Among the reasons for the growing urgency attached to financial literacy are a proliferation of sophisticated financial products and new financial services providers. I must say that even I need a little tutoring to understand all the potential pitfalls of the new mortgages that have become commonplace offerings by banks and nonbank providers in the U.S., so I have a lot of sympathy for the first time low or moderate income home buyer. And technological change has made the lending process at once easier and perhaps less transparent. Lenders may or may not be regulated as banks, adding another layer of potential complexity.

In addition, changes in corporate retirement plans and health insurance systems are shifting responsibility for planning for workers’ long term financial security from businesses to the workers themselves. Even relatively well educated, relatively affluent households find themselves challenged by this shift and the need to take more responsibility for their financial future.

Financial education is a critical component of a robust and effective financial marketplace, but it is not a panacea. Clear disclosures, wise regulation, and vigorous enforcement are also essential to ensuring that financial service providers do not engage in unfair or deceptive practices. Even the most financially savvy consumer may fall victim to fraud or deception.

Though seemingly unrelated, financial education and the current account deficit are two long-term issues that we must focus on if we want to ensure that the economy remains strong in the future. Both topics at their core