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FINANCIAL LITERACY: EMPOWERING AMERICANS 

TO PREVENT THE NEXT FINANCIAL CRISIS 

HEARING 

BEFORE THE

OVERSIGHT OF GOVERNMENT MANAGEMENT, 

THE FEDERAL WORKFORCE, AND THE 

DISTRICT OF COLUMBIA SUBCOMMITTEE 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

APRIL 26, 2012 

Available via the World Wide Web: http://www.fdsys.gov 

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs 

( 

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(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

MARK BEGICH, Alaska 

SUSAN M. COLLINS, Maine 

TOM COBURN, Oklahoma 

SCOTT P. BROWN, Massachusetts 

JOHN MCCAIN, Arizona 

RON JOHNSON, Wisconsin 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

JERRY MORAN, Kansas 

MICHAEL L. ALEXANDER, Staff Director 

NICHOLAS A. ROSSI, Minority Staff Director 

TRINA DRIESSNACK TYRER, Chief Clerk 

JOYCE WARD, Publications Clerk and GPO Detailee 

OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL 

WORKFORCE, AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE 

DANIEL K. AKAKA, Hawaii, Chairman 

CARL LEVIN, Michigan 

MARY L. LANDRIEU, Louisiana 

MARK BEGICH, Alaska 

RON JOHNSON, Wisconsin 

TOM COBURN, Oklahoma 

JERRY MORAN, Kansas 

LISA POWELL, Majority Staff Director 

BENJAMIN B. RHODESIDE, Professional Staff Member 

RACHEL R. WEAVER, Minority Staff Director 

AARON H. WOOLF, Chief Clerk 

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(III) 

C O N T E N T S 

Opening statement: Page 

Senator Akaka .................................................................................................. 1 

Senator Johnson ............................................................................................... 2 

Senator Merkley ............................................................................................... 4 

Prepared statement: 

Senator Akaka .................................................................................................. 47 

WITNESSES 

THURSDAY, APRIL 26, 2012 

Hon. Sheila Bair, Former Chairman, U.S. Federal Deposit Insurance Corporation, and Senior Advisor, The Pew Charitable Trusts ...................................... 5 

Melissa Koide, the Deputy Assistant Secretary, Office of Financial Education 

and Financial Access, Treasury Department ..................................................... 19 

Alicia Puente Cackley, Director, Financial Markets and Community Investments, U.S. Government Accountability Office ................................................. 21 

Camille Busette, Ph.D., Assistant Director, Office of Financial Education, 

Consumer Financial Protection Bureau ............................................................. 23 

Brigitte Madrian, Ph.D., Aetna Professor of Public Policy and Corporate Management, John F. Kennedy School of Government, Harvard University ........ 31 

Mark A. Calabria, Ph.D., Director, Financial Regulations Studies, Cato Institute ........................................................................................................................ 33

Sharra R. Jones, Math Instructor, Oak Park Elementary School in Mississippi .................................................................................................................. 35 

Michael Martin, Academy of Finance Instructor, Lansdowne High School, 

Baltimore County Public Schools ........................................................................ 37 

Evan K. Richards, Academy of Finance Alumnus, Lansdowne High School, 

Baltimore County Public Schools, and Undergraduate Student, Towson University ................................................................................................................... 39 

ALPHABETICAL LIST OF WITNESSES

Bair, Hon. Sheila: 

Testimony .......................................................................................................... 5 

Prepared statement .......................................................................................... 49 

Busette, Camille Ph.D.: 

Testimony .......................................................................................................... 23 

Prepared statement .......................................................................................... 73 

Cackley, Alicia Puente: 

Testimony .......................................................................................................... 21 

Prepared statement .......................................................................................... 61 

Calabria, Mark A. Ph.D.: 

Testimony .......................................................................................................... 33 

Prepared statement .......................................................................................... 82 

Jones, Sharra R.: 

Testimony .......................................................................................................... 35 

Prepared statement .......................................................................................... 92 

Koide, Melissa: 

Testimony .......................................................................................................... 19 

Prepared statement .......................................................................................... 55 

Madrian, Brigitte Ph.D.: 

Testimony .......................................................................................................... 31 

Prepared statement .......................................................................................... 76 

Martin, Michael: 

Testimony .......................................................................................................... 37 

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IV 

Martin, Michael—Continued 

Prepared statement .......................................................................................... 95 

Richards, Evan K.: 

Testimony .......................................................................................................... 39 

Prepared statement .......................................................................................... 97 

APPENDIX 

Statements for the Record: 

Senator Coburn, prepared statement ............................................................. 99 

Education Finance Council .............................................................................. 100 

The Financial Services Roundtable ................................................................. 103 

Nan J. Morrison, President and CEO, Council for Economic Education ..... 105 

The Office of the Special Inspector General for the Troubled Asset Relief 

Program (SIGTARP) ..................................................................................... 108 

Questions and responses for the Record from: 

Ms. Koide .......................................................................................................... 125 

Ms. Cackley ....................................................................................................... 133 

Ms. Busette ....................................................................................................... 138 

Ms. Madrian ...................................................................................................... 145 

Mr. Calabria ...................................................................................................... 146 

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FINANCIAL LITERACY: 

EMPOWERING AMERICANS TO PREVENT 

THE NEXT FINANCIAL CRISIS 

THURSDAY, APRIL 26, 2012 

U.S. SENATE,

SUBCOMMITTEE ON OVERSIGHT OF GOVERNMENT

MANAGEMENT, THE FEDERAL WORKFORCE,

AND THE DISTRICT OF COLUMBIA,

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS,

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:33 p.m., in Room 

SD–342, Dirksen Senate Office Building, Hon Daniel K. Akaka, 

Chairman of the Subcommittee, presiding. 

Present: Senators Akaka, Begich and Johnson. 

Also Present: Senator Merkley 

OPENING STATEMENT OF SENATOR AKAKA 

Senator AKAKA. I call this hearing of the Subcommittee on Oversight of Government Management, the Federal Workforce, and the 

District of Columbia to order. 

Aloha and good afternoon, everyone. 

I want to welcome our witnesses to today’s hearing. Financial 

Literacy: Empowering Americans to Prevent the Next Financial 

Crisis. I want to thank all of you for being here. 

As many of you know, this is the Subcommittee’s fifth and my 

final, oversight hearing examining efforts to enhance the financial 

capability of all Americans. 

As Chairman, I have worked to promote financial literacy initiatives that help American families make smart choices to invest in 

their futures. 

The recent financial crisis put to rest any illusions that we can 

ignore our Nation’s shortfalls in financial education without suffering serious economic harm. We must act decisively to make sure 

Americans are empowered to make sound financial decisions. 

The Financial Literacy and Education Commission (FLEC), 

which I worked to create in 2003, plays an important role in improving Federal coordination and collaboration on financial literacy 

activities. We must make sure the Commission has the funding 

and authorities it needs to fulfill its mission. 

To fully coordinate and streamline Federal financial literacy efforts, the Commission may need an independent budget rather 

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than just rely on contributions from agencies. It also may need enhanced authority to coordinate member agencies’ actions. 

I want to close by noting that I have found it incredibly rewarding to champion financial literacy and economic education during 

my time in the Senate. I am very pleased that financial literacy 

will continue to have a strong and dedicated champion in my good 

friend, Senator Merkley, who is here with us today, and my good 

friend also, Senator Ron Johnson. 

My passion for these issues is rooted in personal experience. 

Growing up in Hawaii, I was lucky to have parents and teachers 

who taught me how to save and raised me in a culture that valued 

saving and spending responsibly. 

Yet, despite these strong values, my family struggled with financial insecurity, and we did not even have a bank account. My upbringing informs my belief that financial literacy education efforts 

must begin at the local level with families and communities and 

with the Federal Government playing an important supporting 

role. 

I see my own parents in the millions of unbanked and underbanked families across the Nation. Often for reasons beyond their 

control, many hardworking people who do their best to provide for 

their families find themselves shut out of the mainstream financial 

system. This is where the Federal Government has a valuable role 

to play. 

I strongly support programs like Bank On USA, which have demonstrated how government can bring together local officials, nonprofits, and private firms to work together to make sure all families have financial security. 

The sheer scale of our Nation’s financial illiteracy means a significant amount of work remains to be done. However, rather than 

be discouraged by the challenge ahead of us, I am really inspired 

by the dedicated witnesses here today, especially the educators who 

have graciously taken the time to appear before us today. 

I have faith that if we work together over the coming years, we 

can empower all Americans to make informed financial decisions 

and prevent the next financial crisis. I look forward to hearing 

from our witnesses today. 

I would like to now call upon Senator Johnson for his opening 

statement. 

Senator JOHNSON. 

OPENING STATEMENT OF SENATOR JOHNSON 

Senator JOHNSON. Thank you, Mr. Chairman. And aloha. 

Senator AKAKA. Aloha. 

Senator JOHNSON. Aloha to everybody in the audience. I also 

want to thank the witnesses for taking time to appear before us. 

I will note that it looks like we may have some roll call votes about 

3:20 so that will probably disrupt things a little bit. 

I, like you, Mr. Chairman, have a deep-seated belief in the importance of financial literacy. But I do think we may have some 

disagreement in terms of whose role is it. Is this really a legitimate 

role of the Federal Government or is this something that can be 

much more effectively and efficiently handled on a local level? 

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One of the reasons I actually decided I could run for Federal office like this is because in my 10 years leading up to running for 

election, I was heavily involved in local education, volunteering 50 

or 60 percent of my time on my last endeavor as the business cochair of a Partners in Education Council. And almost the entire efforts of that council had to do with providing basic life skills, training, and one of those key components was financial literacy. 

One of the things we talked about at the very end of that process 

was the next step after high school, a comprehensive counseling 

model to make sure that children and their parents had the full 

range of options in terms of what the next step after high school 

would be. 

So again, I think it is incredibly important to provide financial 

literacy training. But when you really start taking a look at what 

role of the Federal Government should be playing in it and when 

you take a look at our own finances here in the Federal Government, $5.33 trillion worth of deficit spending during this Administration, a $1.3 trillion a year deficit again this year, you really have 

to wonder, I mean, is this kind of the pot calling the kettle black 

here. I mean, should we really be relying on the Federal Government trying to teach our youth how they should be responsible? 

One of the key components in terms of young people starting 

their life successfully is not getting into debt. One of the problems 

we are finding is students taking on all of these loans and really 

digging themselves in a deep hole with not only credit card debt 

but again just taking a look at financing their education and taking 

a look at the type of degree programs that they are pursuing. 

A relatively depressing article was just released earlier this week 

from the Associated Press (AP). I do not want to quote the study 

because I do not think it is complete but it is basically reporting 

that current Bachelor of Arts (BA) graduates, only one in two are 

gainfully employed in the area of training. 

And if you take a look at just the average debt load of students 

graduating in the 2009–2010 school year from public institutions, 

is about $12,000, private is about $18,000. 

So again, we are encouraging our young people to pursue degree 

programs sometimes that are not particularly valued in the workplace, and we are also encouraging them to assume a fair amount 

of debt, and that is the Federal Government pushing that on them. 

So, I guess the thrust of my questions is going to be really about: 

Is this a real proper role for the Federal Government or not? And 

I just want to throw out, this is a little, I will not say totally on 

point, but I think it describes what I am talking about in terms of 

the role of the Federal Government, how effective it is—Pat, if you 

want to put that up. 

I have had my staff take a look at conditions, economic conditions from 1960 until today, from then versus now. If you take a 

look at three product areas, market areas that have basically been 

affected by the free market, clothing, food, and shelter in inflationadjusted dollars the per-household expense for clothing, food, and 

shelter actually is below 1960 levels. 

Again, that is the power, the wonder of the free-market system 

in sharing the lowest possible price and cost, the highest possible 

level of quality and customer service. 

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4 

In two sectors that the government largely controls, education 

and healthcare, you can see the difference. Education has gone up 

206 percent on a per-household basis. Healthcare is up 481 percent. 

So again, that sort of underscores the point, is government, is the 

Federal Government really the right entity to be pushing financial 

literacy. 

So thank you, Mr. Chairman. 

Senator AKAKA. Thank you very much, Senator Johnson. 

Now, I am going to call on Senator Merkley for his opening statement. 

OPENING STATEMENT OF SENATOR MERKLEY 

Senator MERKLEY. Thank you very much, Mr. Chairman, and 

thank you for the series of hearings including the one today where 

we will also have a panel from the Consumer Financial Protection 

Bureau (CFPB). But thank you for your lifetime of leadership on 

financial education, going back to the Excellence in Economic Education Act (EEE) Act, if you will. The work that you did a couple 

of years later to establish the Financial Literacy Commissions. 

Like you, I was fortunate to have parents who stressed financial 

education from the very beginning. I think I was about 5 years old 

when my parents sent me to the bank to get my bank account, earlier than that I got my piggy bank, and they taught me to take part 

of every allowance and store it away, stash it away. And I am 

doing the same with my children today. 

But I must say the world has become a lot more complicated financially since I was a child. When I got out of graduate school and 

came to work for Secretary Weinberger in the Department of Defense (DOD), at that point I applied for a credit card, and I was 

turned down. I applied for my MasterCard, got my rejection letter, 

said you do not have 2 years of work history yet. And so, 2 years 

later I applied again, got my credit card. 

What a difference from the weekly set of letters my children receive trying to get them to open credit card accounts and with all 

kinds of different qualifications. 

We did not have payday loans, 500 percent loans preying on 

folks. We did not have deregulated predatory mortgages. We had 

a system of Savings and Loan where you deposited in your corner 

savings and loan and they provided a low-cost loan to buy your 

house. 

And as the complexity of the marketplace has evolved, we have 

not geared up financial education. Despite your best efforts which 

have been substantial, we still have not met the challenge. 

And so, I do look forward to trying to help carry forward the message, you have so clearly established, that financial literacy is a 

key part of preparation for living in a complex society. 

This whole set of lessons was reinforced when I was Director for 

the Habitat for Humanity and worked with many families who 

would not have been able to be homeowners. They worked in the 

service economy, did not earn enough in wages but for habitat interest free loans and sweat equity where the families help build the 

homes. 

