Financial Literacy: Overview of Federal Activities, Programs, and Challenges
Released: 2014-04-30T00:00:00

Letter

Background

Financial literacy, sometimes referred to as financial capability, has been defined as the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being. Financial literacy encompasses financial education—the process by which individuals improve their knowledge and understanding of financial products, services, and concepts. However, to make sound financial decisions, individuals need to be equipped not only with a basic level of financial knowledge, but also with the skills to apply that knowledge to financial decision making and behaviors.

Efforts to improve financial literacy can take many forms. These can include one-on-one counseling; curricula taught in a classroom setting; workshops or information sessions; print materials, such as brochures and pamphlets; and mass media campaigns that can include advertisements in magazines and newspapers or on television, radio, or billboards. Many entities use the Internet to provide financial education, which can include information and training materials, practical tools such as budget worksheets and loan and retirement calculators, and interactive financial games.

Overview of Federal Programs or Activities on Financial Literacy and Agency Roles

In our 2012 report, we identified 16 significant financial literacy programs or activities administered by the federal government in fiscal year 2010. As shown in table 1, there were 16 programs or activities among 14 federal agencies and 4 housing counseling programs (which can include elements of financial education) among 2 federal agencies and a federally chartered nonprofit corporation. The programs and activities covered a wide range of topics and target audiences and used a variety of delivery mechanisms. While we have not done a comprehensive update of this federal program summary since 2012, representatives of Treasury and CFPB—which represent the Chair and Vice Chair of the Commission, respectively—told us that as of April 2014, 3 of the 16 financial literacy programs and 1 of the 4 housing counseling programs either no longer existed or no longer received funding, and no new federal programs had been added since fiscal year 2010.

CFPB, which became operational in 2011, has a primary role in addressing financial literacy. For example, its Office of Financial Education provides opportunities for consumers to access financial counseling; information on understanding credit products, histories, and scores; information on savings and borrowing tools; and help in developing long-term savings strategies and wealth building. The Office of Servicemember Affairs helps educate servicemembers and their families to make better-informed decisions on consumer financial products and services, monitors complaints, and coordinates efforts among federal and state agencies regarding consumer protection measures. The Office of Financial Protection for Older Americans develops goals for programs that provide financial literacy and counseling to help seniors recognize the warning signs of unfair, deceptive, or abusive practices. CFPB’s Office of Fair Lending and Equal Opportunity plays a role in providing education on fair lending. Finally, CFPB created an Office for Students to address complaints and questions regarding student loans.

In addition to specific programs and activities directed at consumers, federal agencies participate in coordination or umbrella efforts. For instance, the 22-member Commission coordinates among other federal agencies and between federal agencies and state, local, nonprofit, and private entities. Also among Commission charges are developing a national strategy for improving financial literacy and proposing means of eliminating overlap and duplication among federal financial literacy activities. Furthermore, since 2008, three Presidential advisory councils related to financial literacy have been tasked, in part, with creating partnerships among federal, state and local, nonprofit, and private entities. Most recently, the President’s Advisory Council on Financial Capability for Young Americans was created by Executive Order in June 2013.

Federal Agencies Addressed Several GAO Recommendations, but More Progress Needed on Determining the Best Allocation of Resources

Our reviews of federal financial literacy efforts in recent years have examined, among other things, issues of fragmentation and overlap; the effectiveness of programs; coordination across multiple agencies and between federal, state, local, and nonprofit entities; the potential consolidation of programs or activities; and the need to improve the The following Commission’s national strategy for financial literacy. summarizes progress in four areas in which we have observed improvements or successes—coordination, partnerships, CFPB’s role, and evaluation tools—and one major area in which we believe significant work remains to be done—determining the most effective and efficient allocation of federal resources.

Coordination

For examples of GAO work on financial literacy, see Financial Literacy: Enhancing the Effectiveness of the Federal Government’s Role, GAO-12-636T (Washington, D.C.: Apr. 26, 2012); Highlights of a Forum: Financial Literacy: Strengthening Partnerships in Challenging Times, GAO-12-299SP (Washington D.C.: Feb. 9, 2012); Financial Literacy: A Federal Certification Process for Providers Would Pose Challenges, GAO-11-614 (Washington D.C.: June 28, 2011); Financial Literacy: The Federal Government’s Role in Empowering Americans to Make Sound Financial Choices, GAO-11-504T (Washington D.C.: Apr. 12, 2011); Financial Literacy and Education Commission: Progress Made in Fostering Partnerships, but National Strategy Remains Largely Descriptive Rather Than Strategic, GAO-09-638T (Washington, D.C: Apr. 29, 2009); Financial Literacy and Education Commission: Further Progress Needed to Ensure an Effective National Strategy, GAO-07-100 (Washington, D.C.: Dec. 4, 2006); and Highlights of a GAO Forum: The Federal Government’s Role in Improving Financial Literacy, GAO-05-93SP (Washington D.C.: Nov. 15, 2004). efforts to coordinate federal activities, such as by exploring further opportunities to strengthen its role as a central clearinghouse for federal financial literacy resources. The Commission has addressed this suggestion with a number of additional coordinating activities taken since 2012. These have included an internal web portal to allow federal agencies involved in financial literacy efforts to share information and resources; publication of 2012 Research Priorities and Research Questions to help coordinate federal research efforts; a clearinghouse of federal research and data on financial literacy; an initiative for coordinating among federal agencies’ activities and resources to help parents and teachers prepare children and young adults for financial success; and support to the Office of Personnel Management in promoting agency strategic plans for employee retirement readiness.

