Remarks by Sharon L. Lechter

Dear Global Financial Literacy Summit Participant,

I have been honored to serve on the President’s Advisory Council on Financial Literacy since January 2008.  I have been dedicated to financial literacy since 1992 when my oldest son became prey to credit card promotions as a freshman in college.  He quickly sank into a hole of credit card debt that took him six years to repair.  I was angry not only him but also at myself for failing to properly educate him.  I dedicated my professional efforts towards teaching financial literacy from that point forward. It was an incredible honor to be asked to serve on the Council with such esteemed colleagues who share my passion for improving financial literacy. The Council has worked diligently in its efforts and reported its findings and recommendations to the President in January 2009. 

We have accomplished much…but there is much more to do.
We want to help people make a real difference in their lives…not just issue a report on the issue.
We believe in the “aspirational relevancy” of financial literacy in today’s economy.
We are dedicated to positive outcomes.
We are here to serve you and the American people.

The Council Initiatives and Accomplishments:

1. Establishment of U.S. SBA Office of Entrepreneurial Education. The SBA became the first federal agency to take action on the President’s Executive Order.  The "Office of Entrepreneurial Education" in the SBA was approved and created with the collaboration and active support of the Underserved Committee.
   
   
2. Committee convened experts and issued a final, Committee-approved “Report on the Future of Responsible Mortgage Sub-prime Lending.”   The report was the result of a May 28th think tank sponsored by the Underserved Committee with industry leaders representing government agencies, community development organizations, research groups, and the private sector.
   
   
3. Full Council endorsed “financial literacy as the basis of all future responsible mortgage subprime lending” at its June, 2008 meeting, based on the Committee’s work.
   
   
4. Full Council adopted “guiding principles around financial literacy and responsible mortgage lending,” based on the Committee’s work, at the July, 2008 meeting of the Council.
   
   
5. Crafted and created the “President’s Council Financial Literacy Volunteer Corp” initiative. The Council approved the FLC at its June, 2008 meeting, and it is now located at www.volunteer.gov.
   
   
6. Creation of both Model Cities and Model States Programs.  Designed to reward cities and states that take real and sustainable initiative to integrate financial literacy in youth through adult life. Committee members are communicating with various cities and states across the country about being a “model” in terms of innovative programs and services providing financial literacy, in coordination with the National League of Cities and the National Governors’ Association.  The Committee on the Underserved will co-host “Town Halls on Financial Literacy Tools” to Empower the Underserved, to begin with (1) Mayor Fenty of District of Columbia  (2) Congresswoman Sheila Jackson-Lee of Houston (3) Mayor Diaz of Miami (4) Mayor Villaraigosa of Los Angeles (5) Congresswoman Diane E. Watson of Los Angeles and (6) Congressman Lacy Clay of Missouri.
   
   
7. National promotion of the Council endorsed, U.S. Treasury Department’s Money Math (Middle School) financial literacy curriculum, and the National Financial Literacy Challenge (High School Initiative). Council Chairman Charles Schwab and Vice Chairman John Hope Bryant, working in concert with the Council Youth Committee, jointly sent letters to more than 12,000 state and city education and school superintendents nationwide in 2008, requesting voluntary adoption of both programs.
   
   
8. Support of the Community Financial Access (banking the unbanked) Pilot. Council Member Rev. Robert Lee launched an Unbanked Pilot in Jacksonville, Florida, in the Second Quarter of 2008. The Community Financial Access Pilot is focused in eight designated communities to begin opening accounts for low- and moderate-income “unbanked” and “under-banked” individuals by September.  Along with opening accounts, the CFAP will provide access to financial education and financial counseling through partnerships with established service providers.
   
   
9. Roundtable and Town Hall Meetings bringing Awareness to the Need for Financial Literacy.  The Committee on the Underserved has invited the views and advice of high level executives of private, nonprofit, community, and faith-based sectors as well as state, local, and federal government officials around the country on what must be done to increase America's financial literacy, and also to obtain information on what initiatives they have implemented, including:
   