But a key piece of those families being able to be successful, to 

make sure they were able to make their home payments lower than 

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5 

1The prepared statement of Ms. Bair appears in the appendix on page 49. 

the market but still substantial was financial literacy and that education that they went through as part of the habitat experienced 

was critical to the ongoing success. 

So, I do think this is extraordinarily important. I look forward 

to continuing to work on it. I think this is a bipartisan world in 

which education is so powerful and the quality of life, the quality 

of financial life that our citizens have. Thank you for your leadership. 

Senator JOHNSON. Mr. Chairman, I neglected to request that I 

received a statement from the Education Finance Council (EFC). I 

would like to have that included in the record please. 

Senator AKAKA. Certainly. That will be included in the record. 

Senator AKAKA. I now welcome our first panel witness. Sheila 

Bair, former chairman of the Federal Deposit Insurance Corporation (FDIC) and Senior Adviser at the Pew Charitable Trusts. 

Nearly 5 years ago, Ms. Bair was sitting in that same chair appearing as the lead witness at the Subcommittee’s first financial 

literacy hearing. 

Welcome back, Sheila, it is good to see you again. As you know, 

it is the custom of the Subcommittee to swear in all witnesses. So 

please, stand and raise your right hand. 

Do you solemnly swear that the testimony you are about to give 

the Subcommittee is the truth, the whole truth, and nothing but 

the truth so help you, God? 

Ms. BAIR. I do. 

Senator AKAKA. Thank you. Let the record note that the witness 

answered in the affirmative. 

Before we start, I want you to know that your full written statement will be part of the record, and I would like to remind you to 

please limit your oral remarks to 5 minutes. 

Ms. Bair, would you please proceed with your testimony. 

TESTIMONY OF HON. SHEILA BAIR,1 FORMER CHAIRMAN, U.S. 

FEDERAL DEPOSIT INSURANCE CORPORATION AND SENIOR 

ADVISOR, THE PEW CHARITABLE TRUSTS 

Ms. BAIR. Chairman Akaka, Ranking Member Johnson, Senator 

Merkley, Aloha. 

Senator AKAKA. Aloha. 

Ms. BAIR. Thank you very much for the opportunity to testify 

today on ways to improve the effectiveness of Federal financial literacy initiatives and the performance of the Financial Literacy 

Education Commission. 

And may I also say it is a distinct pleasure to be your bookends. 

I was glad I has here at your first oversight hearing and I am very 

glad to be here with you for your last oversight hearing. Thank you 

very much for including me. 

As this Subcommittee knows, financial education has long been 

of interest to me. I have written children’s books and stories which 

deal with basic financial topics. 

I created Treasury’s Office of Financial Education when I served 

as the Assistant Secretary for Financial Institutions; and when I 

later became Chairman of the Federal Deposit Insurance CorporaH605-41331-79W7 with DISTILLER

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tion, I created an Advisory Committee on Economic Inclusion, or 

Come-In for short. This important committee helped guide the 

FDIC’s work in promoting a banking system which is inclusive and 

serves the needs of all Americans, regardless of income status or 

financial acumen. 

After many years of promoting financial education, we have 

learned some important things. For young people, building financial education into core curricula and having it taught every year 

is more effective than ‘‘one-off’’ financial education classes. 

For adults, financial education offered in connection with a specific financial event, be it opening a banking account, applying for 

a credit card or taking out a mortgage, will be more effective than 

financial training which is offered in the abstract. We also know 

that financial education can make a difference though much more 

work needs to be done in defining and measuring the key metrics 

of success. 

For instance, when I chaired the FDIC, we completed a survey 

of adults who had completed our Money Smart curriculum and 

found that it did have a positive impact by making it more likely 

that they would open a bank account, save money, and a budget. 

We also noted that an important part of financial literacy is having information presented in a way that consumers can understand 

and use to make appropriate choices. Thus, disclosures for financial 

products and services needs to be presented in a format that is 

clear and understandable. 

This brings me to important work the Pew Charitable Trusts is 

doing on consumer financial security. In recent years, Pew has generated a variety of research focused on enhancing consumer financial security and understanding long-term economic mobility. Helping people make beneficial financial decisions is integral to this 

work. 

This is particularly important for checking accounts which allow 

consumers to transact and save often serve as a gateway to the use 

of more sophisticated financial products and services. 

Unfortunately, when Pew studied the checking account disclosures provided by the 10 largest banks, we found a median of 111 

pages of information. Last fall Pew released the results of a longitudinal study of 2000 low income Los Angeles area households, 

1000 with and 1000 without a banking account, which explores the 

connections between financial services, the populations they serve 

or are failing to serve, and the financial stability of those populations. 

Pew found that nearly one in three households listed unexpected 

and unexplained fees as the reason for leaving banking while only 

27 percent attributed their departure from banking to job loss or 

lack of funds. 

Given the need for consumers to understand and maintain their 

checking accounts, we believe that the Consumer Financial Protection Bureau should require all financial institutions to provide a 

clear, concise, and uniform disclosure that would present account 

holders with easy to understand information about important fees 

and terms. 

In addition, I urge the CFPB to prohibit practices that have no 

business purpose other than to maximize fees and that are difficult 

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or impossible for consumers to avoid like transaction reordering 

since this practice makes it very difficult for consumers to manage 

their money and avoid these charges. 

While at the FDIC, we issued guidance to our supervised banks 

to halt this practice. Transactions need to be processed in a feeneutral manner that responsible consumers can understand and 

follow. 

Pew’s Safe Small-Dollar Loans Research Project is currently 

evaluating the complicated issue of payday lending. Here is another reminder that empowering Americans to manage their finances effectively requires meaningful price disclosures. 

The case of payday lending reminds us that consumers must be 

enabled to understand not just what it initially costs to obtain a 

financial product but also to calculate the ongoing costs and risks 

of using those products. 

Consumers need to be educated so that they are less susceptible 

to debt trap which too often accompanies payday loans. Payday 

loans are not an easy fix to temporary emergency cash needs as 

their marketing suggests. Frequently borrowers use these loans for 

recurring expenses. They also find that they must repeatedly take 

out new loans to pay off the old ones. 

Indeed, the profitability of the payday lending model is driven by 

repeat usage. This is why I supported the creation of a small dollar 

loan pilot program when I was at the FDIC to encourage responsible alternatives to payday loans. 

This program recognizes the value of safe and affordable small 

dollar loans. Two of the most important features of this program 

are a minimum repayment term of 90 days and solid underwriting 

practices. 

One final point which I would like to make brings us back to the 

importance of teaching positive behaviors. Hoping to instill positive 

financial behaviors in certain areas such as saving and investing 

can also promote positive behaviors in other areas like credit 

usage. 

Just one example. Pew found that renters earning $40,000 to 

$100,000 a year use payday loans more frequently than homeowners who earn only $15,000 to $40,000 a year. Since home ownership has traditionally been a primary asset building vehicle, and 

we hope it will return to that, this finding suggests that asset accumulation can have a positive impact on reducing reliance on highcost credit. 

Thank you very much for the opportunity to testify today and I 

would be happy to answer your questions. 

Senator AKAKA. Thank you very much, Ms. Bair. I appreciate you 

testifying at this hearing, despite being under the weather. 

Ms. BAIR. Thank you. 

Senator AKAKA. Ms. Bair, I commend you for your work both as 

Chairman of the FDIC and as a children’s book author, to promote 

the value of good saving and spending habits. As you know, I am 

very grateful to my fourth grade teacher who used a piggy bank 

to teach important lessons about saving and managing money that 

I still follow to this day. 

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When it comes to financial education, how important is it that 

we start early, and what is the most effective way to bring financial literacy into our schools? 

Ms. BAIR. Well, I think it needs to start very early. Children 

even in preschool start understanding what money is about. They 

like to play store. Money can be a wonderful tool for teaching math 

and math can be a wonderful tool for teaching children about financial management. 

My view has always been that it should be in core curricula year 

after year. It can easily be integrated into math with evermore increasingly sophisticated concepts being introduced with each grade. 

Literature class and history classes also offer wonderful opportunities to teach great literature as well as historical lessons about 

financial catastrophes that are brought about through, time-old 

problems of speculation, greed, excess leverage. 

So, I do think there is a wealth of educational materials that can 

be woven into the curricula year after year and offered and reinforced year after year in our schools. 

Senator AKAKA. Thank you. While at Treasury, you founded the 

Department’s Office of Financial Education. I am interested in your 

thoughts on how the office has performed in carrying out its mission, how the current structure compares to the original vision, and 

any proposals you have to improve the office’s effectiveness. 

Ms. BAIR. Well, I know you are going to be hearing from the 

Treasury Department later and will want to hear their views. I 

think the mandate has seemed to have gotten somewhat broader 

since I left and I think that is fine. 

I do think there does need to be a very sharp focus, though, on 

financial education and coordination of various Federal efforts on 

financial education. 

And if I would have one suggestion it might be to elevate the office perhaps to be in the Office of the Secretary. I think, making 

sure it is a priority issue, making sure that the head of the office 

has the power and the imprimatur at a very senior level to coordinate these programs and assure that there is effective coordination, 

efficiency. Sharing of research I think would be important. So, perhaps elevating the office might be a good thing. 

Senator AKAKA. I commend you for initiating the landmark 2009 

FDIC national survey of unbanked and underbanked households. 

The results are incredibly valuable in helping us design the most 

effective policies to address this critical issue. In 2012, it is simply 

not acceptable that close to 30 million U.S. households are either 

unbanked or underbanked. 

Would bringing these households into the banking system have 

broader economic benefits that would justify greater investments in 

programs such as the Model Safe Accounts Pilot or Bank On USA? 

Ms. BAIR. Well, I think certainly in terms of helping and improving the efficiency of low-income support programs, reducing unnecessary fees and costs associated with alternative financial transactions, I think those can all be accomplished by getting more people into banks as long as it is the right type of account. 

We know that some bank accounts can be very expensive too and 

inappropriate for people who are inexperienced with finances. We 

modeled, as you have mentioned here, safe accounts at the FDIC 

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as well to make sure that they are streamlined and simple and not 

laden with fees and are appropriate for lower income Americans. 

So, I do think there is a lot of return to get on that type of initiative. But I think absent even spending Federal money in those programs a lot more can be accomplished. 

The FDIC, and the banking regulators can perhaps do more in 

this area working with Treasury’s leadership, the Fed and the Office of the Comptroller of the Currency (OCC) in terms of providing 

appropriate incentives for banks to provide these basic accounts. 

Community Reinvestment Act (CRA) credit is certainly an important tool. 

So, I think there are, even outside budgetary constraints which 

I know are severe right now, there are ways I think that the regulatory community, with Treasury’s leadership, can help make those 

types of accounts more broadly available. 

And frankly, I think that would be supported by the industry too. 

I think unfortunately these types of accounts can not be very profitable. They are not big profit leaders and so relying on the private 

sector by itself to innovate and develop and market these types of 

products is probably not going to happen. But through regulatory 

coordination and encouragement I think you can get there. 

Senator AKAKA. You have noted that a consumer who knows the 

right questions to ask, understands economic fundamentals, and 

most importantly has the confidence to challenge products that 

seem too good to be true— 

Ms. BAIR. Right. 

Senator AKAKA [continuing]. Is a regulator’s best weapon in consumer protection. 

Would you please elaborate on how a financially literate consumer increases regulators’ efficiency and effectiveness? 

Ms. BAIR. Right. Well, yes, I mean, for one thing they will know 

to ask questions and understand that they should say no to a product that they do not fully understand. 

I look back at these horribly complex adjustable-rate, subprime 

mortgages that really were heavily marketed in lower income 

neighborhoods and targeted to people who had tarnished credit 

records in the past. 

So, we know that they had trouble in the past managing their 

finances, and just understanding the basic difference between a 

fixed rate and a floating rate. 

There is misleading marketing of these products too. They were 

advertised as fixed rate even though they were only fixed rate for 

2 or 3 years. But if you look closely enough at some of the disclosures you could see that there was a payment reset. 

But, just understanding that basic difference between a fixed 

rate and a floating rate and if you have a floating rate you are at 

risk of your payment going up I think would have forewarned a lot 

of people away from these products. 

So, just basic information like that, making sure folks have a better understanding of the fundamental concepts I think could have 

avoided a lot. We needed more robust regulation too and more responsible behavior in the mortgage origination community. But better informed consumers certainly could have helped avoid a lot of 

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these unaffordable mortgages that were made and subsequently 

ended up in foreclosures. 

Senator AKAKA. Thank you. 

Senator Johnson, your questions. 

Senator JOHNSON. Thank you, Mr. Chairman. 

Ms. Bair, my background is in accounting and in manufacturing. 

My manufacturing background always causes me to look for the 

root causes of a problem. 

Ms. BAIR. Right. 

Senator JOHNSON. Now, an awful lot of what we are talking 

about with financial literacy we are trying to attack some of these 

abusive financial practices and abusive financial products. I mean, 

can you describe for me what is sort of the root cause of some of 

these payday loans? 

Ms. BAIR. Well, I think people in need, people in financial need 

is really what is causing it obviously. The ultimate problem is to 

have a robust economy, more jobs, better paying jobs because people turn to these products when they then become in financial 

straits. 

Some of those, though, financial problems can be avoided, I 

think, by better skills in learning how to budget money, learning 

how to live within your means. 

So, I do think financial education can play a role in terms of having better financial management skills to avoid the need that you 

have to turn to emergency high-cost credit to begin with. 

But, the higher-priced products are particularly targeted to people who are in need and do not have a lot of sophistication or have 

a past history of misuse of products. That is the conundrum you 

face when you try to make credit more available to people who in 

the past have had trouble on managing credit. 

So, I think, as a Nation and as a government, we need to ask, 

as a matter of good conscience, when do we say enough is enough. 

Can we live with the 500 percent rate? Can we live with the 3000 

percent interest rate? I think at some point we have to say it is 

better to just deny that credit as opposed to, say, it should be available at any cost to people who cannot afford it. 

Senator JOHNSON. Is there anything in Federal law currently 

with the ability to prevent those types of abuses? 

