Consumer Financial Education Requires Coordinated Private Response

What should the federal government’s role be in helping prepare consumers to make financial decisions? How can the housing industry help lead the way for better consumer knowledge and protection?

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President Obama’s Proposed Fiscal Year (FY) 2014 Budget increased funding for housing counseling with $132 million allocated to the Department of Housing and Urban Development (HUD) and NeighborWorks. Housing counseling is a vital step to remedying both the causes and effects of the recent financial crisis of 2007. It is clear that the government has identified consumer financial education as a key policy priority under this administration as well as under President Bush’s administration, but there remains an absence of a coordinated private response in the marketplace.

President Obama’s direct housing counseling funding will support loss mitigation and foreclosure avoidance related counseling. In addition to the funding appropriated to HUD, the Consumer Financial Protection Bureau (CFPB) is one of the primary vehicles for advancing consumer financial literacy. The CFPB released a white paper, entitled Transforming the Financial Lives of a Generation of Young Americans, in April on the importance and condition of financial education for young Americans. The white paper describes young Americans as “ill-equipped to make major financial decisions” in today’s highly complex financial services environment. The CFPB recommended incorporating financial education into the public school curriculum for all ages.

Rightfully so, the administration has focused policy resources on this issue as a necessary measure to ensuring the security of American families today and tomorrow. Studies reveal that Americans of all ages lack a solid understanding of debt management and risk diversification (Lusardi Annamaria, Daniel Schneirder and Peter Tufano. “Financially Fragile Households: Evidence and Implications.” Brookings.). This problem is even more urgent for young Americans embarking on college and/or entering the workforce. (Chen, Haiyang and Ronald Volpe. An Analysis of Financial Literacy among College Students. Financial Services Review).

Even before the financial crisis, in 2003, President Bush increased funding for HUD’s Housing Counseling Grant Program. Just as the stock market was beginning to react to growing instability in the financial system in October 2008, President Bush boosted housing counseling related funding by $50 million. Separately, in an effort to assist distressed homeowners, more than $330 million was provided to NeighborWorks to provide foreclosure mitigation counseling and legal assistance. More than 130 nonprofit organizations provided this very necessary counseling to homeowners across America.

President Obama’s budget built on that of President Bush’s and added to a growing trend in public policy to devote resources to this important issue where the majority of Americans clearly lack the fundamental financial skills necessary to function successfully in the marketplace. I commend both administrations for helping address this need head on.

Notwithstanding public efforts, a coordinated private campaign would also help consumers gain much needed financial education. While many banks offer their own independent financial advising programs, we have yet to see a coordinated or standardized approach in mortgage lending or other areas consumer banking. Meeting consumers where they do business and engage in their day-to-day banking is an important next step in building a financial literacy infrastructure for the future.

Brian Montgomery is the Chairman and co-founder of The Collingwood Group.

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