Michelle W Bowman: Financial education
Speech (via webcast) by Ms Michelle W Bowman, Member of the Board of Governors
of the Federal Reserve System, at the Financial Literacy and Education Commission
Public Meeting, Financial Literacy and Education Commission, Washington DC, 17
November 2022.
* * *
Good morning. It is a pleasure to join today's meeting, I appreciate the invitation from
the Financial Literacy and Education Commission (FLEC) to speak to this important
intergovernmental body on these critical issues. I especially appreciate that I am able to
participate virtually this morning. The FLEC's efforts to coordinate and elevate the
agencies work to advance financial education is critical in furthering progress toward
the goal of broad-based financial literacy.
Providing consumers with the necessary tools and information to help them make
sound financial decisions enhances economic well-being for everyone. The Federal
Reserve ensures that our work contributes to this overarching goal-bringing together
the efforts of the Board of Governors and the Reserve Banks to enhance the
relationship between economic well-being, financial education and access to the
financial system.
Access to financial education provides the foundation for the success of this work and
helps to further the Fed's broader goal of promoting a healthy economy.
Consumers make better informed decisions when they understand the consequences
of their financial decisions. Better decisions lead to more opportunity to build financial
capacity that establishes credit, leading to savings and other wealth-building activities.
Financial education provides consumers with critical skills that enable them to evaluate
options and make sound decisions. In today's challenging economic environment, the
Federal Reserve is helping to build a broad understanding of fundamental economic
principles. We have undertaken a variety of efforts to strengthen resources for teachers
and communities including our federalreserveeducation.org website which provides
teachers with online resources about personal finance and economics, for all students
from kindergarten to college. Other programs, like the Philadelphia Fed's Keys to
Financial Success curriculum and the St. Louis Fed's economic education guides and
videos, support students through knowledge and skills development to understand how
economics impacts their day-to-day lives.1
We all know that the financial services marketplace is vast and that it evolves very
quickly, offering consumers a wide and growing range of choices among financial
products and providers. As a result, it is important that small businesses and
consumers are prepared with information and resources to guide their personal
financial decisions. The benefits are potentially limitless when consumers understand
how their financial choices affect their current and future financial security.
In addition to broad-based outreach, I would also like to emphasize the opportunity that
financial education provides to advance our shared goal of financial inclusion. Today, I
will discuss three important aspects of the Fed's inclusion efforts that helps to inform
policies and practices designed to advance financial access and capability: Access to a
banking account; the availability of responsible small-dollar lending products for short
term financial needs; and expanded reach of financial initiatives to Indigenous and
native communities to more effectively assist in providing access to the broader
financial economy.
We have made significant progress in providing greater access to bring the unbanked
into the insured depository space. Our research gives us insight into the success of
recent efforts to expand access among unbanked populations. For example, the
Federal Reserve's Survey of Household Economics and Decisionmaking (SHED)
showed in 2021 that 94 percent of adult survey respondents have a bank or credit union
account, and the Federal Deposit Insurance Corporation's 2021 National Survey of
Unbanked and Underbanked Households found that 95.5 percent of all U.S.
households were banked, which is the highest level since the survey began in 2009.2
The Fed's SHED survey shows similar results. From 1989 to 2019, the percentage of U.
S. adults with bank accounts rose from 85.6 to 94.5 percent. This is also true in the
increased number of bank accounts owned by members of minority groups over the
same time period, especially for Black and Hispanic consumers. Black adults increased
bank account ownership from 56.7 to 86.8 percent and Hispanics increased from 63.5
to 89.5 percent.
Though these surveys show significant improvement over the past decades, there is
still further progress to make. In fact, our SHED survey data helps to identify
characteristics of those who may choose not to use a deposit account or do not have
access to one. The most recent survey results show that income and education may
also play a factor-among the respondents, 24 percent of adults who have not earned a
high school diploma and 17 percent of adults making less than $25,000 a year did not
own a deposit account.