Ms. BAIR. There is—for the military there is but not otherwise, 

I think and I do not know if you need to go to rate regulation. 

There may be at some point where something is so abusive it 

would violate the basic tenets of Federal consumer protection laws. 

But certainly, I think, better disclosure and better provision of alternatives. 

There are a number of credit unions that have piloted alternative, small-dollar loans that can be used, that have longer repayment terms and much lower interest rates. We piloted on a voluntary basis; a number of banks did the same type of thing. 

So, market competition is always good. And I think banks are 

well-positioned to provide lower cost alternatives because they already have the infrastructure in place. But the payday lending infrastructure is a very expensive one. It is usually a storefront operation. It is labor intensive so they are very high cost. 

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11 

So, I think banks if they can have the appropriate business and 

regulatory environment to provide low-cost alternatives are wellpositioned to do that. 

Senator JOHNSON. So, why do not basic laws against usury apply 

here? 

Ms. BAIR. Well, sometimes they do. Usury laws are State by 

State. They vary by State. There is a question of whether they 

apply to Internet transactions. So, that can be another issue. Some 

States have laws that openly accommodate payday loans. So, it is 

a matter of State law. 

Senator JOHNSON. OK. Is there any evidence, again we are basically talking about individuals that really are in tough economic 

situations. 

Ms. BAIR. Right. 

Senator JOHNSON. I am not sure that financial literacy is going 

to be particularly effective with that population base. Is there any 

evidence that it is? 

Ms. BAIR. Well, I think it can be preventative. I think with better 

financial education can we help everybody? No. Can we help more? 

Yes. And I think, again, in the public schools in particular which 

is your broadest venue for providing financial education, having 

basic financial concepts taught, integrated into the core curricula 

of math especially so you are not really adding to cost is very important. 

I think making sure that it includes money management skills 

and understanding basic concepts about, risk and return, 

compounding interest, how compounding interest will hurt you if 

you borrow money and take a long time to pay it back, getting 

those types of notions built into core curricula in school, I think 

when folks become adults they can more responsibly manage their 

money, basic budgeting skills. 

And so, they have plans. So they have $500 in the bank account 

if the car breaks down or there is an unexpected doctor’s appointment. But, that is hard to do. So, I think it really needs to get into 

the public schools and be offered year after year, I mean, enforced 

year after year. 

Senator JOHNSON. You just mentioned compound interest. Certainly one of my concerns in these artificially low rates that I think 

you just recently wrote about. We are certainly robbing seniors of 

their ability to have a decent return on their life savings. 

Ms. BAIR. Right. 

Senator JOHNSON. We are also robbing youth of the wonder and 

power of compound interest rates now. Can you just kind of speak 

to that? 

Ms. BAIR. Right. Well, that is true. I wrote a book ‘‘Rock, Brock, 

and the Savings Shock’’. It is about compounding interest. I used 

a five percent interest rate back then and obviously that is dated. 

The power of compounding obviously is much more difficult to 

teach when you are talking about these extraordinarily low interest 

rates. 

Though even at two percent for a long enough period of time, it 

can start gaining some momentum. I do think, though, as I said, 

we are talking about financial education, but I do think there are 

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risks associated with this very long, protracted period we have had 

of near zero interest rates. 

Certainly, it has hurt savers. It has hurt pension fund managers, 

those trying to manage retirement savings in a way that will 

produce enough of an income to provide the promised benefit. What 

are we getting on the positive side? 

So, my sense is, as I said, is that it is time to perhaps start turning the ship. I do not suggest doing anything radical overnight but 

I think signaling that perhaps it is time to think of a transition period out of this or at least let the market bump rates up a little 

bit. If that is where the market wants to go, it would be well advised. 

Senator JOHNSON. I looked at the history of the U.S. borrowing 

costs from 1970 to 2000. It averaged 5.3 percent. 

Ms. BAIR. Right. 

Senator JOHNSON. The last few years were at about one and a 

half percent. 

Ms. BAIR. Yeah. 

Senator JOHNSON. Do you have any prediction when that little 

bubble is going to burst or when we— 

Ms. BAIR. I think that is one of the problems, if we have continued Federal Reserve buying of longer-dated Treasury bonds, we 

really do not know whether that has camouflaging reduced investor 

interest in longer dated Treasury securities. We will presumably 

find that out when Operation Twist concludes in June. 

But I do think, and one of the points I made in the column, I 

think the Fed is, I do not fault the Fed, I think the Fed feels that 

fiscal policy is still frankly not being managed very well. 

So, they are trying to make up for it through monetary policy 

and I just think there is only so much you can do through monetary policy. So, it might be a good thing to bump those rates up 

a little bit. Maybe a little bond market discipline that people will 

start focusing on some of our short- and longer-term fiscal issues 

here and deal with them in a more effective way. 

Senator JOHNSON. Thank you very much. 

Thank you, Mr. Chairman. 

Senator AKAKA. Thank you very much, Senator Johnson. Senator 

Merkley. 

Senator MERKLEY. Thank you very much, Mr. Chairman, and 

thank you, Ms. Bair. I appreciate the work you have done before 

and the work that you are doing now. In your testimony, you note 

that unexpected fees drive customers out of bank accounts, I believe, one out of three who leave the banking system. You also 

mentioned transaction reordering. 

Ms. BAIR. Yes. 

Senator MERKLEY. And I certainly have heard from lots of folks 

who, because the order of their transactions were reordered to having the largest transaction first with a string of perhaps small 

things like buying a soda pop or something, all of them then had 

$35 fees associated with that. So, instead of one $35 fee there were 

now eight. And one of the reactions is, what, I am going to shut 

down my checking account. 

Who would have the authority, if anyone, does the Consumer Financial Protection Bureau have authority to address the issues like 

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13 

the chronology of transactions being changed by a financial institution? 

Ms. BAIR. Yes, I think, well, you have a representative testifying 

but my view is that, yes, that is within their power. And we, at 

least for the banks that the FDIC supervised, we put out guidance 

saying that the practice should stop. 

I think a lot of it has stopped already fortunately—unfortunately, 

because of litigation as much as anything. But there is no reason 

for it other than to maximize fees, and I think a lot of responsible 

banks do not do it. 

But it damages customer trust. They feel like they are tricked, 

they are gamed. And it is not good. You cannot see it. You cannot 

do anything about it. 

So, I do think it is a good example of a practice that there is no 

legitimate business purpose for and it should be banned. Absolutely. 

Senator MERKLEY. Thank you. I want to return to the payday 

loans for a moment. You mentioned that the military has restrictions through those statutes that we passed. 

Ms. BAIR. Right. 

Senator MERKLEY. And I remember the vivid testimony on how 

the 500 percent interest rates around military bases were demoralizing our young male and female GIs and quite frankly having 

a devastating impact on families. 

And the military leaders came before the Senate and said this is 

a terrible impact on families, a terrible impact on national security 

as a result, can you do something about it? And we did do something about it. 

But why is something that is very good for military families not 

also very good for all American families? 

Ms. BAIR. Well, I would not disagree with you on that. I think 

it is hard. Flat numerical interest rate restrictions have had a 

checkered history when we have tried them in the past. And of 

course, interest rate environments can change. I think Talent 

Amendment’s was 36 percent. That was when, maybe a standard 

interest rate was 18 or 20 percent and now it is so much lower. So, 

36 percent even sounds pretty high. So, there is always that issue. 

My preference is always to try to get competition to drive interest rates down combined with robust disclosures so that people understand what they are getting themselves into. 

But, I think it is a legitimate issue to be concerned about; and 

especially with lower income folks, they get trapped into the serial 

loans that they keep paying and repaying and repaying. 

It really is wealth stripping. It does undermine other Federal 

support programs that we try to provide to assure everyone has a 

basic income and standard of living. 

So, I guess, Senator, my preference still would be to try to let 

market competition get it down with better disclosure but I can 

certainly see a policy justification for having a Federal limit if Congress wanted to do that. 

Senator MERKLEY. When I was in the Oregon legislature, led an 

effort to put a 36 percent cap on Oregon’s payday loans, a successful effort. One of the concerns was that it would eliminate the industry and the availability of short-term loans. It did cut into about 

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a third the number of storefronts; but instead of having a storefront every three blocks, there is a storefront about every 10 blocks. 

Ms. BAIR. Right. 

Senator MERKLEY. And so, huge savings to low income families. 

I was very struck by going into a food bank and having the director of the food bank say the biggest single factor that she had noticed was that she no longer had folks coming into the food bank 

who have been driven to bankruptcy by the 500 percent interest 

rates on payday loans, it had a big impact. She said then with the 

economy turned down the loss of jobs has gone the other direction. 

Ms. BAIR. Yeah. 

Senator MERKLEY. But there are two challenges that Oregon has. 

One is that we did put a law on Internet lenders and made those 

loans unenforceable in Oregon. However, Internet lenders are using 

remotely created checks in order to essentially gain the right to extract the funds in a fashion that State regulators cannot get their 

hands around. 

The other challenge we have is that the State law cannot control 

national banks. And nationally chartered or federally chartered 

banks are starting to move into the payday loan row. 

Any thoughts on those two pieces? 

Ms. BAIR. Well, again, there may be legal issues but I tend to interpret the CFPB’s authority there pretty broadly. So, I think that 

might be a discussion that you need to have with the CFPB. 

Federal preemption of State laws is something that has troubled 

me for a long time. When I was at Treasury in 2001 and 2002, I 

had objected then to the OCC’s efforts to preempt mortgage protections that were being, anti-predatory lending laws that were being 

enacted State-by-State. And I left Treasury and later the OCC 

went ahead with that. 

You and I can argue about whether usury limits and rate regulations are a good thing or a bad thing. But I think we should all 

agree that if States want to protect their own citizens, they should 

have the ability to do that. 

And so, I would hope that perhaps that is an area that legal authorities could be explored with the CFPB. 

Senator MERKLEY. Thank you. You had mentioned the strategy 

of integrating financial concepts into regular curriculum. 

Ms. BAIR. Right. 

Senator MERKLEY. You also note in your testimony the need to 

test the efficacy of better research, test efficacy of programs. Has 

there been research that has compared, if you will, the stand-alone 

financial literacy class perhaps required in high school or students 

who take it in high school versus the incorporation of financial literacy concepts more broadly? 

Ms. BAIR. It is more anecdotal. I do not think there are good control groups. It would be nice to see research like that. I do know 

the one-off type of, high school classes, the research that has been 

done on it has been pretty weak in terms of showing that they are 

very effective in changing behavior. 

I noticed that your next panel of witnesses will be talking about 

a new research agenda for the FLEC. And I think this is an area 

where we are desperately in need for better, stronger survey data, 

perhaps studies that could actually track, find a few school districts 

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that are doing this, and more and more are, and actually track the 

behavior of those students over a period of time versus a control 

group where that type of education is not introduced. I think it will 

be extremely helpful. 

Senator MERKLEY. That would be very helpful. Thank you. 

Ms. BAIR. Thank you. 

Senator AKAKA. Thank you very much, Senator Merkley. Senator 

Begich. 

Senator BEGICH. Thank you very much, Mr. Chairman. I know 

financial literacy has been an issue that you and I have talked 

about more than once, and I am glad to see this hearing moving 

forward and some discussion about it. 

Thank you for being here. When I was in high school, I peertaught financial and personal finance back when it was required to 

graduate, a quarter credits. 

Let me ask a couple of questions. In Alaska, for example, if you 

are a first-time homeowner and you wanted to utilize the Alaska 

Housing Finance Corporation loan program, you can receive I want 

to say it is a quarter-point or maybe it is an eighth of a point but 

I think it is a quarter-point off your loan interest if you show that 

you have gone through a first-time home owner program in the 

sense of learning financial industry but home ownership understanding. 

Why not, with our loan programs that we federally guarantee, 

offer the same thing for first-time homeowners? 

Ms. BAIR. Well, that is interesting. Certainly. There is a lot of 

research that shows good programs can reduce default rates. 

Senator BEGICH. That’s right. 

Ms. BAIR. If the government is guaranteeing the mortgages, yes, 

that might make some sense. 

Senator BEGICH. We have one of the lowest default rates, if not 

the lowest, in the country. 

Ms. BAIR. That is great. 

Senator BEGICH. And I think part of it is these first-term buyers 

actually understand the responsibility. It is not just buying a house 

and getting a payment but they actually have to take care of the 

lawn. There are utility costs. There are variables in their utility 

costs. It depends on usage of your house, gas heat versus electric, 

and a variety of things. 

I guess you kind of answered the question that if we are putting 

the guarantees up, we are the platinum basically, we should require some opportunity for them, at least first-time buyers it seems 

to me. 

Ms. BAIR. Right. I would think so. I think that would be, again 

lower default rates should save the government money in terms of 

their guarantee so that would make a lot of sense. 

Senator BEGICH. And create more capacity for more loans because you do not have those default rates because you are not putting loan reserves and those kinds of things. 

Ms. BAIR. That is right. 

Senator BEGICH. Let me, if I can follow on the commentary 

about, I have met with credit card companies. I have met with 

credit unions, I have met with banks, a variety of different groups 

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and they are all very supportive of financial literacy but it is kind 

of disjointed. 

Ms. BAIR. Yes, it is. 

Senator BEGICH. For example, I mean, I just did a refinance and 

they were very excited to give me I think it was an eighth off if 

I made sure my direct auto pay was with a bank account with their 

bank. But I had no incentive of any kind to talk about financial literacy. 

Do you think the private sector has or would be motivated in this 

arena? I mean, you think they would be but maybe not because we 

guarantee most of these loans. I mean, what is your experience. 

Ms. BAIR. Yes, I think you get a mixed effort in the private sector. There is a lot of money thrown at it. There is a lot of curricula 

developed but some of it is of mixed quality. And I think there may 

be, with any business sector you have your better players and the 

ones who are not so good in dealing with their customers. 

To the extent you know some financial institutions make money 

over late fees, right? 

Senator BEGICH. Right. 

Ms. BAIR. Or repeat overdrafts. And so bad financial behavior 

can generate income so perhaps it is a conflict between providing 

good financial education and improving financial skills and potential profit motives. 

