Today we hold the first of two hearings on the state of financial literacy and education in the United States. We are especially pleased to have as our distinguished witnesses Secretary of the Treasury O'Neill, Chairman of the Federal Reserve Greenspan and Securities and Exchange Commission Chairman Pitt, all with significant expertise on this subject.
This is the first time that our three witnesses have joined in testifying before the Committee since September 20. As many of you may remember, the Committee had scheduled a first hearing on financial literacy for that day, but in the wake of the terrible assaults of September 11 we asked our witnesses instead to discuss with us the state of our financial markets and the measures taken to assure the timely reopening and normal functioning of the markets. That market operations resumed after only the briefest interruption, and that on the day trading resumed the New York Stock Exchange handled the largest volume of transactions in its history reflect the highest levels of commitment and expert coordination on the part of dedicated public servants, and we are all grateful for their efforts.
I do not want to suggest that financial literacy is a magic solution that will solve all the problems consumers face in making financial decisions. It will mean little without a framework that also includes strong legal protections, vigorous enforcement, and best industry practices with responsible credit availability. Here I agree with the three-pronged approach outlined to the Committee last year by Roger Ferguson, the Vice-Chairman of the Federal Reserve Board: "legislation, careful regulation and education are all components of the response to these emerging consumer concerns."
Indeed, there is substantial evidence that Americans do not have an adequate basis for making sound decisions about their personal and household finances, especially given the myriad choices they face. A number of organizations have sought to assess the level of Americans' grasp of financial matters, and their survey evidence consistently shows gaps.
We know what some of the costly consequences of financial illiteracy are:
I am particularly concerned about the consequences for American consumers of inadequate financial education. These include:
If financial literacy is important in the short term, as we go about the business of our daily lives, it is critical to our future. It is constantly asserted that Americans are too often spending for consumption now, with little thought to the years ahead. America's personal savings rate has averaged an anemic 1.6 percent for the last year, while consumer debt has grown at a much faster rate.
While some may note that asset growth, particularly in the stock market, has made up the difference, recent events demonstrate that constant growth is by no means certain. Increasingly Americans are highly leveraged, borrowing to spend beyond their incomes, without a cushion to fall back upon. In uncertain economic times or a downturn, like the present, the problem becomes especially acute.
We also know that the largest generation in this nation's history is approaching retirement. One example of the challenges facing us with respect to retirement is the status of women who face particular financial challenges as they grow older. Millions of women through widowhood or divorce find themselves in charge of their household's finances at or near retirement age, without having received any financial education. These women are then expected to make complex financial choices which will affect them throughout their retirement.
These hearings, which have long been in the planning stage, take on a special urgency in the context of our present circumstances. The economy is in recession, and its future course remains unclear. Recent events in the markets threaten to undermine the confidence on which the functioning of the markets depends.
Higher levels of financial literacy will help Americans approach the decisions they must make in a responsible and productive manner; they will also reinforce the efficiency of the economy. The time has come to bring the public and private sectors together in a national strategy to raise the level of financial education in the nation. Our hearing is a first step in that direction.
We are fortunate that a number of organizations have been working toward this end, and we will hear from many of them tomorrow. We begin, however, with our three public-sector witnesses who are uniquely qualified to assist us in examining the question of financial literacy. We will hear from Secretary O'Neill, whose testimony reflects his strong commitment to improving the level of financial education in America. Next we will turn to Chairman Greenspan, who has highlighted the importance of this issue on many occasions. For example, in an address to the Fed's Consumer Affairs Research Conference last year he stated that:
"Efforts to increase awareness of, and access to, information that promotes financial literacy are increasingly seen as necessary to ensure that consumers can meet their immediate obligations as well as achieve their broader goals of buying a home, funding higher education for themselves or their children, and preparing for retirement."
Finally we will hear from Chairman Pitt, whose agency oversees transactions in our capital markets. The SEC bears a unique responsibility now, when, for the first time in our history, more than half of our population qualify as investors, either directly or indirectly. Many of these Americans have had little preparation for the weighty responsibilities that have been placed before them.
I thank them for their willingness to appear this morning, and I look forward to their testimony.