   
   1. First ever White House Office of Faith and Community Based Initiatives Financial Literacy Roundtable, HUD Secretary Financial Literacy Roundtable, and a first ever Financial Literacy Town Hall featuring Treasury Secretary Hank Paulson, U.S. Treasurer Anna Cabral, Council Chairman Schwab, Vice Chairman Bryant, Council Member Don McGrath, Mayor Don Dellums, state officials and members of the community at the Oakland HOPE Center in Oakland, California.
   2. Meetings with Executive Board Chairperson and Treasurer of National Association of State Treasurers, National Governors Association  International Conference on Financial Education (May 9) - The Committee on the Underserved initiatives were promoted to a wide international audience of high-level governmental officials and experts from public authorities and regulatory and supervisory bodies, as well as senior private sector representatives and academics from OECD and non-OECD countries (44 countries represented in total).
   3. Think tank on "The Future of Responsible Sub-prime Lending" (May 28) -The Committee on the Underserved held this meeting at the U.S. Department of the Treasury. The Committee was joined by an expert group of topical and industry leaders representing government agencies, community development organizations, research groups, and the private sector to gather information around best practices and explore practices and explore fusing financial literacy into the mortgage lending process resulting in the recommendation of "Best Practices" for The Future of Responsible Sub-prime Mortgage Lending (June 6) - This Underserved Committee-approved report was endorsed by the Council on June 18 at its 3rd public meeting at Treasury.
   4. White House Roundtable on Financial Literacy (June 18) - This event was co-hosted by Jay Hein, Director of White House Faith-based and Community Initiatives (OFBCI) and the Council's Committee on the Underserved. T he audience was comprised of government officials, policymakers, business leaders, foundation representatives, philanthropists and faith-based and community leaders. (140 attendees in total)
   5. FDIC Forum (July 8) - The Committee presented its recommendation of best practices for future responsible sub-prime mortgage lending for low and moderate income households.
   6. Meeting with U.S. Federal Reserve Chairman and Board of Governors (August 6) -  The Committee on the Underserved promoted the importance of financial literacy and education for America's underserved communities and the need for a comprehensive policy to encourage and teach financial literacy. Federal Reserve Board Governors in attendance included Chairman Ben S. Bernanke, Vice Chairman Donald L. Kohn, and Governors Kevin M. Warsh, Randall S. Kroszner, Frederic S. Mishkin, and Elizabeth A. Duke.
   7. Georgia Consortium for Financial Literacy (September 8) - This educational meeting and breakfast, hosted by Equifax, featured the Council's key initiatives which in all areas touch on the needs of the underserved.
   8. Federal Reserve Board of Atlanta Roundtable (September 8) - This event was hosted by Dennis Lockhart, President & CEO of the Federal Reserve Board of Atlanta. The audience included leaders from the government, industry, educational institutions, and community.
   9. HUD Financial Literacy Roundtable (September 10) - The HUD roundtable series was supported by the Committee on the Underserved in response to Secretary Preston's interest in discussing potential strategies and collaborations to dramatically increase financial literacy in underserved communities and find additional ways to help Americans, especially those who are facing the threat of foreclosure.
   10. The 2nd Canadian National Financial Literacy Conference in early September. 
   11. The Committee on the Underserved and U.S. Hispanic Chamber of Commerce co-hosted a roundtable on financial literacy in October including leaders of national ethnic chambers of commerce such as U.S. Hispanic Chamber of Commerce, the National Black Chamber of Commerce, the U.S. Pan Asian American Chamber of Commerce, the National Indian Business Association and the National Congress of American Indians.




10. Meetings with CEOs and private sector leaders including the CEO of the Financial Services Roundtable, CEO of Nationwide Insurance, CEO of Bank of the West, vice chairman of US Bank, co-president of Wells Fargo Mortgage, the president of Bank of America, CEO of Sallie Mae, CEO of the Carlyle Group, CEO of Ford Motor Credit, and many others.

THERE ARE SEVERAL SPECIFIC RECOMMENDATIONS which I wholeheartedly support:


1. FINANCIAL LITERACY TRAINING FOR EVERY AMERICAN CHILD

2. BANK ACCOUNTS ACCESS FOR EVERY AMERICAN

3. FORMALIZED FINANCIAL LITERACY (FUSING FINANCIAL LITERACY) AS A REQUIRED COMPONENT IN THE MORTGAGE LENDING AND CREDIT PROCESS

4. FEDERAL FUNDING FOR CBOs and NON PROFIT ORGANIZATIONS SPONSORING COMMUNITY BASED FINANCIAL LITERACY PROGRAMS

5. FEDERAL FUNDING FOR CITIES AND STATES THAT DEMOSTRATE LEADERSHIP IN FINANCIAL LITERACY.

1.    FINANCIAL LITERACY TRAINING FOR EVERY AMERICAN CHILD

Young people today are not prepared to succeed financially.  The current global economic crisis, which has massive levels of financial illiteracy at its core, demonstrates more than anything that adults, including middle class adults, are not financially literate.

