The new financial reform bill contains a little-known provision establishing an office of financial literacy. Here's what it might do for you.
In the movie Animal House, Dean Wormer admonishes “Fat, drunk and stupid is no way to go through life, son.”
Uncle Sam is adopting a similar attitude about going through life without learning the basics of money management.
Included in the financial reform bill is something new: an Office of Financial Literacy designed to help consumers learn about everything from checking accounts to credit scores.
It’s been tried before. Back in 2003 a law was passed that established a Financial Literacy and Education Commission, led by the Treasury Department and comprised of 20 separate government agencies. The commission was tasked with creating more sources for consumer education. What it came up with in 2004 is this website: MyMoney.gov.
If you’ve never heard of it, you’re not the only one – according to this article in Wall Street Journal (subscription required) after six years the site is only getting in the neighborhood of 85,000 visitors a month, and the toll-free number connected to the site gets less than 200 calls monthly.
If surveys are to be believed, Americans can sure use the help. In December 2009 this survey from Finra (the Financial Industry Regulatory Authority) reported the following:
- Nearly half of survey respondents reported facing difficulties in covering monthly expenses and paying bills.
- The majority of Americans do not have “rainy day” funds set aside for unanticipated financial emergencies and similarly do not plan for predictable life events, such as their children’s college education or their own retirement.
- More than one in five Americans reported engaging in non-bank, alternative borrowing methods (such as payday loans, advances on tax refunds or pawn shops). And few appear to be knowledgeable about the financial products they own.
- While many American adults believed they were adept at dealing with day-to-day financial matters, they nevertheless engaged in financial behaviors that generated expenses and fees and exhibited a marked inability to do basic interest calculations and other math-oriented tasks. In addition, few compared the terms of financial products or shopped around before making financial decisions.
According to the journal article cited above, only three states mandate personal-finance courses, though 18 others require that some instruction be included in other classes.
Exactly what we can expect from this new agency is still unknown, but the odds of this agency gaining traction and actually doing something to promote financial literacy are probably much higher today then they were in 2003.
We’ll soon see.