Hearing on "The State of Financial Literacy and Education in America."
Second Hearing in a Series.

Thank you Congressman Dreier for that kind introduction. Before I begin my testimony, I’d like to recognize Congressman Dreier’s efforts to improve financial literacy among our young people. He has been at the forefront of this effort for several years, beginning in the 105^th Congress, where he introduced a House Resolution Expressing Support for Personal Financial Literacy Programs and culminating with this year’s passage of the No Child Left Behind Act.  Congressman Dreier was instrumental in ensuring that financial literacy programs were included and fully funded in the No Child Left Behind Act. This legislation earmarks $5 million specifically for financial education. I commend him for this accomplishment and applaud his dedication to improving financial literacy.

Chairman Sarbanes, Ranking Member Gramm, members of the Committee, I am Susan Molinari and I am Chairman of Americans for Consumer Education and Competition (ACEC). I want to thank you for this opportunity to testify and participate in this dialogue to improve our nation’s financial literacy. Teaching our young people to manage their finances should be as much a part of their curriculum as teaching them math or grammar. It is a subject that will affect them throughout their lives and will impact their ability to purchase a home, raise a family and prepare for retirement.

Financial literacy forms the foundation that supports such American dreams as home ownership and a secure retirement. Sound financial skills are crucial to avoiding the pitfalls that result in many of our citizens – particularly young ones – getting into financial hot water or becoming victims of charlatans who prey on the financially illiterate. Quite simply, being financially literate is essential to controlling, rather than being controlled by one’s financial circumstances throughout life. And, as Federal Reserve Board officials have pointed out, mastery of these financial ABC’s by consumers is essential to the smooth and efficient functioning of our free market economy.

Theses hearings bear witness to the fact that you and your colleagues, Mr. Chairman, share the view of many of us in the financial community, that the sweeping education bill which President Bush recently signed into law is a beginning -- a first and important step – a down payment if you will, toward the financial educational accounts of the nation’s young people. This law marks the first time that a federal law has specifically allocated funds for financial literacy. It makes available some $385,000,000 for local innovative education programs. Among the 27 programs that qualify for this funding are "Activities related to financial literacy skills (including the basic principles involved with earning, spending, saving, and investing)." Sen. Jon Corzine championed this provision in the Senate. Senator it was an honor to work with you and several of your colleagues on this legislation including Senators Enzi, Akaka, Jeffords, Harkin and Kennedy. Congressman John Boehner (Chairman of the House Education and the Workforce Committee) Congressman Dreier, and Congressman Pomeroy led the way in the House.

I am honored and grateful to be here, on behalf of ACEC, to answer the five most frequently asked questions regarding the importance of financial literacy courses.

How bad is the problem? Let’s look at the bottom line. Here is a study that caught my eye – in a Lou Harris study testing basic economic principles:

• Adults received 57%
• High school students scored 48%
• Half of the adults and 2/3 of the students did not know that the stock market provides a venue for people to buy and sell stocks.
• Only 54% of adults and 23% of students knew when government spending exceeds its revenue, a deficit is created.

ACEC sought to add to the data and we reported last year that 82% of high school seniors surveyed failed a personal financial quiz. We tested them on real life questions such as interest rates, loans etc. According to the Norton Bankruptcy Law Advisor, individuals 25-34 declaring bankruptcy have gone risen from 417, 510 to 464,647.

So now that we have established the problem, the next question is why are we suggesting that these problems be solved at the blackboard rather than at home by the parents?

While we may be great parents, we may not be great investors and savers:

• 56% of U.S. households have failed to save enough for retirement.
• 53% of Americans report that they often live paycheck to paycheck.

And remember the first Lou Harris poll I cited, parents, as well teenagers flunked! Moreover, a Visa USA survey revealed that 81% of parents want solid personal finances taught in schools because they want their children better prepared to manage money than they were.

Should we ask our teachers to assume one more responsibility in preparing our children for the future?

I would answer that as we raise the next generation to be successful do we not have an obligation to train them to deal responsibly with success? For when they are not adequately taught, retirement plans are not funded, medical plans are not paid, bankruptcies are absorbed by consumers one way or the other and our economy is negatively impacted.

Do financial literacy courses work?

Students, like those at Woodrow Wilson High School’s Academy of Finance here in the District of Columbia, offers insight into the value of personal financial classroom instruction. Whereas just 146 of the 801 seniors taking ACEC’s 2001 personal financial quiz were able to achieve a passing grade, all of Wilson’s 12^th graders passed. They did so after just one semester of personal finance instruction that included everything from borrowing money to estate planning. Similarly, the National Endowment for Financial Education’s High School Financial Planning Program (HSFPP) made a significant difference in the financial skills of students taking the coursework. A survey of teens who completed HSFPP in 1997-1998 program found that nearly half (47%) knew more about credit costs and nearly two-fifths (38%) knew more about investments. The knowledge gained also brought about important behavioral changes in the teens. Nearly two-fifths (37%) improved their skills for tracking spending, and nearly half (45%) began saving to save or began saving more. More importantly, according NEFE, teens taking the Financial Planning Program retained what was taught to them and used these practices in their daily lives.

Teachers can incorporate financial literacy curriculum into their applied math or economic courses simply by accessing the Internet. ACEC has prepared a course that can be downloaded from its website www.acecusa.org.

Let me conclude with one more question: can we afford to teach financial literacy courses? We can’t afford not to!

The poet e.e. cummings once said that, "I'm living so far beyond my income that we may also be said to be living apart." That might be funny were it not for the fact that too many Americans have the same relationship with their financial life. Working together to improve the financial literacy of our young people we can reunite consumers and their income so that may live comfortably and productively under the same roof.

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