Financial Literacy: Enhancing the Effectiveness of the Federal Government's Role
Published: 2012-04-26T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Financial literacy plays an important role in helping to promote the financial health and stability of individuals and families. Economic changes in recent years have further highlighted the need to empower all Americans to make informed financial decisions. In addition to the important roles played by states, nonprofits, the private sector, and academia, federal agencies promote financial literacy through activities including print and online materials, broadcast media, individual counseling, and classroom instruction.
This testimony discusses (1) the federal governments role in promoting financial literacy, including GAOs role; (2) the advantages and risks of financial literacy efforts being spread across multiple federal agencies; and (3) opportunities to enhance the effectiveness of federal financial literacy education efforts going forward. This testimony is based on prior and ongoing work, for which GAO reviewed agency budget documents, strategic plans, performance reports, websites, and other materials; convened forums of financial literacy experts; and interviewed representatives of federal agencies and selected private and nonprofit organizations.
While this statement includes no new recommendations, in the past GAO has made a number of recommendations aimed at improving financial literacy efforts.
section_title: What GAO Found
paragraphs: 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 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 GAO held in 2004 and 2011, participants noted that the federal government can use its bully pulpit, convening power, and other tools to draw attention to the issue, and serve as an objective and unbiased source of information about the selection of financial products and services. In prior work, GAO cited a 2009 report by the RAND Corporation in which 20 federal agencies self-identified as having 56 federal financial literacy programs, but GAOs subsequent analysis found substantial inconsistency in how different agencies defined and counted financial literacy programs. Based on a more consistent set of criteria, GAO identified 16 significant financial literacy programs or activities among 14 federal agencies, as well as 4 housing counseling programs among 3 federally supported entities, in fiscal year 2010. The Comptroller General has initiated a multi-pronged strategy to address financial literacy issues. First, GAO will continue to evaluate federal efforts that directly promote financial literacy. Second, it will encourage research of the various financial literacy initiatives to evaluate the relative effectiveness of different approaches. Third, GAO will look for opportunities to enhance financial literacy as an integral component of certain regular federal interactions with the public. Finally, GAO has recently instituted a program to empower its own employees, which includes an internal website with information on personal financial matters and links to information on pay and benefits and referral services through its counseling services office and a distinguished speaker series.
Having multiple federal agencies involved in financial literacy offers advantages as well as risks. Some agencies have long-standing expertise and experience addressing specific issue areas or populations, and providing information from multiple sources can increase consumer access and the likelihood of educating more people. However, the participation of multiple agencies also highlights the risk of inefficiency and the need for strong coordination of their activities. GAO has found that the coordination and collaboration among federal agencies with regard to financial literacy has improved in recent years, in large part as a result of the Financial Literacy and Education Commission. At the same time, GAO has found instances of overlap, in which multiple agencies or programs, including the new Bureau of Consumer Financial Protection, share similar goals and activities, underscoring the need for careful monitoring of the bureaus efforts.
In prior work GAO has noted the importance of program evaluation and the need to focus federal financial literacy efforts on initiatives that work. Federal agencies could potentially make the most of scarce resources by consolidating financial literacy efforts into the activities and agencies that are most effective. In addition, the Bureau of Consumer Financial Protection offers potential for enhancing the federal governments role in financial literacy, but avoiding duplication will require that it continue its efforts to delineate its financial literacy roles and responsibilities vis-à-vis those of other federal agencies with overlapping responsibilities.

section_title: Letter
paragraphs: I am pleased to be here today to testify on the topic of financial literacy as  part of Financial Literacy Month 2012. Financial literacy plays an  important role in helping to promote the financial health and stability of  individuals and families. Economic changes in recent years have further  highlighted the need to empower all Americans to make informed  financial decisions. In his statement before you in April 2011, Comptroller  General Gene Dodaro emphasized his commitment to promoting greater  awareness of the importance of financial literacy in the United States.  Since that time, we have engaged in a series of reports and activities  aimed at focusing attention on the federal government’s financial literacy  efforts and providing insight into ways of improving the effectiveness of  those efforts. For example, in October 2011 we held a forum on financial  literacy with participants that included representatives of federal, state,  and local government organizations; academic experts; nonprofit  practitioners; and representatives from the private sector. The forum  focused on such topics as identifying the most effective approaches to  financial literacy and leveraging the unique role of the federal government  in promoting greater financial literacy.