So, I think the better managed banks do not approach it that 

way. I think they realize that it is ultimately in their long-term interest to have customers who do not overdraw their accounts and 

pay their loans on time. 

But you do get somewhat of a mix in quality I think which is 

why I think it is appropriate for there to be a Federal coordination 

effort. 

Senator BEGICH. Coordination research. 

Ms. BAIR. Yes, exactly. 

Senator BEGICH. I note Senator Johnson was talking about some 

of the areas. We did something when I was mayor. We had an area 

of town that, as Senator Merkley described, every few blocks you 

would have a payday, I think it was every six feet there was a payday lender. 

And we encouraged through some land economic incentives to 

have a credit union move into the area with some conditions, and 

they now average, and it is one of the most impoverished areas of 

the most urban area of Alaska, Anchorage, Credit Union One. 

And they actually have an education center within their credit 

union. For an ‘‘A’’ average, I forget the number, but it was one of 

their fastest growing branches out of the whole State because they 

had no low cost entrance in. So, you would not have all of these 

fees and all this stuff but they also did an education. If you became 

a member, part of the membership was, here is some education. 

So, it seems like there are some players out there that are trying 

to figure out, especially in the lower income neighborhoods, how do 

we, in essence, create competition against the payday lenders. And 

I think there are some banks and in this case there was a credit 

union who was very aggressive about it. 

Do you see that in low income neighborhoods that there is opportunity as I just described or is it pretty limited? 

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I mean, there is a risk because it is a lot of capital investment 

these facilities have to make. Payday lenders, they just show up 

with a little box and a little storefront, a little flashing lights that 

says open 24 hours, bring your check, we will give you a deal. 

Ms. BAIR. Right. So, I think there is opportunity there and I 

think credit unions and the Community Development Financial Institutions (CDFIs) typically will lead this. They will innovate. They 

will come up with the models to have these successful products, 

and you will find the larger banks once the smaller institutions 

have pioneered this type of effort, you will see the larger institutions coming in which is why I think, supporting credit unions and 

CDFIs is important. 

It saddens me. We have had a lot of CDFIs fail as a result of 

the crisis because they serve the more distressed economic neighborhoods. But there are still a lot of them out there too doing a lot 

of good work in this area. 

And so, yes, I think there is opportunity and I think there are 

other people out there just like your credit union that are pioneering methods that can make economic sense for all providers. 

Senator BEGICH. Let me ask you one last question. I have just 

about a minute left. We passed, I did not vote for it but it is the 

initial public offering (IPO) legislation recently. Some call it a jobs 

bill but put that all aside. I did not vote for it. I think there are 

some problems in the future. 

But it will create, and I will use the people who sold this bill, 

new opportunities for investors. My worry is how do we ensure 

those folks who may not be so understanding of what that is all 

about are educated before they find out they just bought into a 

project that is never going to turn a profit, never give them a dividend. 

They thank them for the angel investment. They are 65 years 

old, just retiring. Any thoughts on that? Because we are about to 

enter this and, I can tell you the e-mail Web sites are going to be 

popping up overnight and selling you a lot of goods. And the reality 

is we know with venture capitalists, angel investors, that the return rate, it is one out of 50 if you are lucky on a good day. 

Ms. BAIR. Well, I think the relationship with risk and return is 

something that is so basic and that really needs to be in the schools 

year after year. If it sounds too good to be true, it is. If it has a 

high rate of return, it is going to be very high risk. You are probably going to lose your money. 

Senator BEGICH. Right. 

Ms. BAIR. That is something, a basic, that a lot of people do not 

understand right now. I can only hope that the Security and Exchange Commission (SEC) somehow finds a way to have red flashing lights on all of those investments that this is very high risk and 

you should not be putting money into this unless you are prepared 

to lose it. 

Senator BEGICH. Very good. Thank you very much. Thanks for 

your testimony. 

Thank you, Mr. Chairman. 

Senator AKAKA. Thank you very much, Senator Begich. 

Let me call on Senator Johnson for his questions. 

Ms. BAIR. OK. 

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Senator JOHNSON. I had just one quick question. You were talking about curriculum. Is there a model that you have seen that 

would really be, kind of a drop-in for local school districts that does 

what you had suggested it do? 

Ms. BAIR. I think there are pieces of it. Part of the problem I 

think with financial education is it is very piecemeal. Part of the 

problem with trying to get it in the education system is the education system itself is very balkanized so there are discrete aspects 

of a lot of different school programs that I think are good. One that 

has the perfect model, no, I could not give that to you. 

Senator JOHNSON. As long as it is a short answer, one quick last 

question. 

Ms. BAIR. Sure. 

Senator JOHNSON. In terms of who is taking the risk, I mean, is 

it not the fact that these banks can just take these loans and just 

sell them and get rid of them and not hold on to the risk? Is that 

not part of the real problem too? They have to have a much greater 

vested interest in educating the consumers to be able to pay off 

loans. 

Ms. BAIR. Right. Well, you are right. That is exactly what happened. When it used to be that a bank would make a loan and hold 

it in their portfolio, they had every incentive to make sure the borrower could repay the loan. With securitization, the risk was 

passed off. 

That is why I really like the risk retention component of DoddFrank. I hope that regulators finalize that and have very narrow 

exceptions because I think the best way to make sure that lenders 

will make responsible mortgages, ones that people can repay is to 

make sure that they take a good chunk of the loss if the loan goes 

bad, absolutely. 

Senator JOHNSON. OK. Thank you very much. 

Ms. BAIR. You are welcome. 

Senator JOHNSON. Thank you, Mr. Chairman. 

Senator AKAKA. Thank you. 

Ms. Bair, let me just ask one final question. I was very surprised 

that the median length of checking account disclosures provided by 

major banks is 111 pages. 

Ms. BAIR. Yes. 

Senator AKAKA. My question is what barriers have you observed 

to banks adopting Pew’s model disclosure box and why have only 

two major banks adopted your model? 

Ms. BAIR. Right. Well, we have two. I will say the cup is a little 

bit full not a lot empty. 

I was talking to the staff earlier about that. We hear arguments 

about costs. We hear, well, we have our own disclosure and we 

think that works. And that may or may not be true. 

Now, we have heard more recently that, well, they do not want 

to get ahead of the regulators at the CFPB, and I hope they do, 

that the CFPB goes ahead with a uniform disclosure that they will 

just wait for the CFPB to do that. 

So, we have heard a lot of reasons. But I do think this is one, 

so much of Federal disclosure laws in the past have focused on 

credit products because it used to be that is really where the costs 

and the risks were that deposit accounts really now have become 

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1The prepared statement of Ms. Koide appears in the appendix on page 55. 

so fee laden, and there are so many different ways you can end up 

paying money that you did not understand that you were going to 

have to pay that I think having uniform disclosure for deposit accounts really its time has come and I do hope the CFPB moves 

ahead with it. 

Senator AKAKA. I want to thank you very much, Ms. Bair, for 

your valuable testimony and your responses to our questions this 

afternoon. 

Ms. BAIR. My pleasure. 

Senator AKAKA. And I want to wish you well. 

Ms. BAIR. Thank you, Senator, you too. Thank you very much. 

Senator AKAKA. Now I would like to ask the second panel of witnesses to please come forward. Let me introduce them. 

Ms. Melissa Koide, the Deputy Assistant Secretary for the Office 

of Financial Education and Financial Access, at the Treasury Department. 

Ms. Alicia Puente Cackley, Director for Financial Markets and 

Community Investments, U.S. Government Accounting Office. And 

Dr. Camille Busette, Assistant Director, Office of Financial Education, Consumer Financial Protection Bureau. 

As you know, it is the custom of the Subcommittee to swear in 

all witnesses. So, I ask you to please stand and raise your right 

hands. 

Do you solemnly swear that the testimony you are about to give 

the Subcommittee is the truth, the whole truth, and nothing but 

the truth so help you, God? 

Ms. KOIDE. I do. 

Ms. CACKLEY. I do. 

Ms. BUSETTE. I do. 

Senator AKAKA. Thank you. Let it be noted for the record that 

the witnesses answered in the affirmative. 

Before we start, I want you to know that your full written statements will be made part of the record and I would like to remind 

you to please limit your oral remarks to 5 minutes. 

Ms. Koide, would you please proceed. 

TESTIMONY OF MELISSA KOIDE,1 DEPUTY ASSISTANT SECRETARY, OFFICE OF FINANCIAL EDUCATION AND FINANCIAL ACCESS, U.S. DEPARTMENT OF THE TREASURY 

Ms. KOIDE. Sure. Thank you very much, Chairman Akaka and 

Ranking Member Johnson. 

I really appreciate the opportunity to be with you this afternoon 

to discuss the matter of improving Americans financial capabilities. 

This is, I think we all realize, one of the most critical issues we 

face as a country particularly as we begin to emerge from the financial crises. 

On behalf of my colleagues at the Treasury Department, I would 

like to thank you in particular, Senator Akaka. You have clearly 

demonstrated leadership over the years and a tireless commitment 

to improving the financial lives of families across the country. 

Today I am going to focus my remarks on the steps that we at 

the Treasury Department are taking to help strengthen Americans 

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financial knowledge and skills. While I am new to my position as 

the Deputy Assistant Secretary for Financial Education and Financial Access and Consumer Protection, Treasury’s work has been led 

by a dedicated career staff and has been ongoing for many years. 

Treasury’s financial capability efforts are focused on the needs of 

families and individuals. We know strong households are key building blocks of our communities as well as our Nation. And the past 

5 years have made it clear that our country’s financial stability and 

long-term resilience is deeply tied to the financial health and stability of the Nation’s families. 

Our country is stronger when families are able to pay their bills 

on time, when they are able to manage and maintain their homes, 

when they are able to build credit and also strong credit records, 

and able to build savings. 

To ensure that Americans are able to successfully manage their 

finances, we must ensure that they have a solid understanding of 

personal finance. We need to make sure they have access to financial information and advice, and that they have tools and products 

that enable them to make wise financial decisions. 

The basics I think we all recognize begin at home and in our 

schools but we cannot stop there. Families also need financial information throughout their life when they are making both routine 

decisions as well as big financial ones. 

New technologies are increasingly providing an avenue to deliver 

financial information and advice at scale. Families are also benefiting from high-tech, low-touch financial help. Online financial 

tools, mobile applications, and even video games are being developed and tested to help people develop decisionmaking skills and 

make wise, informed, real-time decisions. 

This is an area that we are going to be focusing on more deeply 

at the Treasury Department in addition to some of the other areas 

that I have described in my written testimony. 

I am now going to call your attention to some of the work that 

we have been doing with the Commission, the Financial Literacy 

and Education Commission, and also the President’s Advisory 

Council on Financial Capabilities. 

These two initiatives draw national attention to improving the financial skills of individual Americans. They also, I believe, highlight the Administration’s commitment to tackling these pressing 

issues. 

As you know, Congress established the 21-agency Financial Literacy and Education Commission to focus on the importance of financial literacy and to better coordinate the work of the Federal 

agencies. 

Treasury chairs the Commission and the Consumer Financial 

Protection Bureau recently joined as Vice Chair. The Commission 

last fall developed a broad planning framework for the field. 

Through regularly scheduled public meetings, the Commission 

highlights notable programs and strategies and also facilitates 

partnerships among Federal agencies. 

In order to strengthen interagency efforts, the Commission will 

launch this spring a research agenda. It was created by a working 

group led by Federal Reserve Board staff and it will serve as a 

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1The prepared statement of Ms. Cackley appears in the appendix on page 61. 

roadmap for coordination and collaboration on Federal and private 

sector research over the coming 3 to 5 years. 

The Commission will also soon announce the details of a new 

clearinghouse that will highlight federally funded research and 

evaluations to strengthen and emphasize the need to test and 

measure what is effective. 

Treasury is also going to be rolling out an online portal to facilitate information sharing and collaboration among members. The 

portal will help agencies share information, work together, and 

very importantly avoid duplication. 

Finally, I would like to note some of the important work of the 

President’s Advisory Council on Financial Capability. I like to 

think of it as a brain trust composed of more than a dozen national 

leaders from the private sector with a broad range of perspective 

and expertise. 

To date, the Council has made a number of recommendations including calls for greater metrics and standards, support for more 

research and evaluation, strategies to encourage employer-based financial education efforts and greater use of technology-based tools. 

Treasury and the White House are pursuing a number of the 

Council’s recommendations. For example, we are assisting the Financial Industry Regulatory Authority (FINRA) Foundation to support a follow-up survey of its 2009 National Financial Capability 

Study. This new survey will provide rich information and help us 

assess American’s skills. It will help to shape and inform the broad 

financial education field as well as our efforts among Federal Government agencies. 

To close, I realize I am out of time, I just want to reiterate that 

we realize this is critical to the long-term economic stability of families, their knowledge, and their skill sets with respect to their personal finances. We are committed to continuing to work in this 

area. 

I look forward to your questions. 

Senator AKAKA. Thank you. 

Ms. Cackley, please proceed with your testimony. 

TESTIMONY OF ALICIA PUENTE CACKLEY,1 DIRECTOR, FINANCIAL MARKETS AND COMMUNITY INVESTMENTS, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. CACKLEY. Thank you. Chairman Akaka, Ranking Member 

Johnson, thank you so much. I am pleased to be here today to testify as part of Financial Literacy Month 2012. 

Financial literacy plays an important role in helping to ensure 

the financial health and stability of individuals and families. Economic changes in recent years have further highlighted the need 

for all Americans to be empowered to make informed financial decisions. 

In my statement today, I will discuss first the Federal Government’s role in promoting financial literacy, including the role of the 

Government Accountability Office (GAO). Next, the advantages and 

risks of financial literacy efforts being spread across multiple FedH605-41331-79W7 with DISTILLER

22 

eral agencies, and finally, opportunities to enhance the effectiveness of Federal efforts going forward. 

The Federal Government plays a wide-ranging role in promoting 

financial literacy. Efforts to improve financial literacy in the 

United States involve an array of public, nonprofit, and private 

participants. But among those participants the Federal Government is, indeed, distinctive for its size and reach and for the diversity of its components, which address a wide range of issues and 

populations. 

