Ben S Bernanke: Financial literacy
Statement by Mr Ben S Bernanke, Chairman of the Board of Governors of the Federal
Reserve System, provided for the record of a hearing held on 12 April 2011 conducted by the
Subcommittee on Oversight of Government Management, the Federal Workforce, and the
District of Columbia, Committee on Homeland Security and Governmental Affairs, US
Senate, Washington DC, 20 April 2011.
* * *
Chairman Akaka, Ranking Member Johnson, and members of the Subcommittee, thank you
for inviting me to submit a statement for the record. As April is Financial Literacy Month, I am
pleased to highlight the importance of financial literacy to a stable and healthy economy and
to describe some of the Federal Reserve System's efforts to help Americans make informed
financial decisions.
The recent crisis demonstrated the critical importance of financial literacy and good financial
decisionmaking, both for the economic welfare of households and for the soundness and
stability of the system as a whole. Good financial choices depend on reliable and useful
information, presented in an understandable way. Essential components of personal financial
management include an understanding of how to budget strategically, use credit, save to
build personal wealth, and shop for and choose suitable financial products.
The Federal Reserve recognizes that informed, educated consumers not only achieve better
outcomes for themselves but, through careful shopping for and use of financial products,
help to increase market efficiency and innovation. Our approach to assisting consumers to
successfully navigate the financial marketplace has been three-pronged: First, we have
worked diligently to foster financial and economic education. Second, we conduct research
on consumer decisionmaking that helps to identify what works in financial education and
informs the regulatory process. Third, in recognition that basic financial knowledge is not
sufficient to safeguard people from fraud and deceptive practices, we have promulgated
strong consumer protection rules and consumer-tested required financial product disclosures
to ensure they present information clearly and in a useful format. We vigorously enforce
consumer protection laws to ensure that providers of consumer financial products act fairly
and comply with the spirit and letter of the rules.
Financial and economic education
In our dynamic and complex financial marketplace, financial education must be a life-long
pursuit that enables consumers of all ages and economic positions to stay attuned to
changes in their financial needs and circumstances and to take advantage of products and
services that best meet their goals. Well-informed consumers, who can serve as their own
advocates, are one of the best lines of defense against the proliferation of financial products
and services that are unsuitable, unnecessarily costly, or abusive.
Financial education from the Federal Reserve
The Federal Reserve has provided unbiased, credible, research-based financial information
and educational materials, in print and on the Internet, for many years. We offer publications
- in both English and Spanish - that provide consumers tips on a broad range of topics, from
avoiding mortgage foreclosure scams to managing a checking account. More recently, the
Federal Reserve Board has developed interactive webpages with up-to-date information on
regulatory changes that affect consumer financial products and services. These webpages
offer information in plain language and in an easy-to-understand format; they also provide
links to calculators, additional resources, and other relevant material. The Board's "What You
Need to Know" series provides user-friendly information and tools about new terms,
disclosures, and protections for credit card accounts, overdraft protection programs, gift
cards, credit decisions and credit scores, and notices of mortgage transfers.1 Since the
series webpage was launched in February 2010, more than 366,000 web views have been
logged, with 60 percent of those visits for credit card information.
The Federal Reserve Banks, through their Community Affairs offices, have developed
financial education materials and programs on topics that range from establishing banking
accounts to building wealth. For example, the Federal Reserve Bank of Chicago, as part of
Financial Literacy Month, offers free classes and activities during its "Money Smart Week." In
events developed in cooperation with local organizations and firms, young people and adults
learn about financial matters ranging from opening a savings account to applying for a
mortgage. Several Federal Reserve Banks are also actively involved in "Bank On" programs
that help cities and financial institutions bring unbanked and underbanked consumers into
the financial mainstream by educating them about the benefits of having a bank account and
using other banking services.
Exposing young people to financial concepts is particularly important. Students can be
particularly vulnerable to the temptations of taking on excessive debt, such as credit card
debt. And the earlier that young people can develop basic financial skills, the more likely it is
that they will make good financial decisions when they become adults. The Federal Reserve
is committed to helping teachers and schools work more effectively with students as they
develop their financial literacy. For example, the Federal Reserve provides a financial and
economic education website with a variety of resources for teachers, and students of various
ages and knowledge levels.2 The site offers educational games, classroom lesson plans,
online publications, and multimedia tools. Federal Reserve Banks offer teachers professional
development opportunities to improve their ability to teach personal finance topics. A number
of Federal Reserve Banks also organize personal finance essay, video, and academic
competitions for students. We encourage students and teachers to visit Federal Reserve
Bank learning centers and museums, which feature interactive exhibits about many aspects
of banking, the financial system, and the economy.
Collaboration in financial education
In addition to conducting its own programs, the Federal Reserve collaborates with numerous
organizations and agencies that educate and counsel individuals from a broad range of
audiences. Our long-standing partnership and role on the board of NeighborWorks America
supports homebuyer, foreclosure, and mortgage modification counseling to lower-income
consumers and communities. We have helped these and other organizations - such as
American Savings Education Council, Junior Achievement, the Council for Economic
Education, the National Endowment for Financial Education, and America Saves - develop,
implement, and evaluate personal finance awareness and education programs. In addition,
we have worked with the Jump$tart Coalition, American Library Association, the AARP, the
National Council of La Raza, the National Association of School Boards, and the
Congressional Black Caucus to increase awareness of our financial and economic education
resources.
We also collaborate with other federal government agencies on education and outreach
