To sum up, then, the most critical economic decisions people face over their lifetime concern investments in their human capital. Financial education has traditionally promoted college enrollment by providing prospective students with information on financing options. But success in college is by no means automatic, and the benefits of attending — but not completing — college are relatively low. I have advocated that financial educators shift toward informing students about the value of college preparedness and the value of alternatives to a traditional four-year college degree, such as community colleges and vocational and apprenticeship programs. In addition, making sure students are well aware of the magnitude of the return to successful college completion would reduce the odds of well-qualified students forgoing college attendance. And finally, I was unable to resist the opportunity to put in a plug for early childhood intervention, where research has demonstrated the value of targeted, high-quality programs.

Now, although policymakers have the primary responsibility for effectively communicating their decisions, the task becomes easier when the general public has a basic grasp of economic and financial principles. Everyone benefits from a better public understanding of basic economic concepts. It helps policymakers in their efforts to successfully convey policy decisions, and it allows voters to more effectively hold policymakers accountable.

Now, although policymakers have the primary responsibility for effectively communicating their decisions, the task becomes easier when the general public has a basic grasp of economic and financial principles. Everyone benefits from a better public understanding of basic economic concepts. It helps policymakers in their efforts to successfully convey policy decisions, and it allows voters to more effectively hold policymakers accountable.

Comprehensive, effective regulation of consumer products is the first step in ensuring positive outcomes for consumers. But consumers must also be equipped with the necessary quantitative and decisionmaking tools, and supported with the right information at the right time in order to make the best possible choices.

In retrospect, some of the people who were hurt the most during the crisis borrowed money that they should not have borrowed and signed financial contracts they should not have signed.  Today, students need a solid understanding of the benefits and risks of borrowing money to buy a car or a home, and of the effect that too much credit card debt can have on their finances. Besides improving their personal financial decisionmaking, teaching your students economic principles will help them as citizens understand and make choices about many of the critical issues confronting our nation.

A central theme in my research career has been how the economy deals with risks, both risks at the individual level and risks that affect the entire economy. In all of my central research areas, I have thought about and written about the risks in the economy and how markets and government can combine to make the economy function better for individuals. If confirmed, this background should be very helpful at the Federal Reserve as part of the process of addressing our heightened awareness of the dangers of systemic risks. My background in behavioral economics and law and economics give me high awareness of the issues involved in consumer protection and increasing financial literacy.

[W]hen individuals have a better understanding of financial and economic concepts, it is easier for them to appreciate the role of the Federal Reserve and the benefits of the Fed's independence when it comes to monetary policy. When you don't understand what inflation is or the risk that it presents to your financial well-being, then it is difficult to appreciate the importance of a Federal Reserve that can take politically unpopular steps to combat inflation.

When consumers are fully aware of and understand product terms and features, they are better positioned to make the right choices and achieve the outcomes most appropriate to their given circumstances, as well as give the signals and rewards to businesses that produce the products and services consumers most value. However, some product features and contract terms may be so complex that they are not readily understood. In some instances, even small misunderstandings, misjudgments, or the challenge of focusing on the most essential features of a product can lead to serious problems down the road. This is one reason why financial education and literacy efforts are essential to enabling consumers to navigate our complex consumer financial marketplace.  

[E]ducation is critical to the long-run well-being of our economy and everyone who participates in it. It enhances our productivity and raises living standards. It enables consumers and businesses to make more informed and thus better decisions and choices — improving the broader economy in the process. But the responsibility does not rest solely with government and policymakers, who clearly must do their part. It rests mostly on individuals taking the responsibility to engage in life-long learning, making investments that will reward them handsomely.  

The current economic environment underlines not just the importance of education but the need for improved economic and financial literacy. I am not the first, nor will I be the last, to make this plea. As an economist, I have a particular interest in economic and financial education. The events of the last decade, as well as our current economic and financial situation, have reinforced my sense of urgency in this regard.

I believe more states should consider making personal finance a requirement for all students who seek a high school diploma. I am personally convinced that improving education is vital to the future of our economy and all its citizens, and I strongly believe that promoting financial literacy, in particular, must be a high priority.   

Regarding the mounting levels of debt, encouraged in part by the low cost of borrowing, Greenspan said that he was "reluctant to underestimate the ability of most households and companies to manage their financial affairs."

[W]e make better decisions if we are better informed, and the whole economy benefits. That's the promise of economic education--to get back to the title of this session--that it not only improves the lives of individual consumers, but that it also makes for more-effective policy and a better economy.     

We are very sensitive, both in the credit card rules and also in the mortgage rules, that these markets are important, we don't want to create a chilling effect, we don't want to shut down these markets; we just want them to work better.

 And in particular we think it's important for consumers to have a better understanding of what it is that they're buying when they purchase products in these markets.

...I believe that helping young people become financially literate is critical for their future economic well-being and should be a high priority for educators.