of greedy financiers and inadequate regulation, but also due to the fact that few Americans are educated to make good financial decisions.
Cyrus Amir-Mokri is the assistant secretary of the Treasury for financial institutions. As such, he is the primary policy maker for how to regulate the US financial system and try to avert another financial crisis.
In a speech at the New York Stock Exchange last week, Amir-Mokri said the United States needs to do more than just oversee the markets.
“It is important to remember what set the [2008] crisis into motion,” Amir-Mokri said. “Financial institutions and investors assumed too much risk that they did not properly understand. Regulators did not have the tools to monitor those risks, the authority to manage them, and thus, the ability to appreciate them. And, in communities across the country, Americans made ill-advised and unfortunate financial decisions that they, too, did not fully understand.
“We must promote a financial system that is fair and sound for all. That means we must remove barriers that keep consumers from successfully navigating today’s complicated financial world.”
Amir-Mokri said, “At a minimum, these principles mean that we should help our students to graduate from high school with a better understanding of economics and finance, including personal finance. The world is increasingly complex, which means that decisions about personal financial matters—from borrowing money for college, to deciding how much to pay as down-payment for a house, to determining what amount to set aside for retirement, to avoiding unnecessary fees and charges—are not always straightforward calculations.
“An understanding of the elements of finance is necessary to better equip our next generation to manage their finances and to navigate the sometimes vast array of financial products and services they will encounter during their lifetime.”
He told the audience, “Improving financial education is only one aspect of financial capability. We must also improve the ways consumers interact with the financial system. We must give consumers better information and tools to make financial decisions.
“Even seemingly minor decisions—whether to pay with a debit card or a credit card or whether to contribute the maximum to the employer-matched retirement plan—have long-term implications for family budgets…. Yet, millions of Americans’ make these decisions with limited information and an incomplete understanding of how to organize and process the relevant information. Much of the available information, moreover, is not presented or organized in a way that will allow for efficient understanding.”
He said, “Government agencies at all levels recognize the far-reaching benefits of incorporating financial education into government programs. Within the federal government, the Department of Health and Human Services is connecting parents of Head Start’s early childhood education program with financial education resources. Nearly 100,000 families with very low incomes have benefited from a combination of financial education, coaching, and access to matched savings accounts.”
Amir-Mokri then suggested bringing 21st Century technology into play. “The mobile phone, and particularly the smart phone, has great potential to affect the provision of financial services….
“Smartphone applications, or apps, are being developed to help individuals manage their spending and to achieve their financial goals. One application allows customers to check their spending against pre-set budgets. Other tools provide consumers with daily balance alerts and warnings when monthly spending limits are about to be surpassed. These applications allow individuals to manage their day-to-day financial transactions and to protect their earnings—a goal that is critically important to families across America.”
He said the technology called PiggyMojo “allows individuals to make in-the-moment savings decisions in place of spending decisions. Every time a user decides not to make a purchase, he or she can send a text message, which prompts that ‘saved’ amount to move from the person’s checking account to their savings account.”
Amir-Mokri granted that there are psychological barriers to get some of his proposals off the ground. “The shame that compels our reluctance to admit to others that we do not understand personal financial matters can lead us not only to miss significant life opportunities, but it can also take away the ones we already enjoy. Financial capability thus becomes not a question of economic growth and stability, but of personal dignity.”
He concluded, “A successful economic recovery is contingent on families knowing how to manage their budgets, rein in debt, rebuild and maintain strong credit scores, and avoid unnecessary fees and charges. Incorporating financial education early into our schools is an essential first step. Ensuring families have support systems and information to draw on when making financial decisions is also critical. And leveraging technology to deliver timely, personalized financial information and advice is a powerful way to help families move towards financial stability.”