Many young people fail in the management of their first consumer credit experience, establish bad financial management habits, and struggle throughout their lives unable to create a sound financial footing for themselves or their families.  By implementing a mandatory financial literacy program at an early age not only will they learn basic financial management skills, they will also gain self confidence and have the opportunity to lead more productive lives.

THE FACTS
* 2008 High school seniors answered only 48.3 percent of the questions correctly in a nation survey on financial literacy, ranking lower than their 2006 peers in financial literacy scores. (JumpStart Coalition, 2008)
* 33%, or one out of every three, high school seniors uses credit cards. (JumpStart Coalition, 2008)
* Nearly one in five, or 20%, of 18-to 24-year-olds is in “debt hardship,” up from 12 percent in 1989 (Source: Demos.org “The Economic State of Young America,: May 2008)
* Young Americans now have the second highest rate of bankruptcy, just after those aged 35 to 44. (Source: “Generation Broke: Growth of Debt Among Young Americans”)
* Money Math: Lessons for Life http://www.treasury.gov/offices/domestic-finance/financial-institution/f... and the National Financial Literacy Challenge www.flc.treas.gov  were created to educate our young people and to bring awareness to this issue.

THE NEED
Understanding money is an essential life skill.  Every young American is being underserved when they are not educated about basic financial principles. 

In the year 2000, there were 76.6 million students enrolled in schools from kindergarten through graduate schools.  In 2004, the United States budgeted $827 billion for education.

RECOMMENDATION
I believe that EVERY American child should receive financial literacy education throughout their K-12 education as well as in post-secondary.
The students are there -- today.
The Money Math curriculum is done and available on-line  -- today.
The teachers are there -- today.
The cost to implement is minimal.

So what is the problem? The program today is voluntary – not mandatory.  It takes a license to drive a car today. It should be a requirement for individuals to understand the basics of how to drive crucial financial and economic decisions in their life, in a democracy rooted in capitalism and free enterprise choices. We need to make it mandatory and give our young people the gift of financial literacy.

The educational tools and curriculum are provided through the Treasury Department in the Money Math lessons. The need is proven, obvious and undisputed.  Every American child should receive the financial education that will not only help them survive in the economic world they will face, but help them thrive in it.

2.    BANK ACCOUNTS FOR EVERY AMERICAN

Owning a bank account and having a relationship with a financial institution should be a basic human right and available to every American citizen. It is the first step in financial independence. Providing electronic debit access to a bank account under the protection of the FDIC will provide a hand-up instead of a hand-out to the underserved American citizen.

THE FACTS:
* An estimated 28 million American households are "unbanked," and millions more are "underbanked."  It is estimated that close to 100 million Americans are underserved.
* They do not have accounts at banks and other mainstream financial institutions.
* As a result, these cash consumers pay excessive fees for basic financial services,
* They are susceptible to high-cost predatory lenders,
* They have difficulties buying a home or otherwise acquiring assets. (Source: FDIC)
* What are the Reasons Why People are Underbanked?
o    Distrust of the banking system.
o    Inability to maintain sufficient cash balances to avoid high monthly fees
o    Write too few checks per month to need a checking account
o    Have too little monthly income to justify a savings account.
o    The lack of bank branches in many lower-income and inner-city neighborhoods has made a banking relationship inconvenient for many consumers.

THE NEED
A 2006 study of unbanked consumers by Scarborough Research found that millions of adults lived in households that do not have any relationship with a bank for either checking, savings or credit cards. Unbanked consumers are more likely to be female, younger, lower-income, single and to hold blue collar occupations.

A more recent study from The TowerGroup (July 2008) reports that it is actually more than 100 million consumers living in the United States today that are considered "unbanked," "underbanked," or credit underserved, and often rely heavily on nonbank providers of financial services to conduct their financial transactions. In spite of various regulations enacted to provide banking services to a broader range of consumers, many financial services institutions still do not  offer the products needed by this significant portion of the U.S. population.
New research from TowerGroup finds that traditional financial institutions must focus more attention on creating the right products for financially underserved consumers - given that existing products do not meet the needs of this population nor helps institutions win additional market share in this category. Institutions must make a full-scale evaluation of various segments of the underserved market and address these customers' unique needs, preferences, and economic circumstances. (Source: TowerGroup July 2008).

