How CFPB Is Trying to Bring Financial Education to the Masses

Everyone knows the proverb "Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime."

A corollary might be: "It's easier to refine the technique of an experienced angler than it is to instruct someone who's never held a rod."

The fishing metaphor highlights a key challenge facing the Consumer Financial Protection Bureau and others who are working to improve financial literacy in the United States.

In its early days, the CFPB developed educational resources, such as a financial aid comparison tool, for folks who were savvy enough to seek out help. But agency officials were aware that many millions of Americans were unlikely to ever seek this kind of information. They'd never been fishing, and they didn't even know where to buy a pole.

So over the last 18 months, the CFPB has been taking steps to reach less-sophisticated consumers. In September 2013, the bureau introduced a set of financial education resources for social workers, to help them talk about finances with clients whose money woes are affecting other aspects of their lives.

In April, the bureau announced a plan to make local libraries into hubs for financial education, in order to find people who don't know where to look for money help.

The overarching goal is to create a nationwide infrastructure that will provide financial literacy services to people who don't subscribe to Consumer Reports or read personal-finance blogs. "I think this is going to be one key area where we are really going to make a longer-term difference," says Gail Hillebrand, the bureau's associate director of consumer education and engagement.

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In this interview, Hillebrand explains the concept of "financial well-being," discusses what does and doesn't work in financial education, and details a new public-private partnership that's aimed at empowering U.S. consumers. What follows is an edited transcript.

I read a report yesterday that found that 43% of Americans don't have enough assets, even including their retirement savings, to make it through three months of unemployment while living at the poverty level. That was striking to me. What does that say about the state of financial empowerment in the United States today?

I think financial fragility numbers — the numbers that say if you have an income interruption, you could be in big trouble — highlight how important it is to build financial literacy skills in the population. We want people to be equipped to make a financial plan and create that cushion for emergencies. Emergencies are unexpected when they happen, but they're actually a pretty normal part of life. Your car does break down. Your spouse does get laid off. 

You just released this report on financial well-being. Others have been talking about "financial health" recently, which I think is a similar concept. But financial well-being also seems difficult to define. So can you tell me what the CFPB means by financial well-being?

Financial well-being had never been defined before. This is the first piece of work that has tried to define it. So we went straight to individual consumers and asked them how they defined financial well-being and how they felt about their financial lives. Of those consumers who felt satisfied with their financial lives, we explored with them these topics about managing money: what they know, what they do, what steps they take, what attitudes they have, and what makes them feel satisfied with their financial lives?

Consumers described two big categories of things that lead to financial well-being in their own lives. The first category is security — both now and in the future.  "Security now" means you can keep up day-to-day and month-to-month with your finances. "Security later" means the ability to address a financial shock, such as by having a financial cushion.

The second category is freedom. People want to know that they are on track to meet their financial goals so they can have financial freedom in the future. A lot of consumers have told us that the reward for managing your financial life is having that freedom to make choices.

Of course income matters, but we found that it is not the only thing that matters. People all across the economic spectrum reported being happy or unhappy with their financial lives.

When you talk about these ideas of financial freedom and financial security, they strike me as important, but amorphous and difficult to quantify. 

Financial well-being is a broad concept. How do you turn it into something that you can actually learn, get training for, or practice yourself at home? What our research shows is that there are three main components that feed into creating that financial well-being.

The first component is the ability to ask questions and evaluate the information you get back. There was a time when the hard part for consumers was getting the information. Now the hard part is figuring out which information to trust, because there's so much of it out there. So the ability to ask questions and evaluate the answers is one.

We have found that across the board, people who engage in planning behavior, whether it is big or small, are generally happier with their financial lives than those who do not make plans.

At the same time, you can plan all day, but you have also got to act on those plans. So, the third component that contributes to financial well-being is action. We learned that the ability to execute a strategy, adopt a practice, and successfully follow through on intentions contributes to financial well-being. This can be setting up automatic things like payroll deductions for savings, and also by getting help through social services or a peer-support network.

The next stage of this project will be to really test those three things — ask, plan and act. We want to better understand how to help people get there. As our work continues, we intend to spread that knowledge widely in the financial education field.

I understand that the CFPB has been doing research on effective approaches to financial education. Just at a high level, can you share what you've learned at this stage about what works and what doesn't?

There is a fair amount of literature now showing that adults do not learn best just by sitting in a classroom having people talk to them. The ability to make your own plans, set your own goals, and set a series of small steps to help you get closer to those goals is important. Classrooms alone do not seem to give adults the skills and tools they need to succeed.

We also know from talking to lots of experts in the field that getting to kids when they are still kids makes a difference. The way I like to think about this is much like speaking a second language. It is helpful to learn a language when you are young and to have lots of chance to practice — both at home and at school.

In a way, money is a language. We want the next generation to be exposed to it sooner — not "what is a checking account," but the bigger questions about how you think about managing money, and how you balance short-term needs and wants against those that are longer-term. That is a life skill for our youth.

You just spoke about the importance of reaching kids. At the same time, there's been an emphasis in the financial education field in recent years on "just-in-time" education — the idea that you want to provide the information to the consumer when they need it.

So "just in time" for adults, yes, absolutely, because that's the moment when that information is most relevant. For kids, we are not going to be teaching sixth-graders how to apply for a home mortgage. But a sixth-grader or a seventh-grader has financial life goals. There are things they want, and they know it's going to cost money. The approach for youth ought to be about financial decision-making skills, rather than about particular products or product choices.

So when they get to the adult stage, and you're thinking about bigger decisions like financing a car, they know to think about getting the best rate. That's a very specific set of skills. When training a young person, you are teaching more generally about the value of shopping behavior and about financial decision-making.

CFPB Director Richard Cordray and executives in the financial services industry spoke recently about their joint efforts to promote effective financial education. Can you give an overview of what the CFPB's going to be doing?

Both Director Cordray and the financial services industry have said more or less the same thing: there is work to be done by every part of society in order to boost financial capability and spread more financial literacy across America. There is important work to be done by families, schools, governments, employers and financial service providers

At the recent meeting, CEOs of financial institutions talked about what they're already doing, and identified some of the big topic areas for ongoing focus. This included K-12 financial education in our schools, and what financial service entities can do as employers.

The third issue that we will be discussing further is preventing financial elder abuse and exploitation. We'd like to talk with people in the industry about what they'd like to do, what they can do.

The CFPB has been around for three-and-a-half years. The kind of work that you do doesn't necessarily have an end point. I expect it would go on indefinitely. But how do you think about where you are in your efforts?

There will always be a new generation coming along who needs to develop financial skills and can benefit from whatever we do successfully with the preceding generation. This is not work that ends, because there are always new people coming along. There will always be new kinds of questions consumers need to ask and answer as the market changes.

Given the complexity of consumer financial products, which seems to be ever-increasing, do you feel like you're sort of constantly swimming upstream?

We will succeed when we help American consumers feel like they are not swimming upstream. In our new financial well-being report, the first thing we say is that consumers of financial products and services need both a safe and transparent marketplace, and the capability to navigate that marketplace effectively.

It is a big job, yes. But can we partner with the American public to help everyone get more out of their own financial lives and reach their own goals? I believe we can.