Fostering education that will enable individuals to overcome their reluctance or inability to take full advantage of technological advances and product innovation in the financial sector can increase economic opportunity. As market forces continue to expand the range of providers of financial services, consumers will have more choice and flexibility in how they manage their personal finances. They will also need to learn ways to use new technologies and to make wise financial decisions.
In considering means to improve the financial status of families, education can play a critical role by equipping consumers with the knowledge required to choose from among the myriad of financial products and providers. Financial education is especially critical for populations that have traditionally been underserved by our financial system. In particular, financial education may help to prevent vulnerable consumers from becoming entangled in financially devastating credit arrangements. Regulators, consumer advocates, and policymakers all agree that consumer education is essential in the quest to stem the occurrence of abusive, and at times illegal, lending practices. An informed borrower is simply less vulnerable to fraud and abuse. Financial education can empower consumers to be better shoppers, allowing them to obtain goods and services at lower cost. This process effectively increases consumers’ real purchasing power, and provides more opportunity for them to consume, save, or invest. In addition, financial education can help provide individuals with the knowledge necessary to create household budgets, initiate savings plans, manage debt, and make strategic investment decisions for their retirement or for their children’s education. Having these basic financial planning skills can help families to meet their near-term obligations and to maximize their longer-term financial well-being.
The importance of basic financial skills underscores the need to begin the learning process as early as possible. Indeed, improving basic financial education at the elementary and secondary school level will provide a foundation of financial literacy that can help prevent younger people from making poor decisions that can take years to overcome. In particular, it has been my experience that competency in mathematics–both in numerical manipulation and in understanding the conceptual foundations–enhances a person’s ability to handle the more ambiguous and qualitative relationships that dominate our day-to-day financial decision making. For example, through an understanding of compounding interest, one can appreciate the cumulative benefit of routine saving. Similarly, learning how to conduct research in a library or on the Internet helps one find information to enhance decision-making. Focusing on improving fundamental mathematical and problem-solving skills can develop knowledgeable consumers who can take full advantage of the sophisticated financial services offered in an ever-changing marketplace.
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