initiatives. Since 2004, the Board has participated in the Financial Literacy and Education
Commission (FLEC), which is composed of representatives from 22 federal agencies and
coordinates financial education resources offered by the federal government. To support the
FLEC's mission, Board staff members have served on Commission task forces to develop its
website, national strategy, and research agenda.
Research and evaluation
As part of our policy research mission, the Federal Reserve dedicates considerable
resources to the study of consumer economics and consumer behavior. Our work includes
the development of valuable new data and empirical studies in these areas. For example, for
many decades the Board's Survey of Consumer Finances has provided one of the most
important sources of information on the assets, debts, and wealth of American households.3
The Federal Reserve has also developed substantial expertise in assessing and drawing
policy conclusions from a range of consumer financial data, such as data from credit records
or data on mortgages provided by lenders under the Home Mortgage Disclosure Act.
The Federal Reserve has been involved in studying the efficacy of financial education in
helping people make better financial decisions. For example, several years ago, researchers
in the Board's Division of Consumer and Community Affairs joined with Army Emergency
Relief to conduct a longitudinal study of the effect of a two-day financial education program
on soldiers' financial management. In general, studies show that financial education for
young adults is most effective when it is both timely and relevant. At the same time, research
has also provided important insight into other factors that contribute to the development of
personal financial skills, such as general education levels, family experiences and parental
influence, access to financial services (for example, having a savings account while growing
up), and income level.4 These findings underscore the importance of early and ongoing
education as well as experience with financial products in helping people make good
financial choices.
We have also analyzed alternative approaches to financial education. For example, the
economic education staff at the Federal Reserve Bank of Philadelphia investigated the
effectiveness of a personal finance course that uses a specific curriculum, "Keys to Financial
Success." This semester-long course is taught by teachers who attended a 30-hour training
course. A 50-question exam administered before and after the course showed that students
who took the course had a statistically significant increase in their personal finance
achievement, compared with a control group of students of the same age who were not
exposed to the program.5
3
The Board's Survey of Consumer Finances.
4
See Catherine Bell, Daniel Gorin, and Jeanne M. Hogarth (2009), "Does Financial
Education Affect Soldiers' Financial Behaviors?" paper presented at the Federal Reserve
System Community Affairs Research Conference, held in Washington, April 16-17,
www.kansascityfed.org/publicat/events/community/2009carc/Hogarth.pdf; Catherine Bell and Jeanne
M. Hogarth (2010), "Better Deals on Wheels: The Effects of Financial Education on Car Buying," Federal
Reserve Bank of Minneapolis, Community Dividend, April; Catherine J. Bell, Jeanne M. Hogarth, and
Daniel R. Gorin (2009), "Teaching for the Test, and Life Is the Final Exam," paper presented at the annual
conference of the Association for Financial Counseling and Planning Education, held in Scottsdale, Ariz.,
November 18-20; and Catherine J. Bell, Daniel Gorin, and Jeanne M. Hogarth (2010), "What Makes a Good
Money Manager Good? Insights from an Evaluation of an Education Initiative," paper presented at the
56th Annual Conference of the American Council on Consumer Interests, held in partnership with the Federal
Reserve Bank of Atlanta, Atlanta, Ga., April 14-16.
5
See Andrew T. Hill, Bonnie T. Meszaros, and Brian Tyson (2011), "Evidence of Student Achievement in a
High School Personal Finance Course," paper presented at the Allied Social Science Associations
conference, held in Denver, Colo., Jan. 6-9.
Consumer protection regulation and enforcement
Although financial education is a critical first line of defense, it is not a substitute for strong
and effective regulations that safeguard consumers against abusive and fraudulent practices.
The Board has been the primary federal agency charged with writing rules governing
consumer financial products, and in recent years, we have issued rules for mortgages, credit
cards, student loans, and overdraft protection programs, among others. We have also
maintained a robust compliance program to ensure that banks under our purview adhere to
these rules.
As you know, our consumer-protection rulemaking authority and our consumer-protection
supervisory and enforcement authority over some of the nation's largest financial institutions
will transfer to the Bureau of Consumer Financial Protection, pursuant to the Dodd-Frank
Wall Street Reform and Consumer Protection Act. The Board will retain some relevant
rulewriting authorities (for example, under the Community Reinvestment Act) as well as
supervisory authorities for smaller financial institutions that we also regulate for
safety-andsoundness purposes. We are working closely with the Department of the Treasury and the
new Bureau to facilitate the necessary transfers of authorities and personnel.
Regardless of how the regulatory and supervisory responsibilities are distributed, a
comprehensive approach - one that includes education, research, and regulation - remains
essential to ensuring that consumers receive adequate protections and that markets for
consumer financial products function well. The Board will work collaboratively with the
Bureau and other agencies to help individuals and families make the best choices for their
financial futures.
For your reference, I am attaching some examples of financial literacy programs and
outreach that are available from the Federal Reserve.
Appendix A
Federal Reserve System community affairs offices
Financial education for consumers and communities
The 12 Federal Reserve Banks offer a broad range of programs for nonprofit organizations,
government agencies, and financial institutions that work to improve financial education and
access to services for lower-income consumers and communities. The following is a
representation of the wide range of leadership, resources, training, and research that the
Federal Reserve System's Community Affairs offices have undertaken to support financial
education within the community economic development field. Additional information about
the Federal Reserve's Community Affairs offices can be found at
www.federalreserve.gov/communitydev/default.htm.
Asset and wealth building
Atlanta
 The Bank provided leadership and assistance that resulted in the convening of
numerous regional meetings throughout Florida to gain input on asset policies and
needs. The Bank also supported the Florida Prosperity Partnership, the Georgia
4 Pro$perity, the Alabama Asset Building Coalition, and the Tennessee Alliance for
Financial Independence initiatives.
Dallas