In my statement today I will discuss (1) the federal government’s role in  promoting financial literacy, including the role of GAO; (2) the advantages  and risks of financial literacy efforts being spread across multiple federal  agencies; and (3) opportunities to enhance the effectiveness of federal  financial literacy education efforts going forward. This testimony is based  largely on selected prior work we have conducted on financial literacy. In conducting that work, we collected information on the purpose,  beneficiaries, and subject matter of federal financial literacy programs and  activities through interviews with staff of federal agencies and through  budget justifications, strategic plans, and other documents. We also  reviewed the Financial Literacy and Education Commission’s 2011  national strategy and implementation plan and memorandums of  understanding and other documents related to collaboration among  federal agencies. In addition, we convened forums of financial literacy  experts and interviewed representatives of organizations that address  financial literacy within the federal, state, private, nonprofit, and academic  sectors.
The work on which this statement was based was largely performed from  May 2011 to February 2012 in accordance with generally accepted  government auditing standards. Those standards require that we plan  and perform the audit to obtain sufficient, appropriate evidence to provide  a reasonable basis for our findings and conclusions based on our audit  objectives. We believe that the evidence obtained provides a reasonable  basis for our findings and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: There is no single definition for financial literacy, which is sometimes also  referred to as financial capability, but it has previously been described as  the ability to make informed judgments and to take effective actions  regarding current and future use and management of money. Financial  literacy encompasses financial education—the processes whereby  individuals improve their knowledge and understanding of financial  products, services, and concepts. However, being financially literate  refers to more than simply being knowledgeable about financial matters; it  also entails utilizing that knowledge to make informed decisions, avoid  pitfalls, and take other actions to improve one’s present and long-term  financial well-being. Federal, state, and local government agencies,  nonprofits, the private sector, and academia all play important roles in  providing financial education resources, which can include print and  online materials, broadcast media, individual counseling, and classroom  instruction.
Evidence indicates that many U.S. consumers could benefit from  improved financial literacy efforts. In a 2010 survey of U.S. consumers  prepared for the National Foundation for Credit Counseling, a majority of  consumers reported they did not have a budget and about one-third were  not saving for retirement. In a 2009 survey of U.S. consumers by the  FINRA Investor Education Foundation, a majority believed themselves to  be good at dealing with day-to-day financial matters, but the survey also  revealed that many had difficulty with basic financial concepts. Further,  about 25 percent of U.S. households either have no checking or savings  account or rely on alternative financial products or services that are likely  to have less favorable terms or conditions, such as nonbank money  orders, nonbank check-cashing services, or payday loans. As a result,  many Americans may not be managing their finances in the most  effective manner for maintaining or improving their financial well-being. In  addition, individuals today have more responsibility for their own  retirement savings because traditional defined-benefit pension plans have  increasingly been replaced by defined-contribution pension plans over the  past two decades. As a result, financial skills are increasingly important  for those individuals in or planning for retirement to help ensure that  retirees can enjoy a comfortable standard of living.
section_title: The Federal Government Plays a Wide-Ranging Role in Promoting Financial Literacy
paragraphs: Efforts to improve financial literacy in the United States involve a range of  public, nonprofit, and private participants. Among those participants, the  federal government is distinctive for its size and reach, and for the  diversity of its components, which address a wide array of issues and  populations. At our forum last year on financial literacy, many participants  said that the federal government had a unique role to play in promoting  greater financial capability. They noted that the federal government has  a built-in “bully pulpit” that can be used to draw attention to this issue.  Participants also highlighted the federal government’s ability to convene  the numerous agencies and entities involved in financial literacy, noting  that the government has a powerful ability to bring people together. In  addition, some participants noted the federal government’s ability to take  advantage of existing distribution channels and points of contact between  the government and citizens to distribute messages about financial  literacy. In our ongoing work, we have found examples of federal  agencies acting on such opportunities—for example, the Securities and  Exchange Commission has worked with the Internal Revenue Service to  include an insert about its investor education resources, including its  “Investor.gov” education website, in the mailing of tax refund checks.
At our first forum on financial literacy in 2004, participants noted that the  federal government can serve as an objective and unbiased source of  information, particularly in terms of helping consumers make wise  decisions about the selection of financial products and services. Some  participants expressed the belief that while the private sector offers a  number of good financial literacy initiatives, it is ultimately motivated by its  own financial interests, while the federal government may be in a better  position to offer broad-based, noncommercial financial education.
