The financial literacy movement is too big to collapse. But a new Treasury Department report that takes aim at the Consumer Financial Protection Bureau could land a body blow.
The Trump administration has nothing against financial education, as far as we can tell. In February, a Trump executive order stated he wanted to “empower Americans to make independent financial decisions and informed choices.” In April, Trump reaffirmed financial literacy month, saying he wanted “to improve financial education.”
Yet these words came without specific recommended actions. That is not so with this week’s Treasury report, which makes a point-by-point argument for disempowering the consumer bureau. The central Treasury objective is to loosen reins on bank regulation. But in going after the bureau, which among other things tries to hold financial executives accountable for their actions, might financial literacy programs get caught in the crossfire?
Richard Cordray, director of the bureau, has said that no matter what happens to his agency or job, the mission will push on. Financial literacy is a bi-partisan concern, having been embraced by both George W. Bush and Barack Obama.
But promoting financial literacy in the U.S., where teens rate middle of the pack in a global comparison, has been largely consolidated inside the bureau. Substantially weakening the bureau without clarifying how to keep pushing for research and identifying best practices would be a setback.
In the next few years, Cordray has said, the bureau plans to focus on research that proves the value of financial education, put it out for review, and then conduct further research until the benefits are clear and private- and public-sector decision makers embrace lifelong financial education. “Nothing substitutes for hard evidence,” he has said.
Another relatively new critical area of study has been how to bring low-income households into the financial mainstream through “alternative credit data.” Broad use of things like rent and utility payments to prove credit responsibility and establish a credit score is a promising frontier. The bureau put out a request for information early this year to learn more about how this new approach. A report is expected soon.
This only scratches the surface of the bureau’s work in support of greater financial literacy. The president needs to be careful as he rolls back controls put on banks in the wake of the Great Recession. He says he wants to free banks to lend more and get the economy to grow faster, partly by giving individuals greater access to credit and more choice in how they borrow.
That’s classic conservative thinking—and it may be the right way to go. But more choice and access requires more financial education so that individuals do not repeat the mistakes they made before the financial crisis. If he is going to de-fang the consumer bureau he should also find a way to make an even bigger commitment to financial literacy.