial in their own right that they can affect the entire trajectory of your life -– such as decisions about paying for further education, buying a home, and the like. If you handle these major life decisions correctly, you will likely prosper; if you handle them poorly, you will multiply your troubles or perhaps run aground altogether. The Consumer Bureau will increasingly come to serve as an impartial, agenda-free, neutral source of expert advice on all these fronts for American consumers to rely on as they manage their affairs.
But we recognize that to succeed we will need strong partners. The Council for Economic Education is a key leader in this effort, and your comprehensive lesson plans provide great support for teachers. At the Consumer Bureau, we too believe it is critical to support teachers and schools with the training that is needed to deliver sound financial instruction to students. These efforts do not have to be expensive; there are many creative opportunities. But we do need to support those who need and want to know more. Good training programs will help teachers gain the confidence to deal with the issues raised by the increasingly complex financial marketplace that American households now deal with every day. And my own experience with teacher training in Ohio made clear that bringing together people who are passionate about financial education generates an infectious enthusiasm. Those new relationships lead to cross-pollinations that spawn new and unforeseen ideas about how to reach students most effectively.
I know that many of you in this room have dedicated decades of your lives to delivering on this promise. We are grateful for your efforts and want you to know that the new Consumer Bureau is standing alongside you. To help enable an even more collaborative effort, the Consumer Bureau just launched an online learning community of K-12 financial educators on LinkedIn. We organized this growing forum to share best practices and ideas, and invite you to join us.
As we listen to the wealth of expertise today, I want to underscore that our schools do so many things. They foster community service and a love for the arts as well as an appreciation for teamwork and athletic achievement. And despite some of the metrics that show us lagging behind internationally, America’s schools still produce a great workforce as well as some of the best minds in the world. We have dedicated, passionate teachers in this country, and each one of us can recall many teachers as formative, positive influences on our lives. I certainly can. Financial education over the vast expanse of this country is a daunting challenge, but it is one we know we can master, if we simply have the will to stick with it. It is inspiring to know that so many of us share this conviction, and we look forward to working with all of you.
I want to close with the words of the great economist Herbert Stein who said, “If something cannot go on forever it will stop.” We saw this economic law at work in the financial crisis when a cycle of destructive behavior came to a crashing halt. Fortunately, we are now making a new start. The neglect of financial education cannot go on forever in this country, and it is time to stop it. We have a chance to seize this moment and arm our young people with the skills and support they need to build a brighter financial future. I am convinced that the force of our joint efforts will win the day. Thank you.
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The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.