At forums of financial literacy experts that we held in 2004 and 

2011, participants noted that the Federal Government can use its 

built-in bully pulpit, its convening power, and other tools to draw 

attention to the issue of financial literacy, as well as serve as an 

objective and unbiased source of information about the selection of 

financial products and services. 

During his confirmation hearing, GAO’s Comptroller General, 

Gene Dodaro, noted that financial literacy was an area of priority 

for him. Since then, he has initiated a multi-pronged strategy for 

GAO to address these issues. 

First, we will continue to evaluate Federal efforts that directly 

promote financial literacy. Second, we will encourage research of 

the various financial literacy initiatives to evaluate the relative effectiveness of different approaches. Third, we will look for opportunities to enhance financial literacy as an integral component of certain regular Federal interactions with the public. And finally, we 

have recently instituted a program to empower GAO’s own employees in the area of financial literacy. 

In terms of evaluating Federal financial literacy efforts, in prior 

work we cited the 2009 report by the RAND Corporation in which 

20 Federal agencies self-identified as having 56 Federal financial 

literacy programs. 

However, after subsequent analysis we found substantial inconsistency in how different agencies define their financial literacy 

programs and whether they counted related efforts as one or multiple programs. We developed a more consistent set of criteria and 

have more recently identified 16 significant Federal financial literacy programs or activities among 14 agencies, as well as four 

housing counseling programs among three federally-supported entities operating in fiscal year (FY) 2010. 

Having multiple Federal agencies involved in financial literacy 

offers advantages as well as risks. Some agencies have deep and 

long-standing expertise and experience addressing specific issue 

areas or populations. In addition, providing information from multiple sources can increase consumer access and the likelihood of 

educating more people. However, the participation of multiple 

agencies in financial literacy efforts also raises the risk of inefficiency and the need for strong coordination of their activities. 

In general, we have found that coordination and collaboration 

among Federal agencies has improved in recent years, in large part 

as a result of the multiagency Financial Literacy and Education 

Commission. At the same time, we have found instances of overlap 

in which multiple agencies or programs including the new Consumer Financial Protection Bureau share similar goals and activiH605-41331-79W7 with DISTILLER

23 

1The prepared statement of Ms. Busette appears in the appendix on page 73. 

ties, which underscores the need for careful monitoring of these efforts. 

In our ongoing work, we have been pleased to see that the Commission, the CFPB, and others have several efforts underway, such 

as a research clearinghouse being developed by the Commission 

that seeks to enhance evaluation and effectiveness of Federal financial literacy programs. 

We believe that these measures are positive steps and that identifying the most effective programs and activities will help Federal 

agencies to make the most of scarce resources, potentially by consolidating their financial literacy efforts. 

The Consumer Financial Protection Bureau was charged by statute with a key role in improving Americans’ financial literacy and 

is being provided with the resources to do so. 

As the Bureau’s activities evolve and are implemented, it will be 

important to evaluate how these efforts are working and make appropriate adjustments that might promote greater efficiency and effectiveness. 

Mr. Chairman, this concludes my prepared statement. I would be 

happy to respond to your questions. 

Senator AKAKA. Thank you very much. I am informed that we 

have votes that have been called. I have about a minute left to get 

to the floor. So, I will call a recess and we will probably be about 

45 minutes for a number of votes and then we will reconvene. 

Thank you very much. We are in recess. [Recess.] 

This hearing will come to order. 

Now, I would like to call on Dr. Busette. Please proceed with 

your testimony. 

TESTIMONY OF CAMILLE BUSETTE,1 PH.D., ASSISTANT DIRECTOR, OFFICE OF FINANCIAL EDUCATION, CONSUMER FINANCIAL PROTECTION BUREAU 

Ms. BUSETTE. Thank you, Chairman Akaka. I want to thank you 

very much for the chance to appear before you today on a topic of 

critical importance to the Consumer Financial Protection Bureau 

and our Nation, Financial Literacy: Empowering Americans to Prevent the Next Financial Crisis. 

I want to especially thank you, Chairman Akaka, for your pioneering leadership in helping enact policies to increase financial 

education and financial access for all Americans. 

The CFPB’s Office of Financial Education is a testament to your 

many contributions to the financial well-being of American consumers and to your longtime and vigorous champion for the financial empowerment of all Americans. 

To successfully navigate our complex financial system, all Americans, regardless of income and level of educational attainment, 

must be equipped with the financial knowledge and skills sufficient 

to make informed financial choices. 

The Dodd-Frank Act’s creation of the CFPB’s Office of Financial 

Education provides Americans with an office dedicated to serving 

as a trusted resource for financial information and to improving the 

financial literacy of Americans. 

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24 

The Bureau has focused early resources on providing 

critical information to consumers via our Web site, 

www.ConsumerFinance.gov, and our Consumer Response Center. 

We have launched initiatives to make costs and risks clearer for 

consumers, and our signature Know Before You Owe Mortgages 

initiative is focused on simplifying and streamlining duplicative 

mortgage forms that have been confusing homebuyers for many 

years. 

We also created and are piloting a Financial Aid Comparison 

Shopper to help students navigate the complex world of student 

loans, compare financial aid packages and to understand the payments they will face after graduation. 

We released a prototype credit card contract that is shorter and 

clearer than current credit card agreements and aimed to keep it 

at a seventh-grade reading level to make it accessible to as many 

consumers as possible. 

Through our Office of Consumer Engagement, the Bureau has 

launched ‘‘Ask CFPB,’’ an interactive tool which allows consumers 

to obtain information about financial services and products. 

The Bureau has produced consumer information to highlight the 

financial consequences of various checking-account overdraft fee 

choices. Each of these is part of a larger effort to provide Americans with understandable information that helps them make better, more informed financial choices to achieve their financial goals. 

American consumers will be better served if financial education 

effectively imparts fundamental knowledge and skills. Because 

there is no clear consensus about the conditions under which financial education is most effective, earlier this year we launched our 

initial Financial Education Program Evaluation Project, using a 

quantitative methodology to identify what elements of financial 

education programs increase consumers’ ability to manage their finances, and why. 

We intend to use the study’s insights to provide guidance to practitioners about how to design and support effective education programs. We are also identifying innovations in financial education 

that will help consumers successfully navigate common financial 

challenges. We will consult with innovators over the next couple of 

months to understand how these innovations can help consumers 

and how we can use them to improve Americans’ financial literacy. 

American consumers benefit when the fruits of our work and of 

organizations that are excelling in financial education are shared 

broadly. So, we have held listening sessions with financial education providers, addressed faith communities and community organizations, held webinars, and spoken at numerous conferences 

and events. We had the pleasure of participating in Financial Literacy Day on the Hill last week. 

Our outreach efforts inform how we approach financial education 

and how we structure our work so that it most benefits American 

financial consumers. 

While Federal agencies involved in financial education have different missions, regulatory authorities, expertise, and resources, 

the CFPB is the only Federal agency whose focus and mandate is 

the protection and education of the American financial consumer. 

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25 

But there is a lot we can learn from each other so the Bureau 

is coordinating with financial education efforts already underway 

in the Federal Government. The Bureau’s Director serves as the 

Vice Chair of the Financial Literacy and Education Commission, 

and Bureau staff are engaged with each of the Commission’s working groups. 

In addition, we meet regularly with Department of Treasury staff 

members in the Office of Financial Education and Financial Access 

to leverage our respective activities. 

As the economy continues to recover from the worst financial crisis since the Great Depression, American families focused on building more secure financial futures must be able to evaluate the 

choices available to them in the financial marketplace. 

We must seek to ensure that individuals and families have the 

knowledge and skills to manage their financial resources effectively 

and to plan for future life events. It is only with knowledgeable and 

informed consumers that we will be able to fully and responsibly 

harness the financial system’s tremendous capacity to fuel growth 

and investment, which is critical to our continued economic recovery. 

The CFPB’s Office of Financial Education looks forward to working with this Subcommittee, other agencies, the private and nonprofit sectors, and others to improve the financial literacy of all 

Americans. 

Thank you again for the opportunity to testify today. I look forward to answering your questions. 

Senator AKAKA. Thank you very much, Ms. Busette. 

GAO has conducted two forums on financial literacy where the 

Federal Government’s role in promoting greater financial literacy 

was addressed. My question to each of you on this panel is: What 

unique capabilities does the Federal Government contribute to financial literacy efforts? Ms. Koide. 

Ms. KOIDE. I would be happy to start. It is a really important 

question and I think one we need to think through particularly 

since we have had the Commission in existence and it is important 

to make sure that the work of the Federal Government is really, 

if you will, moving the needle with respect to financial education. 

I think in terms of its unique ability, it is hard to miss the fact 

that the financial education needs of families and individuals are 

very complex and they are varied. They pertain to the big decisions 

the families make and they also pertain to the small decisions that 

people make on an individual daily basis. 

Do I use my debit card? Do I use my credit card? What is the 

smart decision on how I am managing my finances are? What are 

my longer-term goals and my short-term goals? 

I think the fact that the Federal Government with the different 

agencies and the regulators have unique knowledge and expertise 

pertaining to many of those different facets of a consumer’s financial life. 

I think that it is important that the Federal Government can be 

leveraging those unique levels of expertise among the different 

agencies to provide that kind of information to consumers their 

particular needs but then also making sure that we are coordinating across the agencies and learning from each other. 

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I think the Federal Government has a particularly important 

role to play in terms of research and evaluation and really drilling 

down to make sure that we understand what works when it comes 

to these different financial matters. 

And then of course, there is the role of the Federal Government 

in terms of moving policy. The Dodd-Frank Act includes a number 

of financial education provisions including the creation of the CFPB 

and the Office of Financial Education. 

So, I think it has a wide-ranging set of levers that it can use. 

And then the one last thing that I should mention is it also has 

direct connections to communities which is a really important piece 

of all this, and it goes to Senator Johnson’s point earlier, it’s resources to communities, it’s resources to localities, it’s introducing 

ideas and research and innovation that I think can ultimately help 

to move the needle in consumer’s financial skills. 

Senator AKAKA. Thank you. Ms. Cackley. 

Ms. CACKLEY. Thank you. Yes. This is a subject that our two forums definitely addressed. The participants of those forums felt 

very strongly about the role of the Federal Government in addressing financial literacy issues and they spoke about a number of different things that they thought were important. 

One, as Ms. Koide said, is just the deep experience of different 

agencies of the Federal Government, experience with certain subject matter, and experience with certain populations that need to 

be served in terms of providing financial literacy. 

Another important point is the fact that the Federal Government 

can certainly serve as an unbiased and objective source of information whereas the private sector often has a certain set of interests 

in mind. When they are providing information to the public, the 

Federal Government can be an unbiased source. 

Another issue is the different distribution channels that the Federal Government has available to provide information, through 

things like the Social Security statement or VA benefits. These are 

distribution channels that the Federal Government can use to provide information. 

And then there are things like just the fact that the Federal Government has a built-in bully pulpit that the government can use to 

raise these issues to a higher level than anyone else. 

And again, the convening power of the Federal Government to 

really bring folks together and address the issue in a much more 

coordinated fashion. 

Senator AKAKA. Thank you. Ms. Busette. 

Ms. BUSETTE. I would concur with my colleagues on this panel 

that each Federal agency has its own mission and expertise; and 

for that reason, each agency makes a unique contribution to the financial literacy of Americans. 

Collectively, the Federal Government serves hundreds of millions 

of Americans. So, Federal agencies have the opportunity to integrate financial literacy efforts with other activities in a manner 

that achieves broad reach across the country. 

As you know, Congress mandated that our Director serve as the 

Vice Chair of the Financial Literacy and Education Commission. 

That role affords us the opportunity to assist in the coordination 

of financial literacy efforts throughout the Federal Government so 

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that the unique opportunities to serve broad swaths of American 

consumers are optimized. It also allows us to identify the most effective approaches and target our efforts accordingly. 

Senator AKAKA. Thank you very much. 

Ms. Koide, GAO has recognized the Commission’s progress in recent years promoting public-private partnerships and recommended 

building on this progress to implement the goals of the 2011 national strategy for financial literacy. 

As the official responsible for directing the activities of the Commission and the President’s Advisory Council on Financial Capability, how will you leverage these coordinating entities to make 

sure public and private resources are used efficiently to implement 

the strategy? 

Ms. KOIDE. Yes, I am happy to answer that. It has been something that we have been thinking about quite a bit since I joined 

the Treasury Department 4 weeks ago but I am happy to share 

with you where my head is on this really important opportunity, 

frankly, that this position holds with respect to financial education. 

As I said in my opening remarks, I really look at the role of the 

President’s Advisory Council on Financial Capability as being a 

brain trust for the Federal Government but especially for Treasury 

and the Administration with respect to where we should be driving 

our work at the Federal level in financial education efforts. 

And I think there are some really important and complementary 

ways in which the two bodies can work together to drive efficiency. 

A number of the recommendations, for instance, that have come 

out of the President’s Advisory Council are recommendations that 

I think the Commission is already moving in the direction of helping to implement. 

Some of the big ones are around issues of making sure that we 

are truly rolling out means of assessing effectiveness in the range 

of the different programs that the Commission is doing itself or 

supporting at the local level. 

Another area that the Commission has defined some focus 

around is youth and really boosting the financial knowledge of our 

youth. And I think there are some important ways in which the 

Commission, through the different agencies such as the Department of Education, the FDIC, and some of their money smart curriculum targeted at youth, are leading the charge. 

But I would also say that I think the work of the Commission 

and frankly the work of the financial education field are at a point 

where we need to really define what are some concrete goals that 

we want to achieve and how can we do that together as a body of 

Federal agencies. 

So, the work that I am going to be doing over the next few 

months or so is going to be working with the Commission, building 

on the knowledge from the President’s Advisory Council, what are 

we trying to achieve and how are we going to set up some metrics 

to pursue these goals. 

Senator AKAKA. Ms. Koide and Ms. Busette, schools can play an 

important role in improving the financial capability of young people. As you know, one of the three things the President’s Advisory 

Council is emphasizing is the need for financial education to take 

its rightful place in American schools. 

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Ms. KOIDE. Absolutely. 

