Remarks from the Council for Economic Education

Richard G. Ketchum

Chairman & Chief Executive Officer

Baltimore, MD
October 3, 2013

As prepared for delivery.


Thank you, Nan [Morrison], for that introduction. I'm honored to be here to participate in the conversation about building the levels of economic and financial literacy among youths.

Americans today face a rapidly evolving economy and financial marketplace, which makes saving and investing increasingly complex. So it's vital that consumers have the tools and the knowledge to make good decisions about their money. 

We are here in this room for very similar reasons: our dedication to financial literacy and education. Part of your job as educators is to help students learn to understand and manage their money in the real world. And CEE has led the way in developing high-quality, standards-based resources to meet that charge. Take Gen i Revolution, for example. I'm sure many of the middle- and high-school teachers here in the room know about and use it. This terrific online game builds upon CEE's popular "Learning, Earning and Investing" curriculum and engages students through competition to make learning about personal finance fun. It also helps reinforce key financial concepts, which today's students will need as they face their own money management choices in college and beyond. FINRA's Investor Education Foundation was pleased to support the game's creation and launch—and it's gratifying to see how the game has grown since.

The simulation game is also popular in co-curricular learning environments—in afterschool and summer programs for teens and pre-teens. We see this especially in public libraries that are working with educators to provide collections, outreach programs and training opportunities to help schools prepare students for the financial decisions they'll confront even before graduating from high school. For several years now, the FINRA Foundation has been providing grant support for this type of library-school collaboration. We are always amazed by the creative energy that results when teachers and librarians work together to empower students to take a leadership role—not only in their own education, but also among their peers, with younger students and within their families.

Part of FINRA's job as a regulator is to help investors learn how to build their financial knowledge and provide them with essential tools to better understand the markets and basic principles of saving and investing. The good news is that our National Financial Capability Study—which we conducted in 2009 and 2012 to measure the progress Americans have made in improving their financial futures—shows that increasing financial capability can have profound implications on the financial security, well-being, and prosperity of individuals and families.

So today, I want to talk to you about the relationship between financial education programs and financial literacy levels, as well as other key findings from the study.

Background—Who We Are and What We Do

FINRA's mission as a regulator is to protect investors and ensure market integrity. We believe that investor education is a critical component of investor protection, and we have worked hard to develop a strong investor education outreach program. In addition, the FINRA Foundation aims to provide underserved Americans with the knowledge, skills and tools necessary for financial success throughout life.

Our Military Financial Readiness Project, for example, includes on-the-ground training and resources for military financial educators and direct outreach to service members and their families. We also have an innovative program that helps military spouses earn a career-enhancing credential while providing financial counseling and education to the military community.

Our Investor Protection Campaign leverages partnerships with AARP, the Better Business Bureau, national crime prevention and victim advocacy organizations to help consumers spot and avoid financial fraud. As educators, you'll appreciate that this effort is grounded in years of research and has been field-tested against control groups with terrific results. And as consumers, I hope you'll take comfort in knowing that a little understanding of persuasion can go a long way toward preventing problems.

We're also focusing our financial literacy programs on younger Americans. Since 2008, we've partnered with Channel One and the Consumer Federation of America on a project called "Generation Money" to address everyday personal finance topics that are important for teens to understand. In the 2012 to 2013 school year, the Generation Money campaign reached 5 million students and 200,000 educators—possibly several of those here in the room today.

Through our community-based grantmaking in partnership with the American Library Association and the United Way Worldwide, we aim to expand grassroots capacity for financial education. To that end, we've been supporting innovative efforts to connect Americans, especially low-wage workers, with reliable, unbiased financial information. And through rigorous research, we aim to better understand what works when it comes to building financial capability in underserved communities.

Staying on that topic, I'd like to take a few moments to talk about financial capability—and where we stand as a nation when it comes to our knowledge, attitudes and behavior. Many of you may be familiar with the FINRA Foundation's long-standing interest in building financial capability for all Americans. As you may know, financial capability goes several steps beyond financial knowledge. It encompasses multiple aspects of behavior relating to how individuals manage their resources and how they make financial decisions—including the factors they consider and the skill-sets they use.

I've personally had the opportunity to focus on financial capability through my participation on the President's Advisory Council on Financial Capability. Earlier this year, the Council presented its recommendations to the president. Those recommendations share a common theme: building financial capability cannot be addressed in a vacuum. It must be woven into the fabric of our lives—at home, in our schools, in the workplace, in our communities, and in the way we design and regulate financial products and services. We also need to research and assess what methods actually work, for whom and under what circumstances.