THE RECOMMENDATION
Every American citizen should have the right to an electronic, debit card accessible bank account protected by the FDIC.

We should empower Americans to establish a banking relationship -- not just a banking account, thereby allowing them access to traditional banking services as well as financial education.  The goal is to transition today’s check cashing customers into successful banking customers, minimum wage earners into living wage earners, and renters into home owners.
       
3.    Formalized Financial Literacy as a Required Component in Mortgage Lending and Credit Process
         
With all the attention presently focused on solving the sub-prime mortgage crisis, there is a very real possibility that lending to the poor, the under-served and even the middle class might effectively dry up. 

THE FACTS
*    Household debt reached $13.8 trillion in 2007, with $10.5 trillion of that mortgage debt.
*    The 2007 savings rate (%) is the lowest since 1929 (Source: Bureau of Economic Analysis)
*    The U.S. has the lowest savings rate in the developed world.
*    40% of American families spend more than they earn (Source: Federal Reserve)
*    The bankruptcy of Lehman Brothers, with assets of over $600 billion was the largest in US history at its filing.
*    Banks are tightening credit and lending less.
*    Foreclosures are skyrocketing.
 

THE NEED
Americans are in financial crisis.  At the core of this crisis, beyond the issues of predatory lending, fraud and investor speculation, is “payment shock,” or individuals who asked what the payment was, and not what the interest rate was. This speaks to massive levels of borrower financial illiteracy, including middle class borrowers. Many did not understand the documents and financial terms of the mortgages they were signing. Financial education is essential in bringing financial stability back to the American family and the American economy.  With this education there also needs to be more complete and easy to understand disclosure documents provided to the consumer during the mortgage process.

On June 18th, 2008, The President's Advisory Council on Financial Literacy did endorse and support a baseline policy recommendation that “financial literacy should be at the very foundation of the future of responsible sub-prime lending.”   The policy recommendation was a collaborative effort of industry leaders, government officials, researchers and private sector individuals. It received endorsements and statements of support for the proposal from Wells Fargo, Banco Popular, U.S. Office of Thrift Supervision, U.S. Office of the Comptroller of the Currency, and the Housing Policy Council of the Financial Services Roundtable. 

Resource material:  A downloadable and printable version of the post-May 28th, 2008, Committee-approved report on "the future of responsible sub-prime lending," is available on the U.S. Treasury Department website at http://www.treasury.gov/offices/domestic-finance/financial-institution/f...

THE RECOMMENDATION
I believe that financial literacy education should become a requirement and an integral part of the mortgage and credit process. Further, more specific and easy-to-understand disclosure documents should be provided and reviewed with the borrower during the lending process.

4. FEDERAL FUNDING FOR CBOs and NON PROFIT ORGANIZATIONS SPONSORING COMMUNITY BASED FINANCIAL LITERACY PROGRAMS

THE FACTS
*    Community based organizations and non-profits can effect change.
*    Community Based Organizations (CBOs) are the lowest organizational level between people, mostly at the level of neighborhoods and small communities. The members themselves typically manage the organizations.
*    Community development is asset building. It centers around housing and community economic development but also includes developmental efforts, such as job training, to prepare residents for more productive lives.
THE NEED
There is a critical need for immediate action.  There are CBOs and non-profits that have the ability to implement financial education programs within their communities immediately.

THE RECOMMENDATION
I believe we should encourage public/private partnerships.  Federal funding should be provided for non-profit organizations working on community based financial literacy programs.

5. FEDERAL FUNDING FOR CITIES AND STATES THAT DEMOSTRATE LEADERSHIP IN FINANCIAL LITERACY.

THE FACTS:
State and local real estate and income taxes are directly impacted by financially troubled residents.
Real estate foreclosures have a direct negative impact on state and local tax revenues.
Many state and local governments are experiencing severe budget shortfalls.
Financial education will improve the overall financial well-being of a community.

THE NEED
Financial education and the resulting economic empowerment can improve the financial well-being of the residents of our cities and states –resulting in stronger local and state economies.

THE RECOMMENDATION
We should recognize and reward city and state governments which demonstrate leadership in financial literacy education for their residents.  By improving financial literacy at the local level we will more quickly impact our national economy and in turn the global economy.

Immediate results demand immediate action.  This Global Financial Literacy Summit is a  wonderful platform to create definitive action steps to improve the financial literacy of mankind.  The lack of financial education is truly a global problem and we need a global solution. Thank you for the opportunity to serve.

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