Senator AKAKA. How is the Commission, working primarily 

through the Department of Education, collaborating with State and 

local governments to accomplish this goal? Ms. Koide. 

Ms. KOIDE. I am happy to start off with giving a few examples. 

A couple I just mentioned and Chairman Bair mentioned some of 

these as well which are testing various types of curriculum that 

can be embedded into the education courses. 

Other approaches have been actually trying to embed, if you will, 

banks and credit unions into the schools so that the children are 

learning in a real tangible, hands-on way what it means to manage 

your finances. 

I think the Department of Education, I would be happy to get 

more details for you, has been also trying out some other research 

approaches around how you can include financial education into 

schools. 

I think the learnings from each of these different strategies are 

going to be things that we will be looking at more closely across 

the agencies through the work of the Commission. 

Senator AKAKA. Thank you. Ms. Busette. 

Ms. BUSETTE. Chairman Akaka, we certainly agree with the 

Council’s theme that financial education should take its rightful 

place in American schools. 

Students need to be provided with effective financial education 

before they enter into financial contracts and make important financial decisions. 

As you are probably aware, research has revealed that financial 

education in schools can have a very significant impact on encouraging healthy financial behaviors later in life. 

And research has also shown that the right access, education and 

incentives, even for low income students and families, particularly 

when they are incentivized to save, can leave students with savings, making them more likely to enroll in college. 

At the Bureau, we definitely embrace the concept of having a financial education throughout the school system. We are working 

with key stakeholders that have spent many decades working in 

this particular area to highlight policy opportunities and to promote innovative approaches to financial literacy for youth. 

Senator AKAKA. Thank you. 

Ms. Cackley, the Commission’s 2011 national strategy and its accompanying implementation plan appeared to address many of 

GAO’s prior recommendations. 

How many of GAO’s recommendations for improving the national 

strategy have been implemented and for those outstanding recommendations would you please elaborate on the benefits of implementation? 

Ms. CACKLEY. Certainly. There have definitely been some of our 

recommendations that have been addressed. We recommended fostering new partnerships with non-Federal sectors and organizations and the Commission has taken a number of steps in this regard, among them the National Financial Education Network, 

which is a partnership with State and local government, and also 

facilitating the President’s Advisory Council on Financial Capability, which is a partnership with the private sector. 

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We also recommended that the Commission provide for an independent review of Federal programs and activities and the Commission has done this. There has been both a report by the RAND 

Corporation and also a graduate student who did a review of Federal programs and provided that to the Commission. 

We recommended that the Web site MyMoney.gov measure customer satisfaction and also test usability of the Web site. They did 

do a measure of customer satisfaction. We do not know yet if they 

have tested the usability of the Web site, and that is something we 

can follow up on. 

We also recommended that the national strategy for financial literacy incorporate some additional elements, this is something we 

are reviewing in ongoing work. We are reviewing the newest national strategy and we will be providing an assessment later this 

year of that. 

Senator AKAKA. Thank you. 

My next question is for Ms. Koide and Ms. Busette. One of the 

Subcommittee’s most successful oversight efforts has been its work 

together with GAO and an interagency Coordinating Council to reform and remove the security clearance program from the GAO 

high risk list, an achievement that no other DOD program has accomplished. 

A critical factor in this success was top agency officials’ commitment to developing close working relationships that enabled them 

to resolve differences and hold each other accountable for achieving 

results. 

I strongly urge the Commission to analyze the security clearance 

reform efforts. Many of the practices, particularly the development 

of tools and metrics to objectively measure progress, are worth following. 

As you both know, last year GAO recommended that Treasury 

and CFPB closely coordinate financial literacy roles and activities. 

I understand your respective offices meet once a month to do this. 

What joint actions have your offices initiated as a result of these 

meetings and do you have plans to enhance these efforts? 

Ms. BUSETTE. Chairman Akaka, the goal of our monthly meetings that you mentioned is to coordinate the activities and to inform each office of future plans so that we achieve maximum synergy. 

To that end, we have collaborated on the activities of the financial literacy and education commission, the upgrade of the 

MyMoney.gov site and on informing each other of research and innovation plans. We certainly look forward to continuing and broadening that collaboration. 

Senator AKAKA. Thank you, Ms. Busette. Ms. Koide. 

Ms. KOIDE. Sure. I would just add, again, I am a month in so 

I have not been able to be a part of these prior conversations but 

we could not be more happy about having the CFPB joining us as 

Vice Chair. 

I think that the Bureau is going to bring both a wealth of information, a wealth of knowledge, and real strength in terms of our 

ability to help shape and craft the direction that the Commission 

is headed. It is going to be a really important partnership when it 

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comes to setting out what goals we are trying to achieve with the 

Commission. 

So, we are quite pleased. 

Senator AKAKA. Thank you. 

Ms. Koide, I strongly support GAO’s recommendation that the 

Commission incorporate into the national strategy a description of 

the resources required for implementation. 

This would help policymakers make informed decisions on allocating resources. Would the Commission provide Congress a supplemental report that clearly identifies the level of resources required to accomplish the strategy’s goals? 

Ms. KOIDE. I appreciate the question and I appreciate the presentation of the opportunity to do that; and by all means, we would 

welcome the chance to come back in and talk to you about how we 

are going about achieving our goals with the Commission, what are 

the metrics we are going to set up for ourselves in moving the needle in financial education. 

So, we welcome the opportunity to have those conversations with 

you. 

Senator AKAKA. Thank you for that. 

Ms. Cackley, would you care to comment on the benefits of providing policymakers with information on the resource requirements 

needed to effectively implement the national strategy? 

Ms. CACKLEY. Certainly. We have recommended that the Commission itself as part of its strategy describe the resources required 

and the appropriate allocation of those resources. We felt that determining resources and their best allocation is key to ensuring the 

most efficient and effective implementation of a national strategy 

for financial literacy. 

Senator AKAKA. Thank you very much. I want to thank this 

group of witnesses for their statements and responses, and I look 

forward to working with them on these issues. Of course, the end 

result we all hope for is that this can be put together to prevent 

the next financial crisis from happening. 

Ms. KOIDE. Agreed. 

Senator AKAKA. So, I want to thank you very much for your testimony and your responses. Thank you. 

Ms. KOIDE. Thank you. 

Ms. CACKLEY. Thank you. 

Ms. BUSETTE. It has been a pleasure. Thank you. 

Senator AKAKA. Now, I would ask our third panel of witnesses 

to come forward. I welcome Dr. Brigitte Madrian, Professor at the 

Harvard Kennedy School; and Dr. Mark Calabria, Director for Financial Regulations Studies at the Cato Institute. Ms. Sharra 

Jones, Math Instructor, at Oak Park Elementary School in Mississippi and Mr. Michael Martin, Academy of Finance Instructor, 

Lansdowne High School in Maryland and Mr. Evan Richards, 

Graduate of the Academy of Finance and undergraduate student at 

Towson University. 

As you know, it is the custom of this Subcommittee to swear in 

all witnesses, so I ask you to please rise and raise your right hand. 

Do you solemnly swear that the testimony you are about to give 

this Subcommittee is the truth, the whole truth, and nothing but 

the truth so help you, God? 

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1The prepared statement of Ms. Madrian appears in the appendix on page 76. 

Ms. MADRIAN. I do. 

Mr. CALABRIA. I do. 

Ms. JONES. I do. 

Mr. MARTIN. I do. 

Mr. RICHARDS. I do. 

Senator AKAKA. Let the record note that our witnesses answered 

in the affirmative. 

Before we start, I want you to know that your full written statements will be part of the record and I would like to remind you to 

please limits your remarks to 5 minutes. 

Professor Madrian, please proceed. 

TESTIMONY OF BRIGITTE MADRIAN,1 PH.D., AETNA PROFESSOR OF PUBLIC POLICY AND CORPORATE MANAGEMENT, JOHN F. KENNEDY SCHOOL OF GOVERNMENT, HARVARD UNIVERSITY 

Ms. MADRIAN. Thank you. It is a pleasure to be here today. One 

does not need to search hard to find evidence of poor financial decisionmaking by U.S. households. Individuals do not shop around for 

financial products and consequently pay far more than necessary 

for products such as credit cards and home mortgages. 

When interest rates are falling, many homeowners fail to refinance. Individuals do not understand the factors that should matter most in making investment choices; for example, they chase 

past returns and pay too little attention to investment fees. 

Individuals hold poorly diversified portfolios with heavy exposure 

to investments like employer stock. Individuals neglect to enroll in 

their 401(k) savings plans even when their employer is offering a 

generous match, and a sizeable fraction of households do not have 

a rainy day fund to help meet emergency expenses and report that 

they would have difficulty coming up with $2000 from any source 

in less than 30 days. 

One also does not need to search hard to find evidence that many 

U.S. households are not particularly financially literate. Individuals do not understand how inflation impacts their purchasing 

power. They do not understand how the interest rate environment 

impacts their investment options. They do not understand the 

power of compound interest. They do not understand how to diversify against labor market and financial market risks, and they do 

not understand the salient characteristics of many different financial investments. 

Unfortunately, there is no evidence that the financial capabilities 

of U.S. households have been improving over time. Not surprisingly, there is a correlation between financial literacy and the quality of financial decisions made by individuals. 

Those who are more financially literate are less likely to make 

financial mistakes and are more likely to report confidence in their 

financial decisions. The consequences of limited financial literacy 

and poor financial decisionmaking are particularly acute for low income households who have little leeway for coping with financial 

mistakes. 

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The positive correlation between financial literacy and the quality of financial decisionmaking has led many to the conclusion that 

increasing financial literacy through financial education will improve financial outcomes. 

But what do we really know about how well financial education 

works? The evidence on whether financial education improves financial outcomes is suggestive at best. The most substantial problem in the research on financial education and financial outcomes 

is that if financial education programs are available and take-up is 

voluntary, those who receive financial education are likely to be 

quite different from those who do not receive financial education. 

In particular, those who are capable of making better financial 

decisions in the first place may be those who recognize the value 

of and invest the time in obtaining financial education. 

If so, we would likely observe a positive relationship between financial education and better financial outcomes, but it would be 

unclear what part of that relationship is due to differences in the 

types of people who do and do not get financial education, and 

what part is due to the actual provision of financial education. 

From a research standpoint, the ideal approach for ascertaining 

the effectiveness of financial education would be through randomized controlled trials, the same approach that is used to ascertain 

the effectiveness of different medical treatments. 

A population would be randomly assigned to either receive or not 

receive financial education, and then outcomes for both groups 

would be followed over time. 

Unfortunately, there have been very few studies that have used 

this approach to study the impact of financial education. The conclusions of the very small number of studies that have used this 

approach paint a mixed picture, with some finding no significant 

difference in financial outcomes for those who do and do not receive 

financial education, and others finding some evidence that financial 

education may have small beneficial effects on outcomes such as 

savings and credit utilization. 

From a policy standpoint, the biggest current need on the financial education front is a better understanding of whether financial 

education is effective and, if so, what types of financial education 

interventions work best. 

It makes no sense to fund programs that do not work, and yet 

we know very little about what does and does not work because 

most financial education interventions have not been implemented 

in a way that allows for convincing analysis of their efficacy. 

Here are the broad questions on which further research would be 

most valuable. What are the basic financial competencies that individuals need? What type of financial education content works best 

and for whom? 

Some of the emerging literature suggests that actionable, rule-ofthumb based financial education may be more effective than principles-based content, at least for certain groups. 

What type of delivery works best? Courses, apps, games, things 

like that. How do we induce the people who need financial education to get it? 

School-based programs have the advantage that, while in school, 

students are a captive audience, but schools can only teach so 

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33 

1The prepared statement of Mr. Calabria appears in the appendix on page 82. 

much. Most of the financial decisions that individuals face in their 

adult lives have little relevance to elementary and high school students. 

How do we deliver financial education to adults before they make 

mistakes when we do not have a captive audience? 

These are important questions and ones about which unfortunately we have very little, to say. 

Despite the dearth of evidence, financial literacy is in short supply, and increasing the financial capabilities of the population is a 

desirable and beneficial goal. 

I believe that well designed and well executed financial education 

initiatives can have an effect. But to design cost effective financial 

education programs, we need better research on what does and 

does not work. 

Thank you. 

Senator AKAKA. Thank you very much, professor. Director 

Calabria. 

TESTIMONY OF MARK CALABRIA,1 PH.D., DIRECTOR, 

FINANCIAL REGULATIONS STUDIES, CATO INSTITUTE 

Mr. CALABRIA. Chairman Akaka, thank you for the invitation to 

appear today and let me begin by commending you for your long 

efforts toward increasing financial literacy. 

I believe this is a goal we all share. I think we would all like to 

see consumers make better, more informed choices. I think we do 

have to separate out, when evaluating public policy, though, that 

intentions are one thing and outcomes are another. 

I think we also need to separate out the difference between 

means and ends. For instance, I look at financial education which 

is an attempt to improve financial literacy as ultimately about not 

simply imparting more knowledge but also improving decisionmaking and behavior. So again, the ultimate objective is to change 

behavior, to help improve behavior. 

I should say, maybe stating the obvious, that we can and do 

spend a considerable amount of resources on financial education as 

does the financial services industry. I will note that State and local 

governments also spend a considerable amount of resources on financial education particularly in the form of classroom hours and 

the compensation and the time of educators. 

I think it is important to keep in mind, however, that dollars or 

hours should not be our measure of success. They are a measure 

of cost. The true measure of success is, again, whether households 

are making good financial decisions and behaving in a responsible 

manner. 

I think the notion that an informed consumer makes a better one 

is appealing, but that notion leaves us with little concrete guidance. Whether financial literacy programs actually make a ‘‘better’’ 

consumer is ultimately an empirical question. 

I would say, having read some of the very large literature there 

is on this, much of which is peer-reviewed, again I would echo I 

think mixed was maybe the word that was used. I would agree 

with that. 

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I would say you could take a variety of different conclusions from 

that literature. I would say that it is very hard to read that literature and walk away with the conclusion that there is a strong, 

consistent, positive impact on financial literacy on the behavior. 