We at FINRA and the Foundation are working to evaluate what works and to understand how demographics, behaviors and attitudes affect financial literacy and capability. One of the ways we're doing this is through the national study of the financial capability I mentioned earlier. Our overarching research objectives were to benchmark key indicators of financial capability and evaluate how these indicators vary with underlying demographic, behavioral, attitudinal and financial literacy characteristics. The Foundation has gathered rich datasets that allow academics, policymakers and educators to advance our collective understanding of the relationships among financial literacy, financial capability and financial well-being.

Key NFCS Findings

Let me share some of what we found—especially as it relates to young Americans. Like so much in life, there's good news and bad news. On the good news front, financial capability in the United States has improved in important areas between 2009 and 2012. Significantly more respondents have rainy-day funds, which put them in a better position to deal with life's unexpected events. Among the younger respondents—ages 18 to 34—33 percent told us they have set aside three months' worth of emergency funds. Nearly a quarter of all respondents told us they are satisfied with their personal finances—up from 16 percent in 2009.

Debt, however, continues to be a problem. And that's not great news. More than 40 percent of the respondents believe they have too much debt. Although the percentage of credit card holders carrying debt on their cards has declined from 56 percent to 49 percent, nearly half still carry debt and pay interest on their balance. And about 10 percent use their cards for cash advances.

We also asked respondents about student loans and medical bills. Among the younger respondents, 36 percent of 18 to 34 year-olds report having student loan debt. More than half of respondents with student loan debt are concerned that they will not be able to pay it off. When it comes to medical bills, thirty-one percent of 18 to 34 year-olds have unpaid medical bills that are past due.

Related to debt is another important concept that researchers have been examining in recent years called financial fragility. Financial fragility is the lack of liquidity to deal with an unexpected challenge, like a major car or housing repair. We asked respondents if they would be able to come up with $2,000 if an unexpected need arose in the next month. Nearly 40 percent of respondents told us they probably or certainly could not. And among low- to moderate-income respondents, the number rose to nearly 70 percent. Among 18 to 34 year-olds, the number was 49 percent. This finding sheds light on the precarious financial condition of many U.S. households.

Another important area that the study tracks is the level of financial literacy across the country. Financial literacy remained flat, or even slightly down by some measures. In 2009 respondents could correctly answer three of five questions on a financial literacy quiz, and in the 2012 study that number held steady. However, another way to look at it is that we classified 42 percent of the respondents in 2009 as having high financial literacy—meaning they could answer four or five of the five questions correctly. In 2012, the percent of respondents classified as having high financial literacy dropped slightly to 38 percent.

However, we also found some encouraging signs about financial literacy. Respondents who were offered and participated in financial education could answer more of the financial literacy questions correctly when compared to respondents who were not offered financial education or who were offered it but did not take advantage of it. That's an important and promising finding—and I imagine it's gratifying for everyone in this room to hear. It's clear that much more work needs to be done to establish whether a causal relationship exists between financial education and financial literacy—and to further explore the relationships among financial literacy, financial capability and financial well-being. But I'm gratified that the findings from the National Financial Capability Study appear to point in the right direction.

When it comes to financial literacy education in the schools, there's also a lot we don't know. We often hear or read that students have low financial literacy, or that they are incapable of making informed financial decisions. Let me offer a different perspective. Through focus groups with middle- and high-school students across the country and through the FINRA Foundation's teen financial literacy programming, a different story emerges. We see students with a great deal of practical savvy when it comes to personal finance. We encounter examples of students stepping up and helping their families through tough economic times by making substantial contributions to the management of household finances. We observe students applying critical thinking skills to tough financial questions. We have evidence that they are going home and initiating conversations about money with their parents and other family members. The picture that emerges is not one of reluctant learners. Rather, it's a picture of students who are eager to learn ways to make the best of their financial futures and to help others do the same. That's exciting to me. It's exciting to know what can happen when talented educators have access to the curriculum tools and training opportunities of the sort that CEE provides.

For example, three in five students exposed to the Generation Money campaign currently keep a budget or track their expenses. That's 97 percent higher than students in the control group. And students exposed to the campaign who are not currently keeping a budget are substantially more likely than students outside of the program to say they will start next year. In addition, students who participated in the campaign show greater interest in increasing their savings and are somewhat more likely to be currently saving for big purchases and saving for college, versus the control group.

While these positive results are encouraging, we have more work to do to understand what is being taught in schools, by whom, to whom and with what learning resources. And, of course, we need evidence that any programs used with students are reliably effective. The FINRA Foundation is working on some of these questions. But we are still left with a puzzle that has many missing pieces.


I want to close with one final statistic: when asked whether they thought financial education should be taught in schools, 89 percent of respondents said yes. Such a response underscores the power of financial education and the important role that educators play in boosting financial literacy. I like to imagine that, one day, we'll live in a world where everyone has a rainy-day fund set aside—and young and old alike can manage the debt they've taken on while saving for a brighter future. And I believe that, because of your hard work, we will see that day come.