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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My Twitter news feed was recently filled with re-tweets of the following message from students:
“Things I haven’t learned in school
How to pay bills
How to buy a house
How to apply for a loan
But thank God I can graph a scatter plot”
Needless to say, this caught my attention with its timing and relevance as we examine the role of government in financial literacy and education.
The federal government has long played a role in financial literacy and education. It also has partnered with state and local governments as well as the nonprofit and private sectors to expand programs and outreach. Each year, the U.S. Government Accountability Office (GAO) identifies categories of federal programs where there is room to reduce fragmentation, overlap and duplication. Financial literacy remains one of the major areas ripe for significant improvement. GAO places financial literacy programs into two basic subcategories:
- Financial Literacy. The federal government has at least 15 significant financial literacy programs or activities across 13 federal agencies (e.g., HHS, USDA, Labor, SSA, FDIC, Treasury, etc) with an annual cost estimated at more than $30 million (DOD is not included). GAO defines these as programs with primary goals “to educate, inform, or encourage individuals to make informed judgments and take effective actions regarding the current and future use and management of money.” The number of programs and agencies included by GAO would be larger if it were defined to include programs for which financial education was only a lesser or secondary goal.
- Housing Counseling. The federal government spends approximately $135 million on its various housing counseling programs through two major organizations – HUD and NeighborWorks America. HUD has funded housing counseling programs for more than forty years and current funding for many long standing activities is approximately $65 million. In addition, the more recent National Foreclosure Mitigation Counseling (NFMC) Program, managed by NeighborWorks America, is currently funded at approximately $70 million. GAO separates out housing counseling programs because it views education as just one part of these programs which are more focused on addressing individual or specific situations.
Not surprisingly, the financial crisis forced policymakers to put a bright spotlight on these financial education efforts and add to them, in some cases, perhaps hastily. In addition to the creation of the NFMC Program, Congress also created the Consumer Financial Protection Bureau (CFPB) as part of Dodd-Frank and with it a new “Office of Financial Education,” and, as GAO notes, the CFPB has a number of other offices charged with responsibilities that already exist in other agencies and programs. In establishing new responsibilities within the CFPB, Congress also has created some overlap and duplication with the Treasury Department’s Office of Financial Education and Financial Access as well as the multiagency Financial Literacy and Education Commission that was established by law in 2003.
But what do we really know about how well all of these programs work? Unfortunately, the answer is still not very much. According to the GAO, if the goal of financial education is to “favorably impact consumer behavior,” there are “relatively few evaluations of financial literacy programs… published that use empirical evidence to measure a program’s impact on participants’ behavior.” As previously discussed in this Housing Expert Forum, policymakers must demand evidence based outcomes to determine what models work best. Not all financial literacy and education programs are the same, and they can take many different forms ranging from one on one counseling or classroom teaching to media campaigns, brochures as well as online training and information.
The BPC’s Housing Commission report recognizes these important realities in offering its support for housing counseling programs. The Commission makes a point of detailing important criteria necessary for success. These include creating a strong program infrastructure, clear standards for performance, defining the proper role of educators and counselors, and adopting best practices. As an example, NeighborWorks America, the organization that administers the NFMC Program, has taken steps to evaluate the effectiveness of its program for the past few years. The initial data suggest that a targeted, well-defined program may produce measurable, beneficial results. This commitment to providing such research, although it may not be perfect, should serve as a guide for other organizations and financial education programs. The BPC Commission criteria should be viewed as more broadly applicable to the design, implementation and evaluation of all financial literacy and education programs not just homeownership. As an example, the Financial Literacy and Education Commission’s most recent strategic research priorities for 2013-2014 recognize a need to undertake important research and evaluations to identify best practices.
Congress and the President already have significant dollars and many programs focused on financial literacy. The American public deserves better government than what is currently in place. The challenge for our leaders today is to work together in a bipartisan fashion to objectively and empirically evaluate what works and what does not– whether it be tailored financial literacy curricula or more effective general education programs (e.g., better training in basic math skills as a recent Harvard Business School suggests) – and to begin to streamline and consolidate existing bureaucracies and programs. Only then, will we begin to see the results intended. Our children should not have to resort to using Twitter to let us know they feel unprepared to face the financial realities of growing up. We owe it to them to restore their confidence in the American dream of economic prosperity by doing a better job preparing them for it.
Angela Antonelli is the Former Chief Financial Officer (CFO) for the U. S. Department of Housing and Urban Development (HUD).
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