I do think that there is a strong impact of financial literacy on 

knowledge. There does seem to be some suggestion that these classes, the courses, people end up learning more but there does not 

seem to be a strong suggestion that they consistently change their 

behavior and such. 

So with that, again, I think we need to be concerned about the 

impact of that and make sure that those programs are working effectively. 

I also do think that there are some potential downsides that we 

do need to make sure we are taking care of when we address this. 

For instance, if financial education programs increase consumer 

confidence without actually increasing knowledge or judgment, 

then a sense of overconfidence can bias consumers to an under estimation of risks. On the other hand, under-confidence could dissuade consumers from entering into financial transactions that 

would improve their welfare. 

I recognize that striking the appropriate balance is easier said 

than done but we do need to make sure that we are imparting, if 

we are going to impart more confidence, we need to impart more 

knowledge at the same time. 

I want to focus for a little bit on housing counseling. Obviously, 

housing played a very unique role in this financial crisis. First, it 

is important to recognize we have been funding, at the Federal 

level, housing counseling since 1969. 

While those funding levels remained modest until about the 

1990s, they increased dramatically under the second Bush Administration. In fact, by the time of the financial crisis, we were spending close to $50 million annually in the Housing and Urban Development (HUD)-directed housing counseling dollars. 

While we cannot say with any certainty that the housing crises 

would have been worse or how much worse if we had not spent 

hundreds of thousands of dollars on housing counselors, we can say 

that such expenditures did not stop a financial crisis from happening. 

Part of this lack of effect is due to whether housing counseling 

is effective at reducing defaults. Again, the empirical evidence is 

mixed although I think one of the things we can take away from 

that empirical evidence is that, on the one hand, light touch counseling, sort of like over the phone or computer-based or home 

study, seems to have almost no effect on defaults whereas classroom-based, one-to-one intensive counseling does seem to have impact on defaults. 

There is also some possibility that counseling might increase 

strategic defaults. At least one study has found that which, of 

course, has been linked to underwater borrowers walking away 

from their mortgages. 

I think my primary concern, however, with linking financial literacy to the recent financial crisis is that, in my opinion, it distracts from much needed changes in our financial regulatory system not to mention our monetary system. 

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1The prepared statement of Ms. Jones appears in the appendix on page 92. 

At the risk of overgeneralizing, I do not believe we had a financial crisis due to a lack of financial literacy. I believe we had a financial crisis due to very perverse incentives in our financial system that encouraged excessive risk-taking on the part of lenders 

and borrowers while also reducing incentives for appropriate due 

diligence on the part of investors and creditors. 

And while it is beyond the scope of today’s hearing, I should be 

very clear that, in my opinion, the recently passed, or I should say 

2 years ago, Dodd-Frank Act I do not believe fixes our financial 

system. 

Too big to fail is still with us. Moral hazards are bigger problems 

than they were today before the crisis. So again, while I commend 

the Chairman’s efforts, I think we cannot lose sight of the urgent 

need for reform in our financial regulatory system. 

Let me wrap up by emphasizing that financial education is only 

going to be as good as the information that is imparted. A very 

basic question to start out with is what is it that consumers do not 

know. 

If financial education focuses on minor or even relatively irrelevant issues such as, for instance, the impact of pulling a credit report on one’s score to the exclusion of central issues like the impact 

of timely debt payments on one’s credit score, then I think consumers can be made worse off. So again, the emphasis has to be 

on content. 

Counseling also runs the risk of having it’s substance driven by 

the bias of both providers and regulators. Take the largely positive 

image of home ownership presented by many housing counselors or 

the negative image presented by mortgage prepayment penalties. 

Both of these images in my opinion were driven far more by bias 

than fact. 

From my own experience working at HUD on Real Estate Settlement Procedures Act (RESPA) reform, I watched lawyers drive 

mortgage disclosure in such a way that harmed consumers because 

these lawyers were convinced that mortgage brokers were inherently bad. 

Efforts at financial education have to devote more attention to 

the substance rather than the form. Before we can hope to de-bias 

consumers, we have to de-bias providers, regulators and quite 

frankly politicians as well. 

I thank you for your attention and look forward to your comments and questions. 

Senator AKAKA. Thank you very much, Director. 

Ms. Jones, please proceed with your testimony. 

TESTIMONY OF SHARRA JONES,1 MATH INSTRUCTOR, OAK 

PARK ELEMENTARY SCHOOL IN MISSISSIPPI 

Ms. JONES. Chairman Akaka, thank you for the opportunity to 

be allowed to speak at the hearing on financial literacy today. Once 

again, my name is Sharra Jones and I am a third grade teacher 

at Oak Park Elementary School located in Laurel, Mississippi. 

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36 

I graduated from Millsaps College where I first became exposed 

to and aware of financial literacy and the Mississippi Council on 

Economic Education. 

Upon my first year of teaching, I began to integrate economics 

within my math class. My sixth grade math students placed third 

in competition that year. So, I found the integration to be very effective. Not only did they place third but their test scores increased 

on the district level and on the State level. The only difference between my math class and the other math class was just the integration of economics. 

After my first year teaching, I was chosen to attend the Achieving Demonstrated Economics and Financial Literacy at Millsaps 

College that was offered by the Mississippi Council on Economic 

Education and funded by the No Child Left Behind Title II, Part 

A. 

At this former Institute, I gained knowledge on all the concepts 

of economics as well as entrepreneurship and personal finance. 

From leaving this training, I was given materials to implement in 

my classroom. The most effective material, or the one that was my 

favorite, was the Council of Economic Education virtual economic 

CD. 

The reason why I like that one so much was because it provided 

a bunch of lists from different literature and lists were given by 

subject duration, and I was able to increase or decrease the rigor 

depending on where my students were as well as a financial fitness 

for life curriculum that I was able to implement in my classroom. 

Even though the institute was over, it also provided many professional development opportunities where I was able to collaborate 

with colleagues, share ideas or exchange ideas. And also, they provided extra information like bringing in the Federal reserve banks 

to give us more information and teach a lesson on savings. 

With my sixth grade students, as I previously mentioned, they 

made significant gains with the integration. Then I taught fifth 

grade. 

With my 5th grade students, I had 17 out of 20 students who 

were on the Response to Intervention system (RTI). There I needed 

to provide intervention three times a week. 

So, during those interventions I integrated the economics within 

the math concept which gave them a real life connection. With the 

hands-on approach and a desire to learn, they were able to grasp 

the concept and apply it to the State test and district test. 

Now, I am currently teaching third graders. With my third graders, the lesson that we are currently on is savings and investing. 

We are in a program called Positive Behavior Interventions and 

Support (PBIS) system which is where you focus on the positive behavior and not the negative behavior. 

We reward our kids by giving them Dragon Dollars. They are 

able to use the Dragon Dollars at the dragon den; and within our 

dragon den, there are different prize levels that they are able to 

spend their money on. The bigger the prize, the more money it 

costs. 

So, with my third graders, I do an extra twist because every time 

we win I have some student who never had enough money to buy 

the bigger prize. So, I did like a credit situation. 

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1The prepared statement of Mr. Martin appears in the appendix on page 95. 

You can borrow Dragon Dollars from me; but realizing when you 

borrow the Dragon Dollars, for every dragon dollar you borrow you 

have to pay two back, trying to teach them the concept of it is better to save than to buy it on credit, not unless you can pay it off 

at one time. 

So, when my students figured out that they were losing all of 

their Dragon Dollars from buying on credit because they were having to pay me twice as much as what it costs, they began to save 

their own and they learned if I save these, then I can pay what 

the original price was without paying extra for it. 

In conclusion, I think teaching financial literacy to children at a 

young age is very beneficial as they get older. They are more prepared to make more financial decisions. 

And again, thank you for giving me the opportunity to speak. 

Senator AKAKA. Thank you very much, Ms. Jones. 

Mr. Martin, please proceed with your testimony. 

TESTIMONY OF MICHAEL MARTIN,1 ACADEMY OF FINANCE INSTRUCTOR, LANSDOWNE HIGH SCHOOL, BALTIMORE COUNTY PUBLIC SCHOOLS 

Mr. MARTIN. Thank you, Chairman Akaka. I first want to thank 

you for asking me here to testify before your Subcommittee about 

a topic as critically important as personal financial literacy. 

Educating young people about the real world of personal responsibility when it comes to managing one’s finances could never be 

more crucial than it is in today’s economy. 

It matters not whether one sees the economic glass as half full 

or half empty. There are always market pundits who are quick to 

see Bulls and Bears. What is truly vital is making sure that the 

glass is full of knowledge when it comes to making sound financial 

decisions, especially when it comes to educating our youth. 

And the best way, indeed the only way, is to get kids learning 

the real Xs and Os of personal finance. All aspects. It has to be 

real. It has to be engaging. And it has to be meaningful. That is 

something I have tried to do at the Lansdowne High School, Academy of Finance (AOF). 

At Lansdowne, which is one of just 264 high schools in the Nation that is part of the National Academy Foundation, I have seen 

first-hand what real-world teaching does for students who hail 

from the poorest neighborhood in all of Baltimore County. 

Ninety-seven percent of our AOF students, nearly half of whom 

are minorities, graduate, going on to higher education or the military. And each one of them takes knowledge with them, personal 

knowledge that will, and has, enabled them to confidently make 

smart financial choices. 

It is so satisfying to hear from students who have gone on to college and tell myself that what they are being taught in their finance courses in college is actually much of what they already 

learned in high school. 

I must admit that textbooks, while they certainly have their 

place, are not the main source of material to teach my students. 

Instead, my kids get real world, real hands-on lessons designed by 

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myself and created by the Maryland Council on Economic Education. 

I found that if I can reach a student, I can teach a student. The 

best way is to make it real. For example, my students first learn 

about investing in the stock market. It is a great way to get them 

excited right out of the gate. 

My passion for investing began about 30 years ago when my late 

father-in-law gave my wife and I shares of a stock he acquired 

years before. I was instantly hooked on investing and have been reinvesting the dividends from that stock and others ever since. I 

still own that stock which invests in real estate in the D.C. area. 

Today, students are so adept at technology that teaching them is 

easy, fun and engaging. We are fortunate to have a computer in 

front of every kid in my room so, why not use them. 

Every one of them creates their own personal stock portfolio 

using a custom Excel chart that I created and then each tracks 

their holdings the entire course. It only takes me a short time to 

get them comfortable with Web sites to research stocks and before 

long they are calculating yields on dividends, PE ratios, and the 

like. They also complete a two-week long budget lesson that I designed, all using the computer. 

Lessons designed by the Council on Economic Education also find 

their way into my class room, like one of my favorites. ‘‘Was Babe 

Ruth overpaid?’’ It compares the salary of the Sultan of Swat with 

stars of today in order to determine how prices of yesteryear relate 

to today’s dollars. It is a fascinating and fun way to get kids excited 

to learn about a not so exciting topic like the CPI Index. But it 

works. 

I have also designed a real-world project where my students simulate the Federal Reserves’ Beige Book for use at its Federal Open 

Market Committee (FOMC) meetings. It is a great way to incorporate writing and research into the classroom in a way far more 

interesting and real than simply answering questions in the back 

of a chapter. 

As a former newspaper reporter, I insist that my students write 

well, and because I am competitive, I feel students need to learn 

how to work as a team to win or lose together. That is the way the 

real world operates so why not in school. 

To that end, I was extremely fortunate to open an email several 

years ago from the Maryland Council on Economic Education that 

was looking for some teams to compete in a State championship on 

personal finance knowledge. I figured, why not. 

So, I took two teams from our not so upscale school to Towson 

University to go head-to-head with public and private schools from 

across Maryland. We took second place that year and in the past 

2 years our neighborhood kids won the Maryland State Championship and an opportunity to compete for a national title in the Midwest both years, finishing 6th in the Nation last spring in St. 

Louis. 

It was an incredible opportunity for four young men who now 

find themselves off to college, all doing quite well in various business related majors. 

I would like to close by saying way too many people, young and 

old alike, including a vast number of teachers, simply have no idea 

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1The prepared statement of Mr. Richards appears in the appendix on page 97. 

about personal finance, or very little. It has been kept quiet for 

way too long and it has to change. 

Educators need to get educated on how best to instruct students 

on personal finance to avoid the next looming bubble that is waiting to burst, that collective ignorance of Americans about how best 

to handle their own money. 

With innovative instruction, and groups like the Council on Economic Education, the Federal Reserve’s vast education resources 

and so many other options available, all at limited costs, our students can obtain an education that will truly make a difference and 

stay with them the rest of their lives. There is nothing more important for our students. 

I would like to thank you for allowing me the opportunity to appear before the Subcommittee and I would also like to give you a 

personal thank you for your service in World War II in the Pacific. 

Thank you. 

Senator AKAKA. Thank you very much, Mr. Martin. 

Now, Mr. Richards, please proceed with your testimony. 

TESTIMONY OF EVAN RICHARDS,1 ACADEMY OF FINANCE 

ALUMNUS, LANSDOWNE HIGH SCHOOL, BALTIMORE COUNTY 

PUBLIC SCHOOLS AND UNDERGRADUATE STUDENT AT THE 

TOWSON UNIVERSITY 

Mr. RICHARDS. Thank you so much, Chairman Akaka, for having 

me here today and for being such a pioneer on this very critical 

issue. 

Coming from a family with two stable incomes growing up, a lot 

of financial stress was never seen in my house. My parents had 

enough income to provide for me and my younger brother, while 

maintaining an adequate household for us. That is, until something 

known as the great recession hit. 

It was not long after that, about the spring of 2009 when my father had emergency back surgery and had to go on short-term disability, followed by long-term disability and ended up being terminated from employment. 

We saw a dramatic cut in our household income. It was slashed 

to a level that we never dreamed of, and we saw it as the end of 

the tunnel. We were going to try our best to get by, but with no 

plan set for our future, everything was in jeopardy. 

About that fall, I began my junior year, which is when members 

of the Academy of Finance were open to new aspects of the financial world; things we had never really considered until then. 

Stocks, bonds and contracts were terms that I became familiar 

with, and by extensively studying the nuts and bolts of these financial products, I understood that these were items that I would have 

to face in the near future. 