We also know that there are many factors that may lead consumers to choose not to
engage in the banking system, whether from a distrust of the banking system or prior
mishandling of a banking relationship being an impediment to account ownership.
These broader gains in the number of consumers with bank accounts are an important
measure of our collective success, particularly in an environment where consumers can
access an ever-growing range of financial services. While there are a multitude of
nonbank products and providers, none provide the reliability and protection of FDIC
insurance for deposits. Bank accounts continue to be the safest and most reliable way
to deposit and keep money and engage in a variety of transactions. These affordable,
government insured banking relationships can help consumers and businesses manage
their money-to save or spend as desired-and develop financial management skills
through savings and payments. In addition, having a banking relationship may assist
consumers borrowing money to invest in education, a home, vehicle or a business.
The Federal Reserve continues to support expanding access to bank accounts through
the Bank On program, which provides those without a banking relationship access to
low- or no-cost deposit accounts. The St. Louis Fed's Bank On Data Hub reports
national data for all banks that offer these Bank On program accounts. In 2022, more
than 200 banks offered certified Bank On accounts. These accounts are now available
at more than 46,000 U.S. bank and credit union branches.
Like affordable banking services, responsible small-dollar lending products can play an
important role in financial inclusion by helping meet immediate credit needs from
emergency or unexpected expenses, temporary cash flow disruptions, or unplanned
income shortfalls. Small-dollar loans are often a critical source of funding when
economic stress occurs. During the COVID-19 pandemic, the Federal Reserve and
other agencies issued updated principles for banks to consider when offering
responsible small-dollar loans. Successful programs incorporate repayment safeguards
and seek to provide outcomes that enhance borrowers' financial capabilities. As loan
markets continue to evolve, well-designed small-dollar loan products remain an
important resource for consumers, helping to encourage positive credit practices and
transition into additional financial products.
I will conclude with a key element of the Federal Reserve's community engagement to
broaden access to financial services so that more Americans can participate in the
broader economy. Financial inclusion for all, including underserved communities, like
Indigenous groups, is important for the economic strength of our country. Our efforts
across multiple Federal Reserve System functions work to advance this goal. The
Federal Reserve Board's Community Advisory Council offers diverse perspectives on
economic circumstances and financial services needs of a range of consumers and
communities, with a particular focus on low- and moderate-income populations. The
Community Advisory Council has benefited from having representation from the Native
American Indian community serving on the council and updating the members on
current challenges and opportunities facing these communities. In addition, in 2021, the
Federal Reserve joined the Central Bank Network for Indigenous Inclusion, which
fosters ongoing dialogue and research to enhance the participation of Indigenous
populations in the economy.
Our efforts in this area emphasize the importance of education. In fact, the St. Louis
Fed's Native Economic and Financial Education Empowerment program has provided
economic and personal finance education for Native communities and organizations
throughout the country since 2018.3
Recent research shows promising trends in access to bank accounts for Native
American Alaskan and Indian communities, with over 93 percent of these households
now holding a bank account, which is nearly a 10-percentage point increase from 2019.
I am very pleased to see that these efforts and our commitment to bringing access to
financial services to Indigenous communities have been beneficial.
Thank you for the invitation to speak to you today. I appreciate the opportunity to
highlight the Federal Reserve's contributions to FLEC's mission of financial
empowerment and I look forward to the insights from today's meeting.
See " Keys to Financial Success-Lessons and Curricula ," Federal Reserve Bank of
Philadelphia and " Resources for Teachers and Students in Economics and Personal
Finance ," Federal Reserve Bank of St. Louis.
2
See Board of Governors of the Federal Reserve System, "Economic Well-Being of U.
S. Households in 2021 (PDF)" and Federal Deposit Insurance Corporation, " 2021 FDIC
National Survey of Unbanked and Underbanked Households (PDF) ".
3
See " Native Economic and Financial Education Empowerment (NEFEE) ," Federal
Reserve Bank of St. Louis.