3 4 5 2 6 those over 65 have rem Forty-eight percen Interviews oa fined well below the valu con-artist c t correctly said th riminals rev at a cr eal e of Social S edit card holder who only pays the m that they do not lik ecurity benefits for the vast e to be questioned. inimum “Financial Literacy and Financial Education” Statement for the majority, with declines in recen am ount on monthly card balances will pay m Call center research found that providing fra t years. Forty-four percent reported this y oreud targets with questions they could ask in annual finance ch ear th arge at th s than a card ey are more By Dallas Salisbury, E BRI concerned about their financial future than befo holder who pays their produced the largest red balance in f uction in vic ull. re they retired. W timization rates. hile these measures do not House Ways and Means Committee speak to financial literacy per se, they do speak Seventeen p Older investors who received a works ercent correctly answered that s to the reliance seniors hop on outsm tocks are likely to yiel arting investm place on continuation of d higher returns than ent fraud and public program savings bonds, savings accounts and checki influence tactics were 50% s at current levels. This also su less likely to “open the door” ggests the education chal ng accounts over the next 18 years, even to a fraudulent investm lenges facing the public ent Subcommittee on Social Security Chairman McNulty, and members of the Subcommittee on Social Security of the Committee on sector in the future. though there has never been an 18-year pitch by accepting additional comm period where this wasn’t true. unications. Ways and Means, I thank you for the opportunity to provide testimony on this important topic. Forty percent correctly answered that they could lose their health insurance if their Since first working on related issues at the U.S Department of Labor in 1975, I regret that in parents become unemployed. spite of dramatic advances in technology, education delivery, and financial services, issues Thirty-six percent think a house financed with a fixed-rate mortgage is a good hedge related to the financial literacy Conclusion of our population have grown greater, not declined. I am pleased • Any information you can provide about what efforts are being tried in both Protecting Social Security Beneficiaries from Predatory Lending and against a sudden increase in inflation, compared with 45 percent in 2006. to comment on the specific questions sent to me by the Committee. the public and private sector and what works. Other Harmful Financial Institution Practices The nation needs to continue to focus on increasing financial knowledge, providing meaningful consumer protections, and finding ways to protect vulnerable populati ons from fraud. Many An amazingly low percentage of the total population actually understands the concept of Numerous campaigns are underway that specifically relate to our nation’s seniors, with resources • Why do people make bad choices when it comes to their money? good programs exist, but the absence of requirem June 24, 2008 ents for financial education in public schools “compound interest,” and this includes not understanding it when it applies to the interest you at web sites such as these: underlines that the nation is m B-318 Rayburn HOB, Washington, DC issing opportunities—if financial literacy is an objective—even will have to pay on a loan or your credit card. Financial Literacy Public-Private Partnership (FLPPP) An entire field of psychology and behavioral finance has developed in an effort to answer this when it has “captive” populations. http://www.dfi.wa.gov/flppp/seniors.htm question (see http://en.wikipedia.org/wiki/Behavioral_f inance). Put it its simplest form, people Financial Literacy for Older Adults http://www.albany.edu/aging/fl/resources/pres- prefer immediate gain and gratification, focus most readily on the short term, and are highly As the FINRA coalition research found in 2007, high income and extensive education do not financialliteracy.pdf subject to messages and the way they are framed. Individuals prefer to be “sold.” • The financial literacy of “seniors,” including what we know about how they alone protect seniors from fraud. These are issues for the entire U.S. population. Submitted by: Seniors Protecting Themselves from Securities Fraud make their decisions, is also not encouraging. http://www.asc.state.al.us/InvestorED/8-3-04SeniorsTakeControlPortrait.pdf When these factors are taken into consideration against the substantial documentation of low Dallas Salisbury financial literacy among all age groups, it makes bad decision-making understandable. A recent survey by AARP found among those over 50 that: President & CEO Overall, research finds that individuals seek the path of least resistance, and respond to sales Thus, individuals become victims of predatory lending practices, choose to pay high check Americans are befuddled by financial jargon. Employee Benefit Research Institute (EBRI) efforts. As a result, many people become victims of predatory lending practices, choose to pay cashing or lending fees when they have other choices, or make bad choices when they have Confusion results in doubt, missteps and lost opportunities. high check cashing or lending fees when they have other choices, and make bad choices when choices in terms of financial management. They frequently make choices from among what they Chairman, American Savings Education Council Americans believe the financial services industry does a poor job of communicating. they have choices in terms of financial management. think they know or are presented with, rather than undertaking a search on their own. Behavioral T-153 research also finds that they prefer making choices from a narrow set of options, as opposed to a The AARP Bulletin recently commissioned a nationwide poll to explore financial literacy on For many, the 2007 National Risk Behavior Study found that fraud was most common when wider set. important consumer subjects among people ages 40 and older. Fifty percent of the poll individuals: respondents “failed” the financial literacy quiz, meaning they could not get at least half the “Financial Literacy and Financial Education” 1. Rely on friends, family and co-workers for advice. Many individuals at lower income levels may not have a choice in cases where they have little or questions right. 2. Are open to ‘new’ investment information and attending free seminars. no income and/or face emergencies. These individuals face desperation and make choices that 3. Fail to check on the background of the person doing the selling. allow them to survive today, regardless of the longer-term consequences. Additional findings include the following: 4. Are unable to spot persuasion tactics used by con men and women. Medicare coverage. Less than one-third (31%) of the respondents correctly identified all of the items that Medicare does not cover. One program that I have been involved with as a member of the Board of the FINRA Investor • Your overall assessment of the financia Car buying regrets. Nearly two-thirds (63%) of the l literacy of our nation and w respondents incorrectly stated that hether Education Foundation provides information at www.SaveAndInvest.org federal law allows one to cancel a car purchase within three days if it was bought at a car there are significant variations between certain demographic groups. dealership. Working with the SEC, the State of It has been well-documented that financial literacy in the population is quite low. This is Bankruptcy. Roughly one-third (32%) of the poll respondents correctly reported that Washington, and the AARP, a pilot investor essentially true across all demographics, even though we do find higher rates as education and bankruptcy is growing faster amongst Americans age 65 and older than any other age protection campaign for older investors has income increase. As a result of the termination of most “home economics” courses in our public group. just been completed. This work has found schools, we provide a lower rate of mandatory financial education today than in the 1970s and Social Security benefits. Only 32% of the respondents correctly reported that a person of that Direct education on fraud risk earlier. Nearly 80% of our young are offered elective opportunities for financial education, but full retirement age or older may keep 100% of his Social Security benefits even if he is behaviors, social influence tactics and our surveys indicate that fewer than 8% choose to take the courses. currently employed, regardless of how much he earns at his current job. The Employee Benefit Research Institute (EBRI) is a nonpr prevention s ofit, nonpartisan research institute that focuses trategies—such as asking on health, retirement, and economic security issues. EBRI does not take policy positions and does not questions and checking registration status of ® The 31-question Jump$tart Coalition’s biennial survey of youth financial literacy The Retirement Confidence Survey includes results for the population over age 65. Over the 18 lobby. www.ebri.org the professional and the investment—can Dallas Salisbury is president & CEO of the nonpartisan Employee Benefit Research Institute (EBRI) and survey revealed that high school seniors have a lot to learn about important financial concepts. years that this survey has collected data, confidence in having enough money to live comfortable reduce investment fraud susceptibility. chairman of American Savings Education Council. EBRI does not take policy positions and does not Among the findings in the survey: throughout retirement has changed very little overall. Confidence in Medicare and Social lobby. www.ebri.org th Security continuing to provide benefits of equal value in the future has risen. 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