Financial Literacy: Your Best Defense Against Predatory Lending
FederalrnReserve Chairman Ben Bernanke told the Senate Subcommittee onrnOversight of Government Management, the Federal Workforce, and the District ofrnColumbia, Committee on Homeland Security and Governmental Affairs thatrnfinancial educationrnmust be a life-long pursuit. “(It)rnenables consumers of all ages and economic positions to stay attuned to changesrnin their financial needs and circumstances and to take advantage of productsrnand services that best meet their goals. Well-informed consumers, who can servernas their own advocates, are one of the best lines of defense against thernproliferation of financial products and services that are unsuitable, unnecessarilyrncostly, or abusive.” </p
Tying the financial crisis to the need forrngood financial decision making, Bernanke said good choices depend on reliablernand useful information, presented in an understandable way. He included as essential components ofrnpersonal financial management and understanding of how to budget strategically,rnuse credit, save to build personal wealth, and shop for and choose suitablernfinancial products. </p
ThernFederal Reserve has taken a three-pronged approach to assisting consumersrnsuccessfully navigate the financial marketplace. First, the Chairman said, the Board hasrnworked diligently to foster financial and economic education. For years it has provided unbiased, credible research-basedrninformation to consumers in print and on line. rnThey have publications in both English and Spanish that provide consumerrntips on topics from avoiding foreclosure scams to managing a checkingrnaccount. Recently the Fed has developedrninteractive webpages that offer information on changes in regulations thatrnaffect consumer financial products and services.</p
Exposing young people to financial information, he said, is especiallyrnimportant. Students can be vulnerable tornthe lure of taking on excessive debt so the earlier they develop basicrnfinancial skills the better their decision making will be as adults. With this in mind, the Federal Reserve worksrnclosing with teachers and schools to provide resources such as educationalrngames, classroom lesson plans, and multimedia tools for financial education</p
The bank also collaborates with numerous other organizations and agenciesrnthat have financial education as their goal. rnChief among the organizations is NeighborWorks American which supportsrnhomeowner counseling but the list also includes Junior Achievement, AARP, thernNational Council of LaRaza, America Saves and many others. Since 2004 the Board has participated in thernFinancial Literacy and Education Commission which is composed ofrnrepresentatives from 22 federal agencies and commission and coordinatesrnfinancial education resources offered by the federal government</p
Second the Federal Reserve conducts research on consumer decision-makingrnto identify what works in financial education. rnFor example, the Board’s Survey of Consumer Finances is one of the mostrnimportant sources of information on the assets, debts and wealth of Americanrnhouseholds. Several years ago,rnresearchers in the Board’s Division of Consumer and Community Affairs joinedrnwith Army Emergency Relief to conduct a longitudinal study of the effect of arntwo-day financial education program on soldiers’ financial management. The Federal Reserve has also developedrnsubstantial expertise in assessing and drawing policy conclusions from a rangernof consumer financial data, such as data from credit records or data onrnmortgages provided by lenders under the Home Mortgage Disclosure Act. The Fedrnhas also analyzed alternative approaches to financial education such as an evaluationrnof students taught by teachers who had taken a 30 hour Federal Reserve ofrnPhiladelphia course. A 50 question exam administered both before and after thernclass showed that the student has a significant increase in their personalrnfinancial achievement compared to other students of the same age. </p
Third the Board recognizes that basicrnfinancial knowledge is not sufficient to safeguard consumers from fraud andrndeceptive practices so it has developed strong consumer protection rules andrnfinancial product disclosures and vigorously enforces those regulations. In recent years the Fed has issued rules for mortgages,rncredit cards, student loans, and overdraft protection programs and hasrnmaintained a robust compliance program for banks under the Fed’s purview. </p
Bernanke said that after its consumer-protection rulemaking authorityrnand consumer-protection supervisory and enforcement authority transfers to thernBureau of Consumer Financial Protection the Board will retain some relevantrnrule-writing authorities as well as supervisory authorities for smallerrnfinancial institutions it regulates for safety-and-soundness purposes. ThernBoard is working closely, he said, with the Department of the Treasury and thernnew Bureau to facilitate the necessary transfers of authorities and personnel. </p
“Regardless of how the regulatory and supervisory responsibilitiesrnare distributed,” Bernanke concluded, “a comprehensive approach–onernthat includes education, research, and regulation–remains essential tornensuring that consumers receive adequate protections and that markets forrnconsumer financial products function well.” </p
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