Hearing of the Subcommittee on Oversight of Government Management of the Senate Committee on Homeland Security and Governmental Affairs - The Federal Government's Role in Empowering Americans to Make Informed Financial Decisions

Statement

Aloha, and I would like to welcome our witnesses to today's hearing on financial literacy. Without a sufficient understanding of economics and personal finance, individuals are not be able to 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 costs 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 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 did not eat. Obviously, money in the 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 and other colleagues, we created the Financial Literacy and Education Commission. 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 simple disclosures about the cost of sending remittances to be provided to the consumer prior to and after the transaction. Further, 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 XII, the Improving 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 cashers and payday lenders.

Many of the unbanked and underbanked are low- 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, a down payment 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 XII authorizes programs to assist low- and moderate-income individuals establish bank or credit union accounts and encourage 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 the witnesses today and look forward to continuing to collaborate with them on these issues of vital importance to working families.

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