The Bank's key asset-building work is centered around the educational resource
Building Wealth, the Bank's most requested publication and the most frequently
downloaded page on the Bank's website. The Building Wealth program includes a
booklet (in both English and Spanish), an online tool, and a train-the-trainer course.
 In partnership with RAISE Texas, a network of organizations that support
assetbuilding activities, the Bank sponsored four rural asset-building forums in 2010.
 The Bank and the Texas Department of Banking hosted a webinar on financial
education in the workplace. The CFO of Randall's Food Markets discussed her
experience of using Building Wealth to teach financial education seminars to more
than 400 employees throughout Texas.
Kansas City
 Community Affairs partnered with the Oklahoma Native Assets Coalition and First
Nations Development Institute to conduct a symposium on asset-building programs
and policies for representatives of Native American tribes.
Banking the unbanked
Atlanta
 Community Affairs staff played key roles in the development of statewide
assetbuilding organizations and provided valuable support to regional and statewide
"Bank On" initiatives, including developing curricula to train bank and credit union
employees to meet the needs of unbanked and underbanked individuals
establishing banking relationships with their institutions.
Dallas

Bank staff developed a guide (in both English and Spanish) about opening a bank
account for the "Bank On" campaign.
Kansas City

Community Affairs staff provided leadership in the development of "Bank On"
initiatives in Kansas City, Omaha, Denver, and New Mexico. The Bank also partners
with "Bank On-America Saves of Greater Kansas City," which is the first pilot in the
country to combine the two programs.
New York

The Bank supports the "Bank On" campaigns for Manhattan and Newark,
New Jersey.
San Francisco
 Community Affairs staff facilitated the creation of new Jump$tart affiliates and
convened a regional group of Jump$tart state leaders for training sessions. Staff
also built new financial education and asset-building collaborative groups from
scratch in areas that lack an existing networking mechanism or where networking is
more challenging, such as in rural areas.
 The Bank supports the ongoing growth of the "Bank On" programs throughout the
District, including San Francisco, Oakland, San Jose, Los Angeles, Nevada, Eastern
Oregon, Central Oregon, and Idaho, to promote access to mainstream financial
services by advising new communities on the best practices identified by existing
programs.
 In 2010, Community Affairs staff focused on exploring alternatives to payday lending
and overdraft charges to meet consumers' need for unsecured short-term consumer
debt. The program convened several conferences and meetings to discuss the role
that credit unions and alternative financial services providers can play in addressing
this need.
St. Louis

The Bank collaborated extensively with the "Bank On" campaign in seven cities
throughout the District.
Credit management
Kansas City

Community Affairs hosted a "Be Credit Smart Workshop" in Omaha for small
business owners and aspiring small business owners on personal finances as they
prepare to apply for bank financing.

