AMERICANS NEED EDUCATION ABOUT MONEY MATTERS

February 6, 2002

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The United States has a high rate of financial illiteracy and consumers are paying for what they don’t know, Witnesses testified yesterday at a Senate Banking Committee hearing on financial literacy. Some of the unknown costs include high interest rates on short-term “payday” loans and high check-cashing fees paid by an estimated 10 million adults who don’t have a bank or credit union; between $3 billion and $4 billion from high fees and unfavorable exchange rates charged to Latin American immigrants who send money home; double-digit interest rates on credit card debt, which averages $8,123 per family; and money lost in investment scams on the Internet.

The problem of financial illiteracy is growing as finance becomes more
complex, said Treasury Secretary Paul H. O’Neill. Some signs of the cost of financial illiteracy are the nation’s escalating consumer debt, an anemic personal savings rate and the increasing number of personal bankruptcies. Committee Chairman Paul Sarbanes (D-Md.), referring to the losses of Enron Corp. shareholders, said education “won’t solve all the problems that confront consumers with respect to investment. You may be very financially literate, but if you’re not given the right information, you can’t do very much.” Sarbanes, O’Neill, Federal Reserve Board Chairman Alan Greenspan and Securities and Exchange Commission (SEC) Chairman Harvey L. Pitt agreed that more attention needs to be paid to financial education in schools and in the workplace. Greenspan said the Federal Reserve has strengthened its support of financial literacy.