Remarks by Chairman and CEO Rick Ketchum on the National Financial Capability Study Release

Richard G. Ketchum
December 15, 2009

As prepared for delivery

Thank you very much, Mr. Secretary. It's an honor to be here today with you and Secretary Duncan.

Good morning, everyone and welcome. I'm Rick Ketchum, Chairman and CEO of FINRA, the Financial Industry Regulatory Authority. I'm also Chairman of the FINRA Investor Education Foundation.

This morning, we're here to release the findings of the National Financial Capability Study. This study, which the FINRA Foundation conducted in consultation with the Department of Treasury and the President's Advisory Council on Financial Literacy, was a tremendous undertaking that could not have happened without the hard work of many people. However, I would specifically like to thank Annamaria Lusardi of Dartmouth College, Craig Copeland with the Employee Benefit Research Institute and Bob Willis with the University of Michigan for the time and commitment they have invested in this very important research.

Never before has a study of this kind been conducted in the United States. It took more than 22 months, involved more than 28,000 respondents and is actually comprised of three separate surveys: a national survey, a state-by-state survey, and a military survey. Today, we'll be focusing on the findings of the national survey. We plan to release the state and military findings early next year.

Our goal in conducting the study was to begin to get a basic understanding of the financial capabilities of adults in the United States. Over the last several decades, the financial landscape in this country has changed dramatically. The responsibility of saving for retirement has shifted from the employer to the employee. The cost of housing and college education has risen dramatically. And on top of that, financial products have only gotten more complex—making saving and investing increasingly complicated for American families.

This study has given us a wealth of important—and in some cases, unsettling—data that we can use to help Americans better manage their finances and plan for their futures. Let me share some of the highlights with you:

Many of the people we surveyed said they were having difficulty making ends meet. Of the people we talked to, nearly 49 percent said they had difficulties just covering their monthly expenses. Twelve percent said that their household expenses over the past year were greater than their income. And 36 percent said that their household expenses were about equal to their income.

That kind of financial strain makes it hard for people to plan ahead—even at the most basic level. Our findings also showed that fewer than half of the Americans we polled had a rainy day fund—or enough savings to cover expenses for three months in case of sickness, job loss or other emergency. And the majority of Americans appear not to have done any retirement planning. Only 42 percent overall said they have tried to figure out how much they need to save for their retirement years. This is particularly troubling when you consider that only half of Americans over the age of 45 have attempted to do the math. Given the significant shift from defined benefit to defined contribution plans as the primary means of retirement savings in this country today, we may be looking at an emerging national crisis.

On top of not having rainy day funds or retirement accounts, we also found that many Americans don't have bank accounts at all. Twelve percent of the individuals we surveyed reported not having either a checking or savings account. People in this group—sometimes referred to as "the unbanked"—have even greater difficulty managing their money. They are also more likely to engage in expensive borrowing methods—such as payday loans, tax refund advances or pawn shops.

Finally, as I mentioned earlier, many of today's financial products have become increasingly complex. This has created a knowledge gap for many Americans as they try to understand and choose among so many different and complicated ways to save and invest. And while many American adults may believe they are adept at dealing with these kinds of day-to-day financial matters, their actual financial behavior tells a different story. Far too many tend to engage in financial behaviors that generate excessive expenses and fees. And all too few are able to calculate basic interest and other math-oriented tasks. In addition, few people seem to compare the terms of financial products or shop around before making financial decisions.

While these are only a few of the major highlights from the study, what stands out is how many Americans are disadvantaged by their lack of financial capability. These findings cry out for all of us to work even harder to give people the information and resources they need to make sound financial decisions.

Secretaries Geithner and Duncan came here today to tell you more about their plans to help reach out to Americans to improve their financial knowledge. So let me focus on what FINRA is doing. Six years ago this month, we created the FINRA Investor Education Foundation. And since then, the Foundation has funded over $40 million in research, grants and other education programs to provide underserved Americans with the knowledge, skills and tools necessary for financial success throughout life.

We have reached many people in a short amount of time, but the findings of this study only underscore how much more we have to do. Two of the ways we are expanding our reach at the grassroots level include grant programs in partnership with the American Library Association and the United Way Worldwide.

The partnership we have built with the American Library Association is helping local libraries provide free, unbiased financial education resources to library users across America. These libraries serve nearly 23 million Americans of varying economic levels, in more than 26 states across the country.

Together with United Way, we are helping community-based organizations provide effective and unbiased financial education to low- and middle-income Americans—people who may be hard to reach because they are working two jobs, are single parents, have language barriers, or distrust mainstream financial products and services.

We're focusing our financial literacy programs on younger Americans as well. We launched a multimedia financial education strategy that reaches 5.8 million middle and high school students in nearly 8,000 classrooms (about a quarter of the U.S. student population in grades 7-12). In 2010, we plan to expand that program to reach an additional 4,000 classrooms.

These are just a few examples of what the FINRA Foundation is doing to help more and more Americans protect themselves in today's complex financial world. And while the findings released today illustrate many of the challenges financial educators face, I hope that just a few years from now we will look back at this study only to note how much progress Americans have made in improving their financial futures.

Thank you. Now let me turn it over to Secretary Duncan. As U.S. Secretary of Education, Arne Duncan is leading President Obama's historic education reforms. Congress and the president have provided him with unprecedented resources for education, and he is working tirelessly to ensure that this leads to unprecedented reforms in our nation's schools.