The program hosted a webinar for District financial educators on the history,
provisions, and implementation of the Credit Card Act of 2009.
Foreclosure/mortgage loan modifications
Atlanta
 In 2010, Community Affairs sponsored 14 events in 11 cities throughout the District
that focused on mortgage delinquencies, foreclosures, and foreclosure scams.
Technical assistance and data were provided to 19 organizations, ranging from
federal and local governments to nonprofit entities, to help inform policy decisions
and develop effective intervention programs. The program participated in
10 additional events intended to maximize local neighborhood stabilization efforts,
improve mediation practices, increase efficiencies in loan modification practices, and
inform consumers of available foreclosure prevention resources.

The Bank's "Foreclosure Response Podcast Series," initiated in 2009, concluded
with the production of the 12th podcast in January 2010. A second installment
began in the fall of 2010, with three more podcasts added to the series. Topics
include vacant properties, best practices in REO programs, Neighborhood
Stabilization Program follow-up, and rural foreclosure issues.
Dallas

Community Affairs staff provides leadership for the Texas Foreclosure Prevention
Task Force and facilitated the formation of the Border Foreclosure Prevention Task
Force.

The Bank hosted foreclosure scam alert forums and webinars focused on educating
elected officials, community-based organizations, housing counselors, and other
stakeholders on the increasing number of homeowners falling prey to foreclosure
scams.
Kansas City

Community Affairs co-hosted housing conferences in each state in its District to
address affordable housing and foreclosure issues. In Missouri, the conference
sparked an effort to create a statewide foreclosure task force.

The Bank partnered with the Dallas Reserve Bank to develop the "Foreclosure
Mitigation Toolkit Update."

Community Affairs conducted the Foreclosure Resource Development Roundtable,
focusing on emerging issues and the progress made in combating
foreclosurerescue scams.

Bank staff worked to help initiate a new regional foreclosure scam prevention
campaign that uses United Way's 2-1-1 help line to reach distressed borrowers in
eastern Missouri and western Kansas, including Wichita.

Community Affairs hosted a seminar to raise awareness on the prevalence and
types of foreclosure scams in Oklahoma and resources that community
organizations can use to address them.
 The Bank sponsored a forum that explored the successes and challenges of the
Home Affordable Modification Program, or HAMP, and examined the potential
results of the new Home Affordable Foreclosure Alternatives, or HAFA, program that
is intended to streamline short sales. A panel of real estate, appraisal, and REO
(real estate owned) experts presented.
 Community Affairs hosted a statewide foreclosure counselor training in Colorado.
Richmond

In 2010, the Bank held four foreclosure prevention events in Maryland and Virginia,
serving nearly 1,700 borrowers. In addition, Community Affairs sponsored three
tenants and foreclosure events in Maryland, the District of Columbia, and Virginia.
 Community Affairs staff trained 95 pro bono attorneys in Baltimore and the
surrounding areas in Maryland to assist troubled borrowers facing foreclosure and
new homeowners closing loans to prevent mortgage fraud.
St. Louis

The Bank held a news conference to increase public awareness of the loan
modification scams. The attorneys general from Missouri and Illinois participated,
along with a representative of the Federal Trade Commission (FTC) and
NeighborWorks America.
San Francisco

Community Affairs staff organize borrower outreach events, train housing
counselors, work with servicers to improve the modification process, and engage
law enforcement agencies and community groups to raise awareness about
foreclosure scams.

To fill the gap in the area of foreclosure recovery, staff collaborated with Atlanta
Reserve Bank to create a new foreclosure recovery guide for individuals who have
undergone foreclosure. The guide is directed toward local communities and
addresses issues such as relocation, credit repair, job training, and mental health
issues. This publication was introduced through a series of local convenings and
leveraged by encouraging community groups and local governments to work
together to address post-foreclosure issues.
Research
Atlanta

The Community and Public Affairs offices partnered with the American Council on
Consumer Interests to host the annual research conference in April 2010. The
conference convened researchers from across the country to share study findings
on issues including foreclosure, financial education and literacy, and consumer
implications of health care reform.
Kansas City

Community Affairs conducted a series of focus groups throughout the District to
uncover and understand the perceptions and preferences of unbanked or
underbanked consumers. The research findings are being used to inform lenders,
municipal leaders, and financial educators on ways to transition the unbanked and
underbanked into a relationship with a regulated financial institution and to
encourage communities to partner on solutions.
Philadelphia

