May 23, 2006
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Testimony of Secretary John W. Snow
Submitted for the Record
U.S. Department of the Treasury
Before the Senate Committee on Banking, Housing and Urban Affairs

I would like to thank the Committee for the opportunity to address the important topic of financial literacy and what the Treasury Department is doing to help improve financial literacy levels.  I would also like to thank Chairman Shelby and Ranking Member Sarbanes for their leadership of this Committee on this important topic. The Committee's work created the Financial Literacy and Education Commission as part of the Fair and Accurate Credit Transactions (FACT) Act of 2003.  This Commission has been a real driver of innovation in financial literacy.

Because of the President's pro-growth policies, Americans are keeping more of what they make, millions of jobs have been created, and homeownership is at an all time high.  Productivity in the first quarter of the year grew at a rate of 3.2 percent and real compensation per hour increased at a 3.6 percent rate. Just last month, 138,000 jobs were created. Just last week, the President extended tax relief for American taxpayers.  With good economic times come an increased level of economic independence, and every day more Americans know the pride of ownership. 

The power of ownership brings an even greater need for financial knowledge. The two are inextricably linked.  Americans can only manage their money and other assets if they understand what they own.  People are better able to improve their own economic situations if they understand the basics of personal finance.  Our robust marketplace for financial services provides the American consumer with a multitude of choices.  We all face more financial decisions than the generations that preceded us, but making the right choices requires a certain level of financial literacy.  That is why financial education is one of the pillars supporting the President's vision of an ownership society; and it is why the Administration has made it a priority.

First, I will describe what we at the Treasury Department are doing to support financial education in our own right.  Then I would like to explain the Treasury Department's role in organizing the efforts on financial literacy across the Federal government.  Finally, I will explore a few of the specific problems we are facing in financial literacy today and how we propose to address them.

In 2002, the Treasury Department established the Office of Financial Education.  Since that time, the Treasury Department's efforts have developed rapidly, and we now stand as a policy leader in the field of financial education in the United States and around the world. Our Office of Financial Education has five key functions. 

First, it promotes and delivers financial education across the country through ambitious outreach efforts.  Since the inception of this office, Treasury officials have traveled to 76 cities in 36 states, and held 231 financial education sessions reaching over 13,000 people.  The Treasury Department has performed the work of financial education wherever needed ranging from classrooms to community centers to military bases, and to the Gulf Coast region to counsel hurricane evacuees.  Treasury officials have reached out to students of all ages, teachers, lenders, credit counselors, accountants, community activists, the media, policymakers and the public at large.  The message to each group varied according to its specific needs, but our theme has been the same: financial knowledge is an empowering force that can help people improve their lives.

The second function is to set standards for quality financial education.  The Treasury Department has done this through the development and dissemination of the Eight Elements for Effective Financial Education Programs.  Financial educators across the country have been using these qualitative standards to evaluate and enhance financial education programs.

Third, the Treasury Department operates a Technical Assistance Center for those seeking advice on establishing or improving financial education programs in their communities.  Assistance is available in English and Spanish.

Fourth, the Treasury Department uses its unique position within the financial education community to broker partnerships between the supply and demand sides of financial education.  Some organizations have financial education resources to offer while other organizations are in need of such resources.  We work with groups nationwide to help the right people get connected with the resources to advance financial education. 

The fifth and final role of the Treasury Department is to coordinate financial education efforts across the Federal government.  We perform this task by managing the activities of the Financial Literacy and Education Commission.

In my role as the Secretary of the Treasury, I have the privilege to serve the American people in a number of ways.  In 2003, your Committee, along with the rest of Congress, and the President gave me the opportunity to serve Americans in an important and rewarding role. Under the FACT Act, I was charged with forming and leading a commission of 20 Federal agencies to improve financial literacy in the United States.  In that role, I am proud to report that the Commission has had a number of early successes and is well positioned to advance financial literacy in the years ahead.

The FACT Act set out three major mandates for the Commission. 

First, the Commission is required to hold regular public meetings where it brings together the 20 Federal agencies named in the FACT Act.  At these public meetings, the Commission members learn about the latest Federal financial education developments while coordinating their efforts.  The Commission members also hear from practitioners outside the Federal government.  National and local experts from non-profits, for-profits and state governments have come to share best practices.  Members of Congress have also addressed the Commission at these meetings.  In total, the Commission has held eight of these meetings and heard from 32 presenters.

The second major requirement of the FACT Act was for the Commission to create a central website and hotline where Americans could easily access financial education materials from the Federal government.  In October 2004, the Commission accomplished this task by launching the My Money website and hotline.  Now Americans can visit MyMoney.gov or call 1-888-My Money (1-888-696-6639), and get access to unbiased, free information in English and Spanish to help them manage their money.  To date we have received more than 651,000 hits on the website and distributed more than 846,000 publications.

