Thank you, Under Secretary Liang, and to all of you for being here. I’m extremely pleased that we are revitalizing the work of this group.
As we open this session, I think it is important to reflect on the work of the Commission and understand what we have learned. I want to share a few observations about where we are.
- First, financial education can be harmful, and we must be careful to do it the right way.
- Second, we must focus on financial education that allows families know how to spot risks, where to get help, and how to assert their rights when something goes wrong.
By shifting our efforts and emphasis, we can help people move forward, rather than making matters worse for them.
It is tempting to believe the primary antidote for curing American families’ financial woes is simply to have them become more financially literate.
But just as we don’t expect everyone to become experts in medicine to address their health issues, or become a certified mechanic just to drive a car, developing financial know-how has to be a healthy blend of individual interest, supported with empowerment received from engagement with trusted resources, in order to achieve the best results.
Financial literacy can be a double-edged sword. When we have financial resources that are adaptive, accessible, accurate, and timely, it arms us to be skeptical, to negotiate, and to speak up when something is wrong.
But having outdated, hard-to-find financial resources causes consumer frustration, discourages engagement, and drives people to illegitimate resources that play to their biases. This can, in turn, create a false sense of knowledge and overconfidence on the subject matter.
Each year, large financial institutions spend billions of dollars on marketing materials, which are not required to be complete or objective. For every $1 spent by financial educators, $25 is spent on financial marketing. Using modern advertising technologies, like behavioral advertising on social media platforms, firms can target consumers and businesses by leveraging detailed psychographic information. Some of this marketing can even be disguised as neutral information.
This marketing barrage creates an information imbalance that can hinder a consumer’s understanding of their rights, the true cost of their financial choices, and where to turn for help.
Some financial education can actually make individuals worse off, by creating overconfidence or a reliance on biased information. Another negative outcome of financial education is that it can give individuals a deep sense of shame, reduce engagement, and create a reluctance to find a path to a more stable financial situation. We saw this up close and personal in the subprime mortgage crisis, and the impacts are still being felt today.
Going forward, we must focus on financial education that allows families know how to spot risks, where to get help, and how to assert their rights when something goes wrong.
We need to consider what information is needed, who needs it, when they need it, and how we deliver it. A lot of excellent resources for financial action steps exist, but they are not always successfully being received by the right audience at the right time.
The CFPB created the Five Principles of Effective Financial Education to provide research-based guidance to the field on effective approaches to financial education. It is a great resource for helping people take control of their money habits and financial well-being.
Federal agencies need to take a hard look at our own work. We don’t want our own materials to harm families. The CFPB continues to evolve its own resources, which have been used by millions of Americans. We have specifically focused some of this work on military families, older Americans, and younger Americans.
The primary goal for an agency’s educational resources should be for consumers to know where to go for additional help if they are unable to resolve issues on their own. It would be extremely difficult for consumers to resolve issues when they are not aware of how to spot risks and the resources available to help them. Consumers are also frequently unaware of the remedies and resources available to them, and we encourage a government-wide effort on this part.
The CFPB continues to examine institutions’ marketing practices, especially when it comes to how companies are marketing to hard-to-reach communities, including those consumers with limited English proficiency. We are particularly concerned about practices that create financial risks, lead to costly fees, or impede consumers’ understanding of their rights. We will also examine how the consumer information being collected by financial institutions may be used in conjunction with deceptive marketing tactics.
I am also excited to see how many financial institutions are looking at their own financial education initiatives, including how it intersects with their obligations under the Community Reinvestment Act.
We need your partnership in this effort. When agencies effectively coordinate and get consumers to the right actionable information as quickly as possible, it creates a greater likelihood that financial education will be effective.
I look forward to evolving our work with each of you long after today’s meeting. Thank you.