FROM THE OFFICE OF PUBLIC AFFAIRS

Good afternoon Chairman Castle, Ranking Member Woolsey and distinguished members of the subcommittee. Thank you for this opportunity to appear before you today to talk about the critical need to provide financial education to school aged children as well as what the Department of the Treasury is doing to address this important issue.  Mr. Chairman, I commend you for focusing a national spotlight on this critical topic, which is so closely linked to our economic futures – as individuals and as a nation.

The Problem

Let me begin by drawing together a few seemingly random facts to paint a troubling picture.  Forty percent of Americans say they live beyond their means.   In 2002 the average American household had $8,900 in credit card debt, up from $3,200 just 10 years earlier.  Sixty percent of American households fail to pay their credit card bills in full each month and carry average balances of more than $4,000.  The average household pays over five hundred dollars a year in interest charges on credit cards alone.  Finally, in 2001, more people filed for bankruptcy than graduated from college.

What has all of this got to do with the subject of today’s hearing?  These grown up financial problems have everything to do with how we prepare children for economic adulthood and why we need to be talking about financial literacy in schools here today.  The downstream, adult problems of rising bankruptcy rates, low saving rates and frequent misuse of credit, can all be traced upstream to how our schools fail to adequately prepare children for their financial futures. 

While financial education is very important for adults, it can have the greatest overall life impact on young people.  Young people have not yet established bad spending patterns.  Therefore, education can mold their habits more effectively than it can for adults.  Finally, young people simply have the most years ahead of them to earn, save and invest.   

Consequently, young people are a great target audience for financial education.  However, that has always been the case.  Why is the issue of youth financial education more critical, more pressing today than ever before?

When we were kids, a child’s financial portfolio consisted of an allowance, earnings from mowing lawns and babysitting and a piggy bank.  Times, however, have changed.  Today’s young people must be familiar with things like credit cards, ATMs and variable APRs.  For America’s youth, who spent over $172 billion in a recent year, learning basic financial skills is no longer child’s play.  Consider the following:  28 percent of 12-year-olds did not know that credit cards are a form of borrowing, 40 percent of 12-year-olds did not know that banks charge interest on loans, 28 percent of students with a credit card roll over debt each month and more than 20 percent of kids ages 12 to 19 have their own credit cards or access to parents’ credit cards.

Solutions

Treasury White Paper

Understanding the times in which our kids live and diagnosing the overall financial literacy problem are relatively straightforward exercises.  Finding the best remedy however is more complex.  That is why the Department of the Treasury last year partnered with the Department of Education to co-host a panel discussion with representatives from groups such as the Jumpstart Coalition, the Black Alliance for Educational Options, the National Council on Economic Education and the National Association of Elementary School Principals.  Following the discussion, our office published a white paper based on the group’s findings called “Integrating Financial Education Into School Curricula.”  In the paper we explored the different means by which financial education can be incorporated into other subjects.

One might ask why we advocated integrating financial education into established curricula instead of calling for a separate class devoted to financial literacy.  Certainly a dedicated class would seem like the obvious solution.  Obvious solutions, however, are not always the best ones.  Speaking as a former school board president, I can tell you that a federal demand for a new stand alone class is a demand that few school districts could easily meet.  Schools would have trouble finding the funds, the faculty and the time to teach such a class.  Moreover, each school would need to calculate the opportunity cost of scaling back instruction on another discipline that is also likely important to student development. 

While some of these concerns from the state and local level may seem mundane in the face of a national financial literacy problem, we should nonetheless listen closely to these local issues.  My experience tells me that local educators are frequently aware of critical details that distant policy makers sometimes overlook.  At the school district level is where teachers know their students by name and by need.  It is where parents become actively engaged in their children’s intellectual development.  The local level is also where students learn, where lives are changed and where we will ultimately succeed in solving this problem.

Mindful of these challenges at the local level, we explored integrating financial education into established curricula like math and reading as a more achievable goal.  This approach allows schools to impart valuable financial skills to students while they continue to learn other core subjects.  When schools seamlessly integrate financial education into existing curriculum, students can better see how financial issues are integrated into their lives.  Introducing a school to financial education in this way can lead to a plan that is less costly to the school, less disruptive to the curriculum and, therefore, more likely to actually happen.

The question then becomes “how do advocates of financial education get an integrated financial literacy curriculum into schools?”  The white paper I mentioned earlier identified five access points for integrating financial education into school curricula.

