Chairman Sarbanes and distinguished Members of the Senate Banking Committee, good morning. My name is H. Patrick Swygert and, as the 15th president of Howard University, I am delighted to be here in support of the Committee’s initiative to further promote financial literacy. The current deficiency in this regard is indeed one of the most under reported, yet critical, problems plaguing our communities.
I am grateful to you Mr. Chairman, and to the other Members of the Committee for recognizing the magnitude of this problem, and for taking the initiative to resolve it by holding these hearings. I am especially honored to be in the company of such a diverse group of distinguished panelists, including yesterday’s panelists of leading financial experts: Chairman Greenspan, Secretary O’Neill, and Chairman Pitt.
I especially appreciate the invitation to speak on behalf of higher education, because I truly believe that, as educators, we have an inherent obligation to educate, nurture, train, and prepare our students for life’s many challenges, and to help mold them into tomorrow’s great leaders.
This morning, I would like to provide some insight into the significance of youth-oriented financial literacy from a university perspective.
About Howard University
For nearly 135 years, Howard University has been educating students and preparing them for important leadership positions and social responsibility in an increasingly complex world. Our mission as a comprehensive, research-oriented, predominantly African-American university is to provide an educational experience of exceptional quality at reasonable cost to students of high academic potential. Particular emphasis is placed upon providing educational opportunities for African-American men and women, and for other historically disenfranchised groups. Furthermore, Howard University is dedicated to attracting, sustaining and developing a cadre of faculty who, through their teaching and research, are committed to producing distinguished and compassionate graduates who seek solutions to human and social problems in the United States and throughout the world.
Howard University is unique in its diversity, and we value that diversity. We are diverse in our community of faculty, staff, students and alumni who reflect the global community. Our fields of study and scholarship are equally diverse. We recognize that such diversity is a critical component of the American way of life and freedom.
Many of our students have gone on to make significant contributions to this nation and to the world. They include a former Supreme Court Justice, jurists at every level of the judicial system, mayors of cities, a former Governor of Virginia, numerous national and state congressional representatives, Cabinet Secretaries, Nobel laureates, United Nations Ambassadors and world-renowned lawyers, historians, musicians and artists, sociologists, psychologists, theologians and physicians.
Why Financial Literacy is Important to the Communities With Significant Minority Populations
Traditionally, Historically Black Colleges and Universities (HBCUs) have played a pivotal role in enhancing and empowering communities through education. We are often pillars in our respective communities, and have well-established relationships and the necessary infrastructure in place to implement consumer education and a financial literacy curriculum. Promoting financial education for our youth is consistent with our core values.
The persistence of racial inequality from a socio-economic perspective has been well documented (Darity and Myers, 1998). African Americans have historically remained secondary to White Americans on almost every measure of economic well-being. For example, the median income for White households in 1999 was $54,904 compared to that of African-American households, which was $30,439 (Bureau of Labor Statistics 2001). In December 2001, the unemployment rate for White Americans was 4.9 percent, compared to a rate of 9.9 percent for African Americans.
The Wealth Gap
The wealth gap between minority and White households is significant and persistent.
We have the opportunity to narrow the wealth gap by empowering consumers with sound financial knowledge and skills to effectively manage their money, and to improve their credit. The benefits of this knowledge are intended to expand personal finance opportunities, including homeownership.
Homeownership plays a big role in decreasing the wealth gap. Home equity alone makes up about 44 percent of the wealth distribution. In December of 2001, the U.S. Department of Commerce released homeownership rates for the fourth quarter.
This is lower than the national homeownership rate of 68 percent.
To increase homeownership among minorities and low-income families, we need to deploy financial education curricula that will be uniquely designed to address their needs.
Mortgage denial rates for African-American applicants as compared to White applicants continue to be significantly high.
This exploitation of minority consumers may be due to a variety of factors. It is a very complex issue.
We have the opportunity to narrow the wealth gap and to mitigate impaired credit by empowering current and future consumers with sound financial knowledge.
A notable change in consumer financial services over the past few decades has been the growth of the use of credit cards, both for payments and as sources of revolving credit. From modest origins in the 1950s as a convenience for the wealthy, credit cards have become ubiquitous financial products held by households across all economic strata. (Durkin 2000).
In short, credit card use and outstanding balances are up. This raises concerns about whether consumers fully understand the cost, and whether credit cards have encouraged widespread deficit spending, particularly among those least able to pay. Financial education can help resolve these concerns and level the credit playing field by preparing those least able to pay, including students and many African Americans, make informed financial decisions.