The third requirement was for the Commission to complete a national strategy.  Just last month, the other Commission members and I unveiled the Commission's plan, entitled Taking Ownership of the Future: The National Strategy for Financial Literacy.  The National Strategy is a comprehensive blueprint for improving financial literacy in America, covering 13 areas of financial education and containing 26 specific calls to action.  Everyone has a role to play--the Federal government, for-profit and non-profit enterprises, and individual households.  The National Strategy calls each of us into action to improve financial literacy in this country.  To help readers easily navigate the National Strategy, the Treasury Department produced a Quick Reference Guide, which is being submitted to your Committee along with the National Strategy and this testimony.

The work to implement the National Strategy has already begun.

• Call to Action 2.1 (Homeownership).  On June 6th, the Departments of Housing and Urban Development and the Treasury will begin to implement Call to Action 2.1, by hosting the first of a series of meetings highlighting the work of successful partnerships that have advanced homeownership.
  
  
•  Call to Action 3.2 (Retirement Saving).  Call to Action 3.2 has been implemented, with the provision on MyMoney.gov of an interactive website from the Small Business Administration designed to help small business owners understand roles, responsibilities and resources for retirement plans.  Disseminating this information is a key step in providing outreach to small businesses on available retirement options for their employees.
  
  
• Call to Action 4.1 (Credit).  Recently, the Treasury Department entered into an agreement with the Ad Council to develop and execute a multimedia public service announcement campaign to increase credit literacy.  This campaign is included in Call to Action 4.1 of the National Strategy.
  
  
•  Call to Action 5.2 (Consumer Protection).  As described in Call to Action 5.2, the Treasury Department has made the DVD entitled Identity Theft: Outsmarting the Crooks available to the public through the Commission's website, MyMoney.gov, and toll-free hotline, 1-888-MyMoney. The DVD features experts from the government and the private sector talking about the scope of the identity theft problem and how a few simple steps can significantly increase protection. Experts also cover topics such as online safety, access to credit reports, taxpayer vulnerabilities to identity theft, and dealing with debt collectors if you are a victim of identity theft. 
  
  
• Call to Action 6.2 (Taxpayer Rights).  The Go Direct public education campaign (www.godirect.org, 1-800-333-1795), described in Call to Action 6.2, was created by the Treasury Department and the Federal Reserve to motivate Americans to use direct deposit for Social Security, Supplemental Security Income, and other Federal benefit payments.  This spring, Go Direct has partnered with financial institutions and community organizations on approximately 60 financial literacy and education workshops to raise awareness about steps benefit recipients can take to gain better control over their finances. Go Direct has also worked with the Federal Deposit Insurance Corporation (FDIC) to incorporate direct deposit messages in the FDIC Money Smart program's financial literacy efforts nationwide. 
  
  
• Call to Action 6.3 (Taxpayer Rights).  As indicated in Call to Action 6.3, the Department of Health and Human Services continued with its public awareness campaign on the new Medicare drug benefit, encouraging seniors to enroll in the program to save money on health care expenses. The campaign provided eligible taxpayers with easy access to information regarding enrollment so they could make their choices in advance of the deadline.
  
  
• Call to Action 8.1 (The Unbanked).  On May 1, Treasury, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Administration, along with the Federal Reserve Bank of Chicago began implementation of Call to Action 8.1, holding the first of four regional conferences on banking the unbanked.  Approximately 170 representatives of financial institutions, community organizations, government agencies, and others participated in the event to build partnerships and discuss innovative and effective strategies to bring more people into the financial mainstream. 

While the Commission members will be working jointly on the Commission's objectives, we will also continue with our own agency-based initiatives. For instance, at the Treasury Department, the Office of the Treasurer will coordinate a department-wide effort to identify cost-effective ways that the Treasury Department can help bank the unbanked. U.S. Treasurer Anna Escobedo Cabral serves as a spokesperson for financial education and advisor to me on financial education issues.

We are happy to report that the National Strategy has been well received by the private sector, with many organizations issuing statements of support for the National Strategy and its goals.  As we work to implement the National Strategy, we will continue to extend the reach of this document to all Americans.  In fact, just yesterday the Commission made the National Strategy available in Spanish on MyMoney.gov.

To better understand the challenges we face in financial education, it is useful to look at a few of the specific problems in greater detail.  I will describe three problems in particular.  Those problems are the plight of unbanked Americans, the threat of identity theft and the financial literacy challenges facing our young people.

While the opportunities for consumers to participate in our country's banking system are growing, too many Americans are still without a relationship with a traditional financial institution.  These people are commonly referred to as the "unbanked" and represent a disturbingly large percentage of U.S. households.  According to a 2004 Federal Reserve Board study, nearly 10 percent of American households are unbanked.  Because these families live outside of the financial mainstream, they frequently patronize alternative, often higher cost, financial service providers.  There are a variety of reasons people do not use financial institutions, which include language barriers, lack of trust of financial institutions, lack of knowledge of the products and services offered, or greater convenience of some alternative service providers.  The unbanked pay more for financial transactions and completely miss out on opportunities most of us take for granted, such as the ability to receive payments electronically for things like Federal benefits.  After Hurricane Katrina, we saw numerous instances of unbanked evacuees unable to receive FEMA payments electronically.  Instead, many of them had to wait for a paper check to find them. 

