Federal financial services regulators are still not sure what kinds of educational programs can help consumers improve their financial well-being, a top official says.

Federal Reserve Governor Elizabeth Duke talked about the uncertainty earlier this week during a conference at the Federal Reserve Bank of Boston.

Duke is a governor who comes from the world of consumer banking rather than from the Mysteryworld of theoretical economics. She worked her way up from being a bank teller in 1974 to serving as the 2004-2005 chairman of the American Bankers Association, Washington.

Duke spoke in Boston about the practical effects of American families’ ability to save for the future.

“Many now have fewer financial resources and limited options,” Duke said, according to a written version of her remarks provided by the Federal Reserve Board.

“The pace and timing of their saving and investing life cycle has also been disrupted. For example, high unemployment levels among recent high school and college graduates, especially among young African Americans, means that this demographic likely won’t be able to start saving and investing as early in life as previous generations.”

Analysts have found that 401(k) plan hardship withdrawals increased 49% between 2005 and 2010, and that other types of withdrawals had increased 56%, Duke said.

Researchers also have found that many Americans with relatively high incomes and an obvious ability to save have failed to do so, or have failed to take basic steps such as buying life insurance or preparing a will.

Congress included major financial education provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and earlier bills. One of the earlier bills established a Financial Literacy and Education Commission. The Fed has worked with the commission on financial literacy efforts.

“But the fact is that we have very limited data on how effective financial education is in improving financial well-being,” Duke said.

The Financial Literacy and Education Commission “has only recently developed a core set of financial competencies, and has yet to establish the knowledge, skills, and behaviors that will meet these competencies,” Duke said.

Duke said she believes researchers need to address questions such as:

  • What do people need to know in order to improve their long-term economic well-being? How does this content vary across demographic groups, such as by income, employment status, age, or culture?
  • How do people obtain and process financial information? What sources do they use? Do outcomes vary by the source or timing of the information?
  • Is instilling financial knowledge enough to improve consumer outcomes? If not, how can policymakers influence financial behaviors?
  • How should financial literacy be measured to evaluate the impact of financial education on financial outcomes and predict future behavior and well-being?

Answering these questions is especially important today because Americans are taking more responsibility for their own retirement savings, Duke said.

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