In preliminary results from an ongoing review, we have identified that, in  fiscal year 2010, there were 16 significant financial literacy programs or  activities among 14 federal agencies, as well as 4 housing counseling  programs among 2 federal agencies and a federally chartered nonprofit  corporation. We defined “significant” financial literacy programs or  activities as those that were relatively comprehensive in scope or scale  and included financial literacy as a key objective rather than a tangential   In prior work, we cited a 2009 report that had identified 56 federal  goal.financial literacy programs among 20 agencies. That report, conducted by  the RAND Corporation, was based on a survey that had asked federal  agencies to self-identify their financial literacy efforts. However, our  subsequent analysis of these 56 programs found that there was a high  degree of inconsistency in how different agencies defined financial  literacy programs or efforts and whether they counted related efforts as  one or multiple programs. We believe that our count of 16 significant  federal financial literacy programs or activities and 4 housing counseling  programs is based on a more consistent set of criteria.
During his confirmation hearing, Comptroller General Dodaro noted that  financial literacy was an area of priority for him, and he has initiated a  multi-pronged strategy for GAO to address financial literacy issues. First,  we will continue to evaluate federal efforts that directly promote financial  literacy. In addition to our recent financial literacy forum, we have ongoing  work that focuses on, among other things, the cost of federal financial  literacy activities, the federal government’s coordination of these  activities, and what is known about their effectiveness. Second, we will  encourage research of the various financial literacy initiatives to evaluate  the relative effectiveness of different financial literacy approaches. Third,  we will look for opportunities to enhance financial literacy as an integral  component of certain regular federal interactions with the public. Finally,  we have recently instituted a program to empower GAO’s own  employees. This program includes a distinguished speaker series, as well  as an internal website with information on personal financial matters and  links to information on pay and benefits and referral services through  GAO’s counseling services office.
section_title: Having Multiple Federal Agencies Involved in Financial Literacy Offers Advantages as Well as Risks
paragraphs: Having multiple federal agencies involved in financial literacy efforts can  have certain advantages. In particular, providing information from multiple  sources can increase consumer access and the likelihood of educating  more people. Moreover, certain agencies may have deep and long- standing expertise and experience addressing specific issue areas or  serving specific populations. For example, the Securities and Exchange  Commission has efforts in place to protect securities investors from  fraudulent schemes, while the Department of Housing and Urban  Development (HUD) oversees most, but not all, federally supported  housing counseling. Similarly, the Department of Defense (DOD) may be  the agency most able to efficiently and effectively deliver financial literacy  programs and products to servicemembers and their families. However,  as we stated in a June 2011 report, relatively few evidence-based  evaluations of financial literacy programs have been conducted, limiting  what is known about which specific methods and strategies—and which  federal financial literacy activities—are most effective.
Further, the participation of multiple agencies highlights the need for  strong coordination of their activities. In general, we have found that the  coordination and collaboration among federal agencies with regard to  financial literacy have improved in recent years, in large part due to the  multiagency Financial Literacy and Education Commission. The  commission was created by Congress in 2003 and charged, among other  things, with developing a national strategy to promote financial literacy  and education, coordinating federal efforts, and identifying areas of  overlap and duplication. Among other things, the commission, in concert  with the Department of the Treasury, which provides its primary staff  support, has served as a central clearinghouse for federal financial  literacy resources—for example, it created a centralized federal website  and has an ongoing effort to develop a catalog of federal research on  financial literacy. The commission’s 2011 national strategy identified five  action areas, one of which was to further emphasize the role of the  commission in coordination. The strategy’s accompanying  Implementation Plan lays out plans to coordinate communication among  federal agencies, improve strategic partnerships, and develop channels of  communication with other entities, including the President’s Advisory  Council on Financial Capability and the National Financial Education  Network of State and Local Governments. The Financial Literacy and  Education Commission’s success in implementing these elements of the  national strategy is key, given the inherently challenging task of  coordinating the work of the commission’s many member agencies—each  of which has its own set of interests, resources, and constituencies.  Further, the addition of the Bureau of Consumer Financial Protection,  whose director serves as the Vice Chair of the commission, adds a new  player to the mix.
