Comments Submitted to the U.S. Department of Treasury and the Financial Literacy and Education Commission
Department of Treasury
Financial Literacy and Education Commission
Room 5001B
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Via e-mail: flecstrategy@do.treas.gov
RE: Financial Literacy and Education Comments
To the FLEC Commission:
The Privacy Rights Clearinghouse (PRC) appreciates the opportunity to provide comments on the important topic of financial literacy. We are pleased to share our views, which are based on questions and problems presented by consumers who have contacted the PRC over the years.
The PRC is a nonprofit consumer education and advocacy organization based in San Diego, CA, and established in 1992. The PRC advises consumers on a variety of informational privacy issues, including financial privacy, medical privacy and identity theft, through a series of fact sheets as well as individual counseling available via telephone and e-mail. It represents consumers’ interests in legislative and regulatory proceedings on the state and federal levels. Our web site is www.privacyrights.org.
The educational materials posted on the PRC’s web site receive approximately 120,000 unique visitors each month. In addition, PRC staff members respond to approximately 100 hotline and e-mail inquiries from consumers each week. Of these consumer contacts, identity theft and employment background checks are the most frequent topics of inquiry. Based on this experience, we provide the following responses to the FLEC’s questions.
What are the three most important issues that the national strategy should address?
1. Credit reports and scores. Consumer education is needed so individuals understand the credit reporting industry and its relevance to their daily lives, especially concerning key life events, among them credit and banking accounts, auto and home loans, insurance, employment, and apartment rental.
A July 2003 survey by the Consumer Federation of America found a high percentage of Americans did not understand credit reports and credit scores. The CFA found that low- and moderate-income individuals were particularly affected by a lack of knowledge. There is a crucial need for education on consumer rights, how to read a credit report, how to correct errors in credit reports, and how a credit score is determined.
2. Credit standing as a risk factor in significant life events such as employment. Few things are more central to a person’s financial well being than having a job. If a high percentage of Americans do not understand the credit industry itself, it is not surprising that even fewer people understand that one’s credit standing can be used to determine whether a person gets a job, a promotion, or even a favorable transfer within an organization. The same is true of insurance premiums. Our contacts with consumers indicate a general lack of understanding that a poor credit history can affect one’s ability to get a job or can increase the premiums one pays for automobile insurance.
3. Identity theft. The government and the public have only recently come to grips with the magnitude of this crime. Even the Federal Trade Commission’s estimate of nearly 10 million victims in 2002 may understate the crime. By all accounts, the number of victims will only increase. The Fair and Accurate Credit Transaction Act of 2003 (FACTA) gives individuals new rights to both prevent and rectify an instance of identity theft. Education programs should target these new rights for consumers.
What existing resources may be used to address those issues and how could they be employed?
Nonprofit organizations and government agencies have produced an abundance of educational materials aimed at increasing financial literacy. The FLEC should form alliances with national as well as state/local nonprofit organizations to promote greater distribution of existing materials.
The FLEC should recognize that many people who could benefit from a literacy program do not have Internet access. Thus, the FLEC should explore ways to provide materials and answers to questions directly to the public. Working with public libraries would be an excellent way to reach individuals who do not have Internet access in the home.
What are the best ways to improve financial literacy and financial education in the United States?
Financial literacy should start early. Fundamental concepts such as the need for savings should be started in elementary school and be carried through the educational process.
Unfortunately, dysfunctional concepts such as “easy credit” are often instilled as college-age students are lured with multiple credit card offers and as television advertisements portray “the good life” as being fueled with credit card accounts. With the average household credit card indebtedness estimated at $9,000, these messages need to be countered early on with education about the responsible uses of credit.
Getting financial literacy programs into the curriculum is not easy however. There are enormous pressures on schools, especially K-12, to incorporate a wide array of topics into the curriculum. Nonetheless, it is critically important that model curricula be developed so that teachers can incorporate the most important financial literacy concepts into the classroom.
One way to reach young people would be the expansion of a game show format called LifeSmarts, sponsored by the National Consumers League. Many kids love the challenge of a game show, and LifeSmarts is a fun way to involve young people in financial literacy. A PRC staff member participated as a judge in a LifeSmarts competition a few years ago and was very impressed with the enthusiasm shown by the participants, as well as their command of a multitude of consumer-related topics.
A financial literacy education campaign would best be fostered by a joint effort comprised of representatives from consumer advocacy groups, community-based organizations, industry groups, as well as government agencies. Perhaps just such a multi-stakeholder effort to learn from is the consumer education campaign implemented here in California in 1996 for the telephone service Caller ID. Although the campaign surrounding Caller ID has nothing to do with financial literacy per se, the process has validity for a financial literacy strategy.
The California Public Utilities Commission (CPUC) mandated in the early 1990s that before Caller ID could be implemented in the state, the public must be educated about the privacy implications of this service, in particular, the ability of phone customers to choose between two modes of service, selective number blocking and complete blocking. A committee comprised of the key stakeholders was convened by the CPUC that included representatives of consumer and community groups, the phone industry, and government. We communicated by phone and by e-mail over several months in order to develop the basic message that we wanted California phone consumers to receive. The overall message-development and communications strategy was overseen by an academician, a Communications professor who had experience in the field of public communications.
Although several aspects of the 1996 Caller ID consumer education campaign have no bearing on a financial literacy strategy, there are some lessons that can be learned:
First, the message was developed by a multi-stakeholder group, one that included the consumer perspective. We did not finalize the composition of the message until all of us could agree on it. This process ensured that industry-oriented marketing pitches were avoided.
Second, we benefited by having this process overseen by someone from academia, a person who had no overriding biases on either the consumer side or the industry side. If I were to participate in such a committee endeavor today, I would further recommend that the message(s) be reviewed by a readability expert to make sure that the most comprehensible message be crafted. I would also recommend that the message be tested with a variety of individuals and/or groups.
Third, the message was delivered in several languages to ensure that individuals with limited or no English-language capabilities could understand the message.
Fourth, several communications vehicles were used to deliver the message -- bill inserts, newspapers, television, radio, as well as in-person workshops in a multitude of languages offered by community-based organizations. The Internet was in its infancy then, so we did not use the web, although that would certainly be a key vehicle today.
Fifth, after the message had been delivered to the general public over a period of time, a survey was conducted to determine if the strategy worked. The survey results showed that indeed, a majority of Californians knew of Caller ID and could identify their two choices.
The process that developed the Caller ID consumer education campaign was not cheap. Indeed, funding is likely to be one of the major challenges facing a financial literacy endeavor. I would strongly recommend that if a public-private funding mechanism is established, that checks and balances be adopted in order to avoid the creation of messages with a commercial bias. I firmly believe that a multi-stakeholder process, similar to the one I described for California’s Caller ID campaign, is key to creating a comprehensive and well-designed financial literacy campaign, one that is developed with consumers’ best interests in mind.
Thank you for the ability to submit these comments. If we can assist the Department of Treasury and the other financial regulatory agencies in developing a financial literacy program, please do not hesitate to contact us.
Sincerely,
Beth Givens
Director
Privacy Rights Clearinghouse
