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Congressional Testimony
February 5, 2002 Tuesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 1246 words
COMMITTEE:
SENATE BANKING HOUSING AND URBAN AFFAIRS
HEADLINE: FISCAL 2003 BUDGET: TREASURY DEPARTMENT
TESTIMONY-BY: PAUL S. SARBANES (D-MD), CHAIRMAN
BODY: RESEND
Opening Statements of
Committee Members
Opening Statement of Chairman Paul S. Sarbanes (D-MD)
Hearing on "The State of Financial Literacy and Education in America."
Tuesday, February 5, 2002
Today we hold the first of two
hearings on the state of financial literacy and education in the United States.
We are especially pleased to have as our distinguished witnesses Secretary of
the Treasury O'Neill, Chairman of the Federal Reserve Greenspan and Securities
and Exchange Commission Chairman Pitt, all with significant expertise on this
subject.
This is the first time that our three witnesses have joined in
testifying before the Committee since September 20. As many of you may remember,
the Committee had scheduled a first hearing on financial literacy for that day,
but in the wake of the terrible assaults of September 11 we asked our witnesses
instead to discuss with us the state of our financial markets and the measures
taken to assure the timely reopening and normal functioning of the markets. That
market operations resumed after only the briefest interruption, and that on the
day trading resumed the New York Stock Exchange handled the largest volume of
transactions in its history reflect the highest levels of commitment and expert
coordination on the part of dedicated public servants, and we are all grateful
for their efforts. I do not want to suggest that financial literacy is a magic
solution that will solve all the problems consumers face in making financial
decisions. It will mean little without a framework that also includes strong
legal protections, vigorous enforcement, and best industry practices with
responsible credit availability. Here I agree with the three-pronged approach
outlined to the Committee last year by Roger Ferguson, the Vice- Chairman of the
Federal Reserve Board: "legislation, careful regulation and education are all
components of the response to these emerging consumer concerns."
Indeed,
there is substantial evidence that Americans do not have an adequate basis for
making sound decisions about their personal and household finances, especially
given the myriad choices they face. A number of organizations have sought to
assess the level of Americans' grasp of financial matters, and their survey
evidence consistently shows gaps.
We know what some of the costly
consequences of financial illiteracy are:
increasing reliance on the
high-cost fringe-banking sector by men, women and families; accumulation of
dangerous amounts of credit-card and household debt; inability to save, to build
a nest egg; inability to plan for a secure retirement.
I am particularly
concerned about the consequences for American consumers of inadequate financial
education. These include:
Millions of people in this country without
bank accounts. These people are, in effect, "unbanked," a status which carries
with it a heavy financial penalty. To conduct even the most essential
transactions, like paying bills or cashing paychecks, unbanked Americans must
rely on financial operations which have large and often hidden fees.
Furthermore, without access to banking facilities they face serious obstacles to
saving and accumulating assets, and to building credit.
The growth of
various
predatory lending practices such as yield spread
premiums, single premium credit insurance, and payday lending. Financial
under-education contributes to an environment in which consumers are vulnerable
to unscrupulous lenders who overcharge and hide the costs.
The
exploitation of remittances. Millions of Hispanic and other workers support
families in their home countries by sending a portion of their earnings home in
the form of remittances. This has long been a common practice among
newly-arrived Americans. Today's workers must pay high fees for the service, as
much as 20 percent in some cases, and they are given an exchange rate which is
both highly disadvantageous and often not disclosed.
If financial
literacy is important in the short term, as we go about the business of our
daily lives, it is critical to our future. It is constantly asserted that
Americans are too often spending for consumption now, with little thought to the
years ahead. America's personal savings rate has averaged an anemic 1.6 percent
for the last year, while consumer debt has grown at a much faster rate.
While some may note that asset growth, particularly in the stock market,
has made up the difference, recent events demonstrate that constant growth is by
no means certain. Increasingly Americans are highly leveraged, borrowing to
spend beyond their incomes, without a cushion to fall back upon. In uncertain
economic times or a downturn, like the present, the problem becomes especially
acute.
We also know that the largest generation in this nation's history
is approaching retirement. One example of the challenges facing us with respect
to retirement is the status of women who face particular financial challenges as
they grow older. Millions of women through widowhood or divorce find themselves
in charge of their household's finances at or near retirement age, without
having received any financial education. These women are then expected to make
complex financial choices which will affect them throughout their retirement.
These hearings, which have long been in the planning stage, take on a
special urgency in the context of our present circumstances. The economy is in
recession, and its future course remains unclear. Recent events in the markets
threaten to undermine the confidence on which the functioning of the markets
depends.
Higher levels of financial literacy will help Americans
approach the decisions they must make in a responsible and productive manner;
they will also reinforce the efficiency of the economy. The time has come to
bring the public and private sectors together in a national strategy to raise
the level of financial education in the nation. Our hearing is a first step in
that direction.
We are fortunate that a number of organizations have
been working toward this end, and we will hear from many of them tomorrow. We
begin, however, with our three public-sector witnesses who are uniquely
qualified to assist us in examining the question of financial literacy. We will
hear from Secretary O'Neill, whose testimony reflects his strong commitment to
improving the level of financial education in America. Next we will turn to
Chairman Greenspan, who has highlighted the importance of this issue on many
occasions. For example, in an address to the Fed's Consumer Affairs Research
Conference last year he stated that:
"Efforts to increase awareness of,
and access to, information that promotes financial literacy are increasingly
seen as necessary to ensure that consumers can meet their immediate obligations
as well as achieve their broader goals of buying a home, funding higher
education for themselves or their children, and preparing for retirement."
Finally we will hear from Chairman Pitt, whose agency oversees
transactions in our capital markets. The SEC bears a unique responsibility now,
when, for the first time in our history, more than half of our population
qualify as investors, either directly or indirectly. Many of these Americans
have had little preparation for the weighty responsibilities that have been
placed before them.
I thank them for their willingness to appear this
morning, and I look forward to their testimony.
LOAD-DATE: February 11, 2002