Community Affairs research staff wrote a paper evaluating the success of a high
school personal finance curriculum that the Bank created with the University of
Delaware and the Delaware Bankers Association.
San Francisco

The research team engaged a UC Berkeley master's student to explore the
opportunities and challenges for passing a state mandate for financial education in
California. As a result of this research, the team partnered with the Minneapolis
Reserve Bank and the University of Arizona to convene a two-day workshop for 25
of the top financial education researchers nationwide to improve the evaluation and
effectiveness of youth financial education research.
 The Community Affairs research team conducted an in-depth qualitative evaluation
of an innovative youth financial education program run by a credit union in San
Francisco's Mission District that explores the effectiveness of prize-linked savings
accounts.
St. Louis
 Community Affairs collaborated with the Social Systems Dynamics Lab at
Washington University to conduct a qualitative research initiative to develop a
systemic understanding of financial services choices of unbanked African Americans
in the city of St. Louis and the inner-ring suburbs. The goal is for the study's findings
to inform the design of financial services that meet the needs of low- to
moderateincome families and individuals.
Federal Reserve System

The Community Affairs offices hold a biennial research conference to
foster research and present the most recent research on community
economic development strategies, including the efficacy of financial education
programs such as homebuyer/foreclosure counseling, asset
building programs, and credit management and repair training. Information
about the 2011 conference and prior conferences can be found at
www.chicagofed.org/webpages/in_focus/cedric/index.cfm.
Appendix B
Federal Reserve System
Financial education for youth
The 12 Federal Reserve Banks offer a wealth of programs for educators and students. Below
is only a sample of the wide range of publications, lesson plans, multimedia resources,
professional development opportunities, and tools aimed at promoting financial education
among youth. These and more can be accessed on the Federal Reserve System's online
portal at www.federalreserveeducation.org.
Publications and lesson plan units

Cards, Cars and Currency is a curriculum unit that challenges students to become
involved in three specific areas of personal finance: credit cards, debit cards, and
purchasing a car.
 It's Your Paycheck!
is designed for use in high school personal finance classes. The
curriculum contains three sections: "Know Your Dough," "KaChing!," and "All About
Credit."

Keys to Financial Success, a comprehensive high school personal finance program
promoted by the Federal Reserve Bank of Philadelphia, provides teachers with the
training, lessons, and materials necessary to teach students how to be financially
savvy.
 Katrina's Classroom: Financial Lessons from a Hurricane
is a free, DVD-based
curriculum developed to teach middle and high school students and their parents the
importance of being financially prepared, especially in times of crisis.

Building Wealth is a personal finance education resource for schools, nonprofit
community organizations, financial services providers, and consumers to help young
people, adults, families, and others develop a plan for building personal wealth.

Children's literature lesson plans use popular youth books to teach personal finance
lessons.

Piggy Bank Primer is a student workbook that uses a story and activities to
introduce students to economic concepts such as saving, spending, budgeting,
wants, goods, services, and opportunity cost.
 Great Minds Think: A Kid's Guide to Money
is an interactive booklet that introduces
children to concepts such as earning, spending, budgeting, and saving.

Econ Ed Live is a set of online courses for students that include interactive activities,
podcasts, and more.
Programs for students

Live classroom videoconference sessions with Federal Reserve staff, presented
right in the classroom

Essay contests like the Federal Reserve Bank of Cleveland's Be the Change You
Want to See! creative writing challenge for high school students
 Video competitions, such as the Share the Wealth Challenge: A Financial Literacy
Video contest for undergraduate students to promote the importance of financial
literacy

Reserve Cup, a literacy quiz show competition for high school students that tests
their knowledge on a variety of financial topics and economics

Money Smart Week (MSW), a series of free classes and activities designed to help
consumers better manage their personal finances

Tours of Reserve Bank exhibits and museums
Professional development

In March 2011, the Federal Reserve Bank of New York hosted "The Federal
Reserve in the 21st Century," a symposium for college professors that included
presentations by the Bank's senior staff.

Personal Finance for the Middle School Classroom is a professional development
program that provides middle school teachers with methods for teaching personal
finance topics such as personal decisionmaking, saving, investing, budgeting, and
the wise use of credit.

Making Sense of Money and Banking is a teacher workshop covering money,
banking, and the Federal Reserve System.

Newsletters for educators, such as the Federal Reserve Bank of Richmond's 5E
Educator, offer K-12 educators content, lesson plans, and updates on free
resources from the Federal Reserve System.