Impact on Students
Our students are particularly vulnerable to the enticement of credit card predators. The Government Accounting Office (GAO) performed a study in 2001, which found that one-third of students had credit cards before they entered college, and another 46 percent acquired them during their first year. Other recent reports and surveys have shed even more light on the plastic invasion (Nellie Mae 2000, Manning 2000, and Warren 2001).
The Public Interest Research Group surveyed 460 students past year and found the following:
If used responsibly, credit cards allow students to build up credit histories that facilitate increased access to credit in the future. However, if college students have not learned financial management skills in their secondary education or from their parents; and if they misuse their credit cards or mismanage their credit card debt, the disadvantages can far outweigh the advantages.
Role of Institutions of Higher Learning in Promoting Financial Literacy In order to protect their students from unnecessary debt accumulation, all learning institutions have an obligation to properly educate them on consumer credit, and the dangers of credit card debt.
Howard University is already addressing the national financial literacy problem as it relates to African Americans and other minorities. In partnership with Freddie Mac, Howard and four other HBCUs (Benedict College, Clark Atlanta University, Florida A&M University and St. Augustine’s College) are participating in the CreditSmart program, which seeks to develop a comprehensive, classroom-based consumer education curriculum.
Students are provided with an overview of credit and credit management; insight as to how lenders access credit histories; and the key steps to achieving financial goals. The curriculum’s mission is designed to increase financial literacy by enhancing successful life-long money management skills.
Howard University has deployed CreditSmart in numerous workshops, and in a range of existing business and finance courses. We have also completed a CreditSmart training video, and scheduled television appearances to promote the program in the Washington metropolitan area.
It is refreshing to see other organizations attack the problem of financial illiteracy head on. Howard University’s strategic partner, The Fannie Mae Foundation, has developed a Personal Finance Initiative that prepares people for homeownership by providing free educational materials on credit, budgeting, and the home-buying process; and through key partnerships with organizations that assist consumers with money management issues. The Foundation has collaborated with several organizations to develop personal finance education programs, including a partnership with Home Depot and Consumer Credit Counseling Services to develop a replicable workplace education program; a partnership with the Faith Center for Community Development to provide financial education through faith-based institutions; and, a partnership with the First Nations Development Institute to help Native American communities develop financial skills.
Investing for Success, co-sponsored by the National Urban League, the Coalition of Black Investors-Investment Education Fund, and the Investment Institute Education Foundation is a special investor education program designed for the African-American community. I commend the program for its mission to strengthen the understanding of middle-income African-Americans about opportunities to invest and build wealth; demystify the world of investments and the jargon that too often obscures it; contribute to realistic expectations about the risks and rewards of investing; and encourage long-term financial planning that can support the efforts of African-Americans to save for their children’s education and secure their retirement.
Although I am confident that the efforts of Howard University and the host of other institutions and organizations with similar goals will yield benefits, I believe that the real power to address this issue uniformly rests with the legislative authority. The establishment of a nationwide strategy that will protect and educate our citizens is indeed worthy of a collective, non-partisan effort that will have a lasting impact on generations to come.
Should the Committee have any questions regarding financial literacy programs at Howard University, our CreditSmart project manager and Professor of Finance, Dr. Debby Lindsey, has accompanied me here today.
Thank you, Mr. Chairman.
CLC Compliance Technologies, Inc. HMDAWARETM. September 2001.
Darity, William A. and Samuel L. Myers, Jr. Persistent Disparity: Race and Economic Inequality in the United States Since 1945. Edward Elgar Publishing Limited. 1998.
Durkin, Thomas A. Credit Cards: Use and Consumer Attitudes, 1970-2000. Federal Reserve Bulletin. September 2000.
Nellie Mae. Credit Card Usage Analysis. December 2000.
Lindsey Debby. “Prime and Subprime Mortgage Lenders: Who Treats Black Applicants Less Equally?” International Advances in Economic Research. May 1999 5(2).
Lindsey, Debby. Racial Impact of NMAC's Finance Charge Markup Policy. Law Offices Clint Watkins, Brentwood, TN. November 9, 1999.
Manning, Robert D. Credit Cards on Campus: Costs and Consequences of Students Debt. Consumer Federation of America. June 2000.
Straight, Ronald. Black-White: Assets Accumulation Differences by Race. January 2002.
U.S. Department of Commerce. Census Bureau Report on Residential Vacancies and Homeownership. January 2002.
U.S. Public Interest Research Group. Additional Studies of College and Credit Cards. 2001.
Warren, Elizabeth. Consumer Bankruptcy Project II and Consumer Bankruptcy Project III. Harvard Law School. January 2001.
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