In our recent and ongoing work, we have found instances in which  multiple agencies or programs share similar goals and activities, which  raises questions about the efficiency of some federal financial literacy  efforts. For example, four federal agencies and one government- chartered nonprofit corporation provide or support various forms of  housing counseling to consumers—DOD, HUD, the Department of  Veterans Affairs, the Department of the Treasury, and NeighborWorks  America. Other examples of overlap lie in the financial literacy  responsibilities of the Bureau of Consumer Financial Protection, which  was created by the Dodd-Frank Wall Street Reform and Consumer  Protection Act (Dodd-Frank Act). The act established within the bureau an  Office of Financial Education and charged this office with developing and  implementing a strategy to improve financial literacy through activities  including opportunities for consumers to access, among other things,  financial counseling; information to assist consumers with understanding  credit products, histories, and scores; information about saving and  borrowing tools; and assistance in developing long-term savings  strategies. This office presents an opportunity to further promote  awareness, coordinate efforts, and fill gaps related to financial literacy. At  the same time, the duties this office is charged with fulfilling are in some  ways similar to those of a separate Office of Financial Education and  Financial Access within the Department of the Treasury, a small office  that also seeks to broadly improve Americans’ financial literacy. In  addition, the Dodd-Frank Act charges the Bureau of Consumer Financial  Protection with developing and implementing a strategy on improving the  financial literacy of consumers, even though the multiagency Financial  Literacy and Education Commission already has its own statutory  mandate to develop, and update as necessary, a national strategy for  financial literacy. As the bureau has been staffing up and planning its  financial education activities, it has been in regular communication with  the Department of the Treasury and with other members of the Financial  Literacy and Education Commission, and agency staff say they are  seeking to coordinate their respective roles and activities.
The Dodd-Frank Act also creates within the bureau an Office of Financial  Protection for Older Americans, which is charged with helping seniors  recognize warning signs of unfair, deceptive, or abusive practices and  protect themselves from such practices; providing one-on-one financial  counseling on issues including long-term savings and later-life economic  security; and monitoring the legitimacy of certifications of financial  advisers who advise seniors. These activities may overlap with those of  the Federal Trade Commission, which also plays a role in helping seniors  avoid unfair and deceptive practices. Further, the Department of Labor  and the Social Security Administration both have initiatives in place to  help consumers plan for retirement, and the Securities and Exchange  Commission has addressed concerns about the designations and  certifications used by financial advisers, who often play a role in  retirement planning. Officials at the Bureau of Consumer Financial  Protection told us that they have been coordinating their financial literacy  roles and activities with those of other federal agencies to avoid  duplication of effort.
section_title: Program Evaluation and the Bureau of Consumer Financial Protection May Offer Avenues to Enhance Effectiveness
paragraphs: In prior work we have noted the importance of program evaluation and  the need to focus federal financial literacy efforts on initiatives that work.  Relatively few evidence-based evaluations of financial literacy programs  have been conducted, limiting what is known about which specific  methods and strategies are most effective. Financial literacy program  evaluations are most reliable and definitive when they track participants  over time, include a control group, and measure the program’s impact on  consumers’ behavior. However, such evaluations are typically expensive,  time-consuming, and methodologically challenging. Based on our  previous work, it appears that no single approach, delivery mechanism, or  technology constitutes best practice, but there is some consensus on key  common elements for successful financial education programs, such as  timely and relevant content, accessibility, cultural sensitivity, and an  evaluation component.
There are several efforts under way that seek to enhance evaluation of  federal financial literacy programs. For example, the Financial Literacy  and Education Commission has begun to establish a clearinghouse of  evidence-based research and evaluation studies, current financial topics  and trends of interest to consumers, innovative approaches, and best  practices. In addition, the Bureau of Consumer Protection recently  contracted with the Urban Institute for a financial education program  evaluation project, which will assess the effectiveness of two existing  financial education programs and seeks to identify program elements that  improve consumers’ confidence about financial matters. We believe these  measures are positive steps because federal agencies could potentially  make the most of scarce resources by consolidating financial literacy  efforts into the activities and agencies that are most effective.
The Bureau of Consumer Financial Protection was charged by statute  with a key role in improving Americans’ financial literacy and is being  provided with resources to do so. As such, the bureau offers potential in  enhancing the federal government’s role in financial literacy. At the same  time, as we have seen, some of its responsibilities overlap with those of  other agencies, which highlights the need for coordination and may offer  opportunities for consolidation. As the bureau’s financial literacy activities  evolve and are implemented, it will be important to evaluate how those  efforts are working and make appropriate adjustments that might promote  greater efficiency and effectiveness. In addition, the overlap we have  identified among programs and activities increases the risk of inefficiency  and emphasizes the importance of coordination among financial  participants. This underscores the importance of steps the Bureau of  Consumer Financial Protection has been taking to delineate its roles and  responsibilities related to financial literacy vis-à-vis those of other federal  agencies, which we believe is critical in order to minimize overlap and the  potential for duplication.
Chairman Akaka, Ranking Member Johnson, this completes my prepared  statement. I would be happy to respond to any questions you or other  Members of the Subcommittee may have at this time.
For future contacts about this testimony, please contact Alicia Puente  Cackley at (202) 512-8678 or at cackleya@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this statement. Jason Bromberg, Mary Coyle, Roberto  Piñero, Rhonda Rose, Jennifer Schwartz, and Andrew Stavisky also  made key contributions to this statement.
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