The first access point is the state educational standards.  In a standards-based education system, standards have a significant influence on what is taught in the classroom.  Informing the state boards of education, which generally develop and adopt standards, about the importance of including financial education in the standards can help increase the chances that financial concepts are included in math, reading and social studies curricula.

The second access point is through testing.  A standards-based education system uses testing to assess whether students are meeting academic standards.  Educators generally focus on subject matter that will be tested.  Therefore, including financial concepts in tests allows teachers to prioritize financial education topics in the classroom.

The third access point is through textbooks.  Publishers of textbooks and other instructional materials can be informed about the value of integrating financial concepts into other subjects, such as math, reading and social studies.  Before purchasing instructional materials, states can impose requirements that publishers demonstrate how their materials incorporate financial concepts into other subjects.

The fourth access point involves the use of financial education materials.  There are ample financial education resources available on the Internet and directly from public and private groups that produce or compile such materials.  Many of these “off-the-shelf” materials are excellent, free of charge and can be incorporated into math, reading and social studies curricula to provide a financial education component to these subjects.

Training educators is the fifth access point.  Educator training and professional development requirements provide an opportunity to stress the importance of financial education to those individuals who are directly responsible for conveying such information to students.  This strategy takes note of the reality that teachers themselves must first be comfortable with financial education topics before they can effectively instruct their student on such matters.

The white paper, which is available on the Treasury website (www.treas.gov/financialeducation), was released a year ago this month.  We hope that it will continue to serve as a source of guidance and that it will influence policymakers, educators and others to begin the long process of incorporating financial education into core curricula.  We are gratified that only a year after its publication, the Treasury’s white paper has already been cited by Colorado, Montana and Texas in their states’ financial literacy proclamations.
Educational Resources

Like many other private organizations and governmental agencies, the Treasury has contributed financial education teaching tools to schools and the public.  I would like to highlight four such programs.

First, through its Bureau of Public Debt, the Treasury has distributed, free of charge, more than 150,000 copies of the Money Math: Lessons for Life program.  The Money Math curriculum is used to teach math concepts to middle school children using real-life examples from personal finance.  Lessons include teaching children the importance of budgeting, that savings leads to the accumulation of wealth and the relationship between careers and earnings potential.  The program has been used in more than 16,000 districts nationwide.

Second, the Treasury’s Internal Revenue Service (IRS) has developed an interactive, instructional tax program called "Understanding Taxes" to provide high schools, community colleges and the public with a technology-based financial education instructional tool.  Divided into two areas of content  - the “How's of Taxes” and the “Why's of Taxes” - the program offers both print and online materials to help students learn more about the history, theory and application of America’s tax system and how it impacts them.
 
Third, the IRS also provides tax guidance for teenagers and young adults through its "TAX Interactive" (TAXi) website. The website includes a collection of tax-related resources to help teachers integrate lessons about taxes into a variety of classroom settings.

Finally, the Treasury's United States Mint helps to promote financial literacy by combining technology and education on a web site that uses coinage as a theme to foster education among children.

The United States Mint H.I.P. Pocket Change web site uses games, informational features and animated cartoons to teach young learners about subjects such as social studies, language arts, mathematics and science through the use of coins. The site is also a resource for teachers by offering lesson plans and classroom activities that help teachers instruct about coins and the history that surrounds them.

Development of Standards, Recognizing and Coordinating

To encourage other high quality programs around the country, the Treasury’s Office of Financial Education develops standards for financial education programs.  Periodically, the Office will recognize an effective financial education program through a visit and presentation of a certificate of recognition.  These events not only honor the selected program, but they help raise awareness of the featured program as a model for others to emulate.

The Department of the Treasury also coordinates activities with other federal agencies that have financial education programs, partnering with them as opportunities arise.  To make all the financial education resources of the federal government more accessible, the Department has recently launched an on-line directory of major financial education programs, complete with contact information.  Through the directory, visitors can locate the federal financial education programs most suitable to their needs.

Conclusion

Since I began with the bad news, please allow me to close with the good news.  For those young people and adults struggling with saving, spending and credit issues, a better life is possible, and financial education is the way to get there. 

The best research tells us that financial education can, and does, make a difference in people’s daily lives.  Studies show that in states that mandate personal financial education in schools, high school graduates have higher savings rates and higher net worths as a percentage of earnings, when compared to those from other states.  The positive effects of financial education carry into adulthood, as borne out by the fact that individuals who have received financial education tend to participate in employer 401(k) plans at a higher rate and with larger contributions than others.

The bottom line on financial education is that it works to help children live better lives as adults.  Until more schools acknowledge this reality and act upon it, our work is not finished.