Our National Strategy takes this challenge seriously and is bringing the private sector, including lenders and community groups, together with the Federal government to come up with ways to bring these Americans into the financial mainstream.  As mentioned, we have already begun this process earlier this month in Chicago with our first regional conference on the unbanked.

As you are well aware, identity theft is a serious problem that threatens the good name and good credit of all Americans.  In fact, the Federal Trade Commission (FTC) reports that nearly 10 million people a year are victims of identity theft.  This translates into nearly $48 billion in losses to businesses and nearly $5 billion in losses to individual victims.  In 2004, identity theft was the top consumer fraud complaint to the FTC, accounting for 39 percent of all consumer fraud complaints filed that year. 

President Bush and Secretary Snow have been active in combating identity theft on several fronts.  In March 2006, the Treasury Department announced the creation of an interagency forum that focuses exclusively on consumer financial abuses. The name of this group is the Consumer Financial Protection Forum.   The Forum will provide a mechanism for sharing information about patterns of abuses, including emerging trends and on-going problems at financial institutions that are subject to Federal or state supervision.  It will encourage discussion about consumer protection issues affecting financial institutions.  The Forum will review how consumer complaints are handled by the participating agencies, including how the process currently operates, and develop suggestions as to how it can be improved. It will also support public education efforts to help consumers recognize and avoid abusive practices in the financial institutions arena. The Forum's first meeting will take place at the Treasury Department next month. 

Earlier this month, the President signed an executive order that creates the nation's first ever Identity Theft Task Force. The Task Force will marshal the resources of the Federal government to crack down on the criminals who traffic in stolen identities, and protect American families from this devastating crime.  Treasury has been working hard to equip Americans with the tools they need to fight this crime and protect their assets.  In just the past few months, we have distributed more than 200,000 free educational DVDs across the country to help Americans learn about identity theft, how they can protect themselves, and what they should do if they think someone is stealing their information.  Additionally, the National Strategy describes resources from the FTC and others that can help consumers learn what they need to know.

Youth Financial Education

American young people are in great need of financial education.  In a recent personal finance test high school seniors answered only 52.4 percent of the questions correctly.  As these young people become adults, they will be faced with a number of financial decisions ranging from how to finance an education, whether to get a credit card, and how to start their working life by saving early for a first home or even for retirement.  Both pitfalls and opportunities await them, and the only way we can be sure they will navigate this terrain successfully is if they have financial knowledge.  

Schools can play a key role in this by bringing financial education into the classroom.  Personal finance can be offered as a stand alone class or it can be integrated into existing curricula.  Either way, exposing students to these topics will equip them for their futures.  The private sector can also play a role by providing teacher training, quality materials for use in the classroom or after-school programs.  Postsecondary institutions can reach out to their students by including personal finance topics in student orientations or in curricula.

The Treasury Department has worked with teachers, administrators and policy makers to encourage teaching of financial topics in schools.  Additionally, Treasury officials have gone in to classrooms across the country to teach young Americans important money lessons and to raise awareness of the importance of youth financial literacy.  Finally, as detailed in the National Strategy, later this year Treasury will partner with the Department of Education to bring together educators and policy makers to discuss how we can make our young people more financially literate.

Working Together Towards a Solution

The solution to all of the problems discussed requires cooperation among key players.  As described in the National Strategy, the infrastructure of financial education in America can only be erected with the cooperation of three "builders":  the government, the private sector and the individual.  Each of these builders has its role.  The government can regulate the financial marketplace and provide information for consumers.  The private sector, including for-profit and non-profit organizations, can use its expertise, resources and positioning to provide financial literacy programs.  Individuals can take an interest in managing their finances and use the information and programs provided by the government and the private sector to improve their lives and those of their loved ones.

No one of these groups can succeed in assembling a financial education system alone.  Yet mere cooperation without coordination is not enough.  Therefore all three of these players must work together to assemble a national infrastructure for financial education under a common blueprint.  As mentioned above, the National Strategy provides such a blueprint.  The Strategy's blueprint is firm enough to give general direction, but flexible enough to allow different players to chose their own roles in enhancing financial education.  The Strategy is a blueprint that is intended for the private sector, individuals, and government.  The private sector can use the Strategy's definition of the challenges and the best practices as tools to focus and design future efforts.  Individuals can use many of the resources listed to better manage their financial affairs.  Government policy makers can use the National Strategy to frame and inform their analyses on financial literacy matters.  By continuing to work together, government, the private sector and individuals can bring about the improvement in financial literacy this nation needs.

Conclusion

Once again, I would like to thank your Committee for drawing attention to the critical topic of financial education.  Through the efforts of the Treasury Department and the Commission, we will continue to advance the cause of financial literacy.  We hope to work closely with you as we help all Americans take ownership of their futures.

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