When my senior year came around, this was the time when the 

major points of the financial world became apparent. We were 

taught about things such as budgets, where we not only analyzed 

how personal budgets should be handled, but we took our education 

a step further and examined how governments handle their budget 

issues. 

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We also looked at things such as mortgages, credit cards, and interest rates, which are things that usually begin to hit you right 

after you finish your schooling, and in these troubling financial 

times, sometimes right after high school. 

My high school education even went a step further, thanks to the 

Maryland Council on Economic Education, which is an affiliate of 

the Council for Economic Education (CEE). This gave us an opportunity to finally test ourselves. Do we have enough knowledge to 

enter the financial world? Can we make it on our own? 

And of course, every year the Maryland Council holds a personal 

finance challenge where schools from across the State were brought 

together to test their financial knowledge. I am glad to say when 

Lansdowne High’s team in 2010 and 2011 took first place and I 

was a member of the team that went to St. Louis last year and 

placed sixth in the Nation. 

Obtaining these skills from the Academy of Finance has truly 

helped me as of last fall when I began my college career at Towson 

University. Budgets and contracts were two main substances that 

I truly began to explore in detail as a college student. 

For many students across America, this is the first time where 

we are required to sign a contract and can legally do so, whether 

it would be for just a college loan or admission to their school. 

Until this time, many students would not consider these items seriously, and therefore not exactly understand what they are getting 

themselves into. 

Luckily for me, with my Academy of Finance education, I already 

knew what was occurring and was quite comfortable with all of 

these new endeavors. 

My instructors also pressed the importance of paying for college 

via scholarships and minimal loans. I was fortunate enough to receive enough scholarship money to attend Towson University full 

time without paying out of pocket. I consider myself to be extremely lucky to have that opportunity. 

However, paying for transportation and books is something that 

needed my budgeting skills. I knew that instead of paying a ridiculous amount for a textbook, I can shop around, much like you can 

do with mortgage rates and credit card rates, et cetera, and find 

the book for a cheaper price. 

It is the small things like that, that truly make a difference to 

college students when they are first entering the financial world, 

where a huge amount of responsibility is placed on them, possibly 

for the first time. 

So, as I have stated before, the knowledge I have obtained 

through the Academy of Finance, it is not difficult knowledge. It is 

basic concepts that you need to survive. I am very fortunate to 

have it, and I know that by learning these things at such a young 

age, I will have a ‘‘leg up’’ in the world, and I will be able to make 

better financial decisions as a result. 

These life financial skills will impact all of us, no matter what 

we do. From farmers to mechanics to top company executives, we 

all have to learn how to manage finances. For me, a career in business, with a possible tenure in state politics, is what I have in 

mind for my future. I know that with my financial skills, I can 

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reach these goals by continuing my education, and just keeping my 

head straight financially. 

Thank you for your time and consideration. 

Senator AKAKA. Thank you very much, Mr. Richards. 

Ms. Jones, listening to your testimony, particularly the use of 

Dragon Dollars to teach your students to save, reminded me of my 

fourth-grade teacher who used a piggy bank in the same way. 

As Ms. Bair noted, financial education may be most effective if 

introduced to children early on. In your own experience, have lessons you have taught your students had a lasting impact on their 

spending and saving habits? 

Ms. JONES. Yes, in my experience it has. I have the younger kids. 

Whenever they feel that they had an exciting time or fun doing, 

they go home and share with their parents because they like to 

take this same concept in school and apply it to something in their 

daily lives. 

I have actually have had parents who come and approach me and 

ask me about some of the terminology that their child has learned 

because they are unfamiliar with it. It also gives me opportunities 

to talk with the parents and maybe give them a little advice or little leg up about savings as well. 

Senator AKAKA. Thank you, Ms. Jones. Mr. Martin. 

Mr. MARTIN. Yes. 

Senator AKAKA. Your ability to transform important economic 

concepts that students might initially think are boring into engaging lessons is very impressive. 

Mr. MARTIN. Thank you. 

Senator AKAKA. I have not met many high school teachers who 

teach their students to simulate the preparation of the Fed’s Beige 

Book. I am interested in learning more about that project and its 

impact on your students’ understanding of broad economic principles and how they apply in their local communities. 

Mr. MARTIN. Well, it is a really interesting concept because when 

I first came across it we were teaching the Fed as part of our lessons and I really did not think the textbook would do it justice. 

So, as a newspaper reporter, I decided to turn the classroom into 

a newsroom and I had all students, I had 35 students involved in 

this project and each one of them had to interview a local business 

just as the Federal Reserve does when it does Beige Book. 

But first they had to actually read the letter Federal Reserve 

Beige Book. They had to understand the terminology, the language, 

the way they wrote it. 

Then they had to go out and analyze it in the community and 

they have the actual data from the community. When they came 

back, each of those students then had to write a summary and 

their sector, whether it was housing or banking or whatever it may 

be. 

When they were finished, they had to submit their summary 

electronically to two students who I selected as managing editors. 

The students were really good at writing skills. 

When that was done, then they put it in the exact format the 

Federal Reserve did. Well, before we published it, which we actually did, the school actually got us some money. We went out and 

we published about 500 copies of it even with a Beige Book cover 

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on the front just like the Fed does and we distributed in the community. We have done that three times now, once each year, and 

the businesses now look forward to it. 

So, it is really a neat concept. The kids love it. Every single kid 

participates in that project and they had different jobs just like the 

real world. The managing editors did not have to do the research 

but they had to create the final product, and it has worked very 

well. 

Senator AKAKA. Thank you. It is good to hear that. 

Mr. Richards, this is a question for you. In recent years, I have 

been troubled by the rapid increase in student debt levels. I am interested in how the education and support you received from the 

Academy of Finance helped you make informed decisions when it 

came to deciding how to pay for your education. 

Mr. RICHARDS. Well, I would say one of the main concepts that 

I mentioned in my testimony that really sticks with me today is 

budgeting. 

As Mr. Martin mentioned, there was a project where we were to 

pretend as if we were going out in the real world and we were to 

buy an apartment, to pay utilities, to pay all bills, to get groceries, 

to buy a car, everything. 

And at the end of that, I was $200 in the red. I consider myself 

extremely lucky to have that opportunity because when you are 17 

years old sitting in the classroom, you are not really $200 in the 

red. And to be honest, I would have rather done that then than to 

graduate from college and then be $200 in the red every month because $2400 a year in debt is not very good. 

So as for paying for college, like I mentioned, I am extremely fortunate. I attend Towson University on full scholarship; but when 

it comes to transportation and books, I am not. So, here is where 

my budgeting practices had to come into play. 

I know that two times a week I have to fill up for gas. I know 

that almost a quarter of the funds I receive for schooling have to 

go toward books. Of course, that is a different story for another day 

with the price of those. 

But I have to remember that especially with the rising prices of 

gas recently. You have to make sure you know your budgeting 

skills so when things rapidly change you have to be able to make 

adjustments to your budget. 

And by being a member of the Academy of Finance, I learned all 

of those skills to a ‘‘T’’ so when I actually have to implement these 

in the real world, I know exactly what I am doing and I really feel 

bad for a lot of students who have not really had this opportunity. 

They should really have access to all of this financial knowledge. 

Senator AKAKA. Thank you so much, Mr. Richards. 

This next question is for both Professor Madrian and Director 

Calabria. Many other witnesses today have focused on the need to 

learn more about what works and what does not work to improve 

Americans’ financial capability. What do you think the top research 

priorities should be in this field and how can the Commission best 

support these efforts? 

Ms. MADRIAN. I think the top priority should be to document 

what works and what does not work, and to do that we need to 

have studies that evaluate more than one way of doing things and 

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studies that follow people who have access to different types of financial education and compare them with people who do not. 

A lot of the research that we have right now, and as I mentioned 

in my testimony and Mark mentioned this also and Sheila earlier 

as well, we actually do not know a lot about what is effective and 

most of the studies that have been done look very narrowly at financial education courses. 

But courses only work for students who are enrolled in them. 

There are a lot of financial decisions that people need to make long 

after they have graduated from school and for which a course may 

or may not be the best solution. 

So, I think we need to think expansively about what constitutes 

financial education. And in funding research projects on financial 

education, I think we should give priority to projects that are comparing multiple approaches and give priority to projects that have 

a credible strategy for documenting the effectiveness by comparing 

treatment groups with control groups just as is done in studies in 

the medical literature to establish the effectiveness of different 

medical treatments and prescription drugs. 

Senator AKAKA. Thank you. Dr. Calabria. 

Mr. CALABRIA. Let me start with saying that I pretty much agree 

with everything that Brigitte has said so let me add a few things 

and maybe emphasize a few things. 

One of the things I would start emphasizing is the statistician 

in me is that you need a lot of differences in variability for any sort 

of statistical analysis to tell you anything, and so it is important 

to have multiple approaches so you can sort of test which ones 

work. So that is important to keep in mind. 

Some of the things I think I would want to know in terms of testing is, (a) it is one thing to educate people and then, a month, 2 

months later for them to perform well on a test, how long does it 

stick with them. Is this knowledge that is there a year later, 2 

years later, 3 years later? Is it knowledge that changes behavior 

later? So, those are some of the things that I think are very important to test. 

One of the interesting things, and, I love the Dragon Dollar 

story. Part of what we think about is it is also combining not just 

knowledge but also experience. 

I would actually emphasize I think a lot of financial consumer 

protection issues take the perspective that you cannot ever have 

failure and I think the truth is we learn the most important things 

and lasting lessons in life through failure. 

So, if you can set up circumstances where you borrow and you 

have to pay back two Dragon Dollars, you remember that. And so 

my point being is try to set up experiments where students actually fail but they fail in very small ways that are not detrimental 

but that they learned from it and turn around that. 

So again, I would emphasize some of the testing to me needs to 

not just be knowledge based but also experience based where you 

are changing the incentives based on the students. 

Senator AKAKA. Thank you very much. 

This question is for Professor Madrian. It is often a challenge to 

encourage employee participation in any retirement savings plan. 

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In 2009, Congress passed legislation to automatically enroll Federal employees in the Thrift Savings Plan (TSP), unless they opt 

out. You mentioned auto enrollment in your testimony. I would like 

to hear more about how automatic enrollment helps individuals to 

save for retirement. 

Ms. MADRIAN. Thank you for that question. I have done a fair 

amount of research on automatic enrollment so I feel like I have 

something to say on the matter. 

Let me just preface this by saying that I think we need to keep 

in mind the goal. I think the goal is to improve financial outcomes, 

and financial education is one approach for doing that but there 

are other approaches that also improve financial outcomes and 

automatic enrollment is a good example of that: Automatically enroll people into a savings plan and let them opt out if they do not 

want to be there instead of putting the onus on them to enroll in 

the first place. 

You asked specifically why does it work so well, and based on 

over a decades worth of research, I can give you a confident answer 

to that question. 

Automatic enrollment works well for two reasons. Number one, 

people actually want to save for retirement. So, it encourages something that people want to do already. And secondly, it makes a 

complicated decision easy for them to follow through on. 

So, one might ask if people want to save why are they not doing 

it in the absence of automatic enrollment, and the reason is because it is a complicated task if you are not a financial expert. Enrolling in your savings plan requires making a decision about what 

asset allocation to have for your savings, and many of those options 

are not very familiar to individuals, especially to younger, newlyhired employees who do not have a lot of financial experience. 

Automatic enrollment separates the participation decision from 

the decision about how much to save and what the asset allocation 

is. It allows individuals to start saving and then later on, if they 

want to choose a different asset allocation, they can do that, but 

you do not have to do both of those things at the same time. 

And I think that an important lesson more generally is that as 

the financial marketplace becomes more complicated, it becomes 

more challenging for individuals to make good financial decisions 

because they do not have the requisite level of knowledge and expertise. And simplifying the process of making a good decision can 

be an extremely effective tool for changing behavior. 

Senator AKAKA. Thank you. Let me ask you a follow-up question. 

A 2012 retirement confidence survey suggested that automatic escalation, increasing 401(k) contributions over time, may lead to a 

significant increase in savings, especially for low income workers. 

What has the impact of automatic escalation been in the private 

sector and should Congress consider authorizing automatic escalation in the TSP as we did with automatic enrollment? 

Ms. MADRIAN. The evidence from the private sector is that automatic escalation is, in fact, extremely effective at increasing employee savings rates. And you asked specifically is this something 

that should be considered for the Thrift Savings Plan, and I would 

say absolutely. 

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45 

I think the biggest question is would you want to add it as a feature to the TSP where participants who want to have automatic 

annual contribution increases would opt into that, or would you 

want to make it automatic like automatic enrollment, a feature you 

are automatically enrolled in but you have to opt out if you do not 

want it. 

The evidence there from the private sector is if it is a feature you 

have to opt into, about 25 percent of participants will opt into it 

and experience the automatic contribution increases every year. If 

you make it an automatic feature that you have to opt out of, about 

25 percent of them will opt out of it. 

So, you get a different impact on about half of the participant 

population depending on whether you make it an opt in or an opt 

out feature. But I absolutely would make it part of TSP and the 

only question would be opt in or opt out. 

Senator AKAKA. Thank you very much. I appreciate all of you 

sharing your experiences. This will be helpful to especially in regard to improving financial education in elementary school, as well 

as high school. 

This is something, as I mentioned earlier, I believe will help prevent another economic crisis in the future. 

For me, it was in the fourth grade that all of this hit me. My 

teacher at that time had asked us a question about what we wanted and whether we had the money to purchase it, and of course, 

in my particular case, I did not have the money. 

And so, the question was how are you going to earn it. I had to 

become very practical about how I was going to earn that money 

to get what I wanted. 

It was good to hear that these lessons are being taught to students today. So, I want to thank you very much for your testimony 

and let me say thank you for being so patient. 

I would also like to thank my friends Senator Merkley and Senator Begich for joining Senator Johnson and me in conducting this 

hearing. 

The hearing record will be open one week for after additional 

statements or questions from other Members. 

So, thank you again for your testimony and your responses and 

we look forward to working with you to improve our Nation’s financial literacy. 

This hearing is adjourned. 

[Whereupon, at 5:56 p.m., the Subcommittee was adjourned.] 

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