CFPB Director Richard Cordray stressed the importance of financial education in preparing consumers to be financially responsible during a speech at the FINRA Investor Education Conference on Wednesday.
“The best and most immediate form of consumer protection is self-protection: being able to avoid problems in the first place and to know what you can do about it when you do experience a problem,” Cordray said in prepared remarks. “Our new agency is uniquely positioned to help bridge the widening gap between people’s actual financial capability and the increasingly complex financial decisions they have to make. In order to do that, we must also consciously devote ourselves to the essential importance in our society of financial education. Americans simply are not well-equipped to fight through the complexity to make sound and sensible decisions. In fact, we now hear every day from people who lament the choices they made, often expressing anguished regret that they did not know more about the risks involved at the time they made key financial decisions.”
Cordray said that while financial knowledge is available in the public marketplace, consumers are likely to find skewed and biased information published by third parties, adding American consumers need “trusted and impartial resources.”
“To begin with, we can readily agree that all consumers need to understand basic information about budgets, savings, investments and credit,” Cordray said. “But consumers also need to be aware that there are a few big moments in their lives where they will confront specific decisions with potentially far-reaching consequences, such as paying for school or buying a home… We want people to understand which decisions are the most important ones, not to treat them casually, and to know where they can get trusted help when they need it.”
Cordray pointed to a report from FINRA that revealed only one-third of consumers aged 18 to 34, and consumers in their peak earning years between age 35 and 54, have set aside three months’ worth of emergency funds.
Additionally, he pointed to the same report that showed 89 percent of Americans think financial education should be taught in schools.
“First, we recommend that financial education should start early and be continuous,” Cordray said. “When we do not teach children about personal finance – about managing household budgets, saving for the future, or making informed decisions about larger investments in an education or a home – we are failing them in a shameful and costly way. We also need to have integrated curricula in our schools – where the benefits of compound interest are understood in math class, where economic costs and risks are taught in social studies class and where an essay in English class explains how we use money or how we protect our money or how we can take control of our financial lives to achieve our goals. And financial education concepts should be integrated into standardized tests, which would increase incentives for educators to teach them and present opportunities to measure and track student performance on financial education content.”