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Good morning and thank you for this opportunity to speak before you today.
Credit unions have a long and proud tradition of providing basic financial services to the working men and women of America. The history of the credit union movement is, in many ways, a story of volunteers, something the President has recently called upon Americans to take up. As volunteer organizations, credit unions have helped to build communities for almost a hundred years. While the credit union movement has since grown to include large and sophisticated financial institutions, offering a broad menu of services, I hope that you never lose sight of your roots and of the importance of volunteerism to the credit union ideal.
I would like to talk with you this morning about an issue of great importance to you and your members, and to ask for your assistance.
Secretary O'Neill has demonstrated great leadership on the issue of financial education and has made it a high priority issue at the Treasury Department. As the Secretary explained it to the Senate Banking Committee earlier this month, [T]he evolution of our nation's financial system has created wonderful new opportunities for Americans to meet their needs as consumers, while at the same time, building wealth and security for their and their families' economic futures. However, Americans need to be fully prepared and financially educated to take advantage of these opportunities. If we do not understand the most important concepts of personal finance, such as how we budget and save, invest and use credit wisely, then we are missing our full potential as individuals, as well as our potential as a country.
This morning I would like to talk about financial education, but even more broadly, financial understanding. As managers and directors of financial institutions that serve 80 million Americans, you are directly involved with your members in their financial transactions. With that in mind, I seek your assistance as we work to enhance both financial understanding and financial opportunity for all Americans.
Regrettably, for some Americans, problems with financial literacy begin with literacy problems and basic arithmetic. As you know, the President made the establishment of meaningful education standards one of the first priorities of his new Administration, and important legislation to improve our education system has already been enacted. In all that we do in developing and overseeing our financial system, we must work diligently to help those who lack the most basic skills. As financial institutions, you know the importance of ensuring your members' understanding of your products and services for them to achieve their personal goals and for your credit union to remain viable.
One direct way in which credit unions could help us draw more Americans into the financial mainstream is through our First Accounts program. The paramount goal of First Accounts is to move a maximum number of unbanked low- and moderate-income individuals to a banked status with either an insured depository institution or an insured credit union through the development of financial products and services that can serve as replicable models in meeting the financial services needs of such individuals. Additional goals include the provision of financial education to unbanked low- and moderate-income individuals to enhance the sustainability of the new financial relationships.
On December 27 th, we published a notice of funds availability in the Federal Register inviting applications for First Accounts grants. The amount available is approximately $8 million to fund projects that can serve as models to connect unbanked low- and moderate-income individuals to mainstream financial services. A wide variety of entities are eligible to apply for the grants, including credit unions. I encourage you to visit our web site and consider this opportunity (www.treas.gov/firstaccounts/).
Looking beyond the problem of financial literacy, many otherwise educated, even highly educated, Americans are not conscious of the basic financial concepts that are familiar, even second nature, to everyone in this room. I would submit that part of the difficulty this group may have in managing their financial affairs is a basic shortcoming in their understanding not just of finance and economics, but of probability and statistics.
For most household financial decisions, the data needed for decision-making are available. Indeed, in today's digital age, some might say we are swimming, or even drowning in financial data. Yet what good is the data without the understanding of how to use it to make informed decisions? As we seek to improve our country's financial education, we should consider the importance of teaching our children probability and statistics. Armed with this knowledge, they will be far better prepared to manage their financial affairs and chart a course for their own financial security.
To deal with financial decision-making in the computer age, the Internet age, we all need to develop our understanding not of computers but of statistics and probability. To keep up with the changing world of finance, we all have to be able to know what to do with the financial data at our disposal.
Before we sell ourselves and the American people short, we do need to recognize that millions of Americans have demonstrated in practice a financial understanding that many may not be able to articulate. Put simply, many Americans have shown in their financial behavior an intuitive understanding of basic financial concepts even if they would not be able to articulate the rationale for their financial decision-making the way a professor of finance -- or a credit union executive - might. Consider:
The active mortgage refinance market today shows that millions of homeowners functionally understand the prepayment option in their mortgage. The development of numerous mortgage products reflects an ability of households to select among a diverse array of mortgage payment structures. In short, the way in which millions of Americans use the mortgage credit options available to manage their personal cash flows and balance sheets reflects an understanding of rather complex financial principles.
Automobile purchase arrangements offer another example. Decisions to buy or lease, and to think about auto purchases in terms of personal cash flows rather than just price and color, reflect an essential principle of finance. Thirty or forty years ago this kind of financial analysis, thinking in terms of prospective cash flows rather than asset prices or purchase prices, was something for CFOs, not for the mass market of auto purchasers. Yet today it is there at the end of all the auto ads on TV - comparing lease payments with APR.
We need your help not only with First Accounts but also to make sure that we in this town don't underestimate the ability of the American people to make financial decisions for themselves. Limiting people's choices is no way to enhance and further their financial understanding.
In closing, I thank you for this opportunity to talk with you and wish you continued success.