Partnerships

The Commission has continued to build on its progress in promoting partnerships among federal and nonfederal sectors. Given the wide array of state, local, nonprofit, and private organizations providing financial literacy programs, it is essential to leverage private-sector resources and coordinate federal activities with resources at the community level. We suggested in 2011 that the Commission build on progress it had made in promoting partnerships among the federal, state, local, nonprofit, and private sectors. The Commission has taken actions that address this suggestion. Examples of recent Commission work with nonfederal sectors include the above-mentioned 2012 research report, which the Commission developed in partnership with academic researchers, nonprofit financial educators, and other nonfederal stakeholders, and an initiative to create a community of practice among educators and policymakers. The commission also continued to work in collaboration with the President’s Advisory Council on Financial Capability (which ended in 2013) and the new President’s Advisory Council on Financial Capability for Young Americans. The new council primarily consists of members from the private and nonprofit sectors, as did the former council.

Delineation of CFPB’s Role

CFPB has taken steps to delineate and distinguish its role in financial literacy from that of other federal agencies. In 2011 and 2012, we noted that some of CFPB’s financial literacy responsibilities appeared to overlap with those of other federal agencies, and we recommended that steps be taken to ensure a clear delineation of these agencies’ respective roles and responsibilities. In its response to a draft of the 2012 report, CFPB neither agreed nor disagreed with this recommendation. We believe this recommendation has been implemented. Since 2012, financial literacy staff from CFPB and Treasury have continued to hold regular meetings to discuss respective roles, and with the emergence of CFPB, Treasury reorganized the structure of its own financial education efforts, incorporating them into the broader Office of Consumer Policy. Similarly, as of March 2013, CFPB’s Office of Servicemember Affairs was meeting monthly with staff responsible for financial literacy at the Department of Defense, and the agencies developed two Joint Statements of Principles to help delineate their roles and responsibilities. Furthermore, CFPB’s Office of Financial Protection for Older Americans finalized a memorandum of understanding with the Federal Trade Commission in January 2012 to help cooperation on consumer education efforts and promote consistent messages. CFPB’s Office of Students developed a memorandum of understanding with the Department of Education designed, in part, to clarify respective areas of focus in providing education on student loans and financial aid.

Evaluation Tools

We suggested in 2011 that the Commission and CFPB take steps to develop and disseminate a standard set of evaluation tools or benchmarks to help assess the outcomes and effectiveness of financial literacy programs.2012, CFPB signed a contract with the Corporation for Enterprise Development to develop a set of metrics and outcome measures for assessing the success of financial literacy programs. That work is ongoing. CFPB also contracted with The Urban Institute to evaluate financial education programs and increase understanding of which interventions can improve financial decision-making skills in consumers. An interim report was published in January 2014 and the final report is This suggestion has been addressed. In September expected around April 2015, according to CFPB representatives.addition, the Commission’s 2012 study on research priorities sought ways of making the best use of limited dollars to address the most important questions facing the field of financial literacy.

Allocation of Federal Resources

We continue to believe that further progress is needed in one area— helping to ensure that the most effective and efficient allocation of federal financial literacy resources occurs and avoids unneeded overlap. As noted earlier, federal financial literacy and housing counseling resources are spread across many agencies, the result of both legislation and programs evolving to address a variety of populations or topics. While our prior work uncovered no duplication, some agencies or programs do have overlapping goals and activities, raising the risk of inefficiency and underscoring the importance of coordination. The creation of CFPB added a new player to the mix. While progress has been made in coordinating with federal agencies that have overlapping financial literacy responsibilities, we noted in 2012 that the creation of CFPB signaled an opportunity for reconsidering more broadly how federal financial literacy efforts are organized. In particular, some consolidation of these efforts could help ensure the most efficient and effective use of federal resources. As a result, in July 2012 we recommended to Treasury and CFPB that the Commission identify for federal agencies and Congress options for consolidating federal financial literacy efforts into the agencies and activities that are best suited or most effective.draft of that report, Treasury agreed with the recommendation, and subsequently CFPB noted its agreement as well, but the recommendation has not been implemented.

The Commission’s national strategy could serve as one mechanism for determining how federal resources might best be allocated among programs and agencies, but it does not yet do so. The Commission issued its first national strategy in 2006. We reported that it was a useful first step, but largely descriptive rather than strategic, and only partially included certain key characteristics such as a description of resources required to implement the strategy. In December 2010, the Commission issued its second and most recent national strategy. While it discussed the consumer education resources the federal government makes available to consumers, it still did not address the level and type of resources needed to implement the strategy, or review the budgetary resources available for financial literacy efforts and how they might best be allocated. In July 2012, we recommended that the Commission revise its national strategy to incorporate clear recommendations on the allocation of federal financial literacy resources across programs and Treasury and CFPB agreed with this recommendation as agencies.well, but have not yet implemented it.

We acknowledge that the governance structure of the Commission presents challenges in addressing resource issues: it relies on the consensus of multiple agencies, has no independent budget, and no legal authority to compel members to act. However, the Commission can identify resource needs, make recommendations, and provide guidance on how Congress or federal agencies might allocate scarce federal resources for maximum benefit. Without a clear description of resource needs, policymakers lack information to help direct the strategy’s implementation. And without recommendations on resource allocations, policymakers lack information to avoid overlap and help ensure the most efficient and effective use of federal funds.

Chairman Capito, Ranking Member Meeks, and Members of the Subcommittee, this concludes my prepared statement. I would be happy to answer any questions that you may have at this time.

Contact and Staff Acknowledgments

If you or your staff have any questions about this testimony, please contact me at (202) 512-8678 or cackleya@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony include Jason Bromberg (Assistant Director); Bethany Benitez; Juliann Gorse; Barbara Roesmann; and Rhonda Rose.

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