Financial Literacy and the Educated American

The American Academy of Arts and Sciences convened a group of experts on Thursday and Friday of last week, March 14-15, in Cambridge, Mass.  The title of the conference was “Financial Literacy and the Educated American.” As you know, the Academy is one of the nation’s oldest learned societies, and during the reception on Thursday night, the President of the Academy guided us through parts of the building, showing us some of the acceptance letters which are framed and posted on the walls, including one by George Washington. I thought it was good omen and that all of these wise historical figures would inspire and watch over us at the meeting.

A special meeting it was. The caliber of the participants was extraordinary. We had members of the President’s Advisory Council for Financial Capability, the Assistant Secretary of Labor for the Employee Benefits Security Administration, the head of the Government Accountability Office, the President of FINRA Investor Education Foundation, and the heads of some of the top not-for-profit institutions working on financial literacy. The conference convened some of the top academics in the country, including the dean of one of the best business schools in Europe. We also had fellows of the Academy who work in the private sector and the CEO of a firm. These people normally do not meet in a single place, but the Academy was able to bring all of them together.

The invitation letter outlined the intent of the conference: “Recent financial crises in the US and abroad have highlighted the urgent need for an increased focus on educational and policy initiatives designed to promote financial literacy in citizens of all ages. To address this need, the American Academy of Arts and Sciences will convene a nonpartisan forum for diverse experts from academic, financial, private nonprofit, and government institutions to share theoretical approaches, best practices, and research methods and findings. The conference will focus on the beginning and end of the financial life cycle of American citizens in order to emphasize the necessity for sustained fiscal education from kindergarten through retirement.”

I co-chaired the first panel, Financial Education over the Life Cycle. We had a rich set of presentations and discussions in that panel and throughout the day. New ideas percolated and bounced around from presentations to discussions, and I kept an ear out for what could be implemented and could make a good next step for this extraordinary group. The importance of financial education in schools could not be overstated, and there was a lot of discussion about content, standards, implementation, and whether to add financial literacy questions to the SAT. There was a very engaging discussion about workplace financial education as well and what the government can do in this regard, given that it is one large and very important employer.

Our lunch speaker was the Chairman of the President’s Advisory Council and CEO of Ariel Investments. He spoke with simplicity, describing how the Ariel Community Academy in Chicago was created, how the students there manage a fund with the help of advisors from Ariel Investments, and how proud he was of it. He started that initiative many years ago and I am pretty sure without having any studies using control and treatment groups demonstrating that financial literacy works in schools (what we all want to see today). He did not mention it, but today the Academy outperforms all schools in the district and is ranked as one of the top elementary schools in all of Chicago. He also helped McDonald’s put in place financial education programs so that employees, in particular minority employees, could save more for their retirement. He had seen data about disparities in saving among African Americans and Hispanics and thought it was important to address that. Again, I do not think he had seen studies showing that workplace education works, but what important was to address a problem. I asked him what motivated his work. He replied that his father had given him stocks as a Christmas gift; that started his journey. I forgot to eat lunch when he spoke. He is a person with a vision, someone with the capacity to look into the future, which is critical when one is dealing with education.

But back to my panel. In my twenty years of work, I had never chaired a panel with the CEO of a company. But I did so at this event and I hope I will be able to do it again. I do hope that this conference was just the beginning of a conversation and partnerships among the public and private sectors. In a time of tight budgets, it is important to take leadership and have a vision of what academics, not-for-profits, and the private sector can do together to combat financial illiteracy.

Despite much enthusiasm for financial education initiatives, there were doubters and skeptics at the event, too. Some said we lack data. Others said we lack evidence. I hear such comments over and over at every conference I go to, and—true to form—one conference participant stated, “We do not have any evidence that financial education works.” Dorothy Wallace, a mathematician from Dartmouth, leaned toward me and whispered, “We do not have any evidence that ignorance works.” So, I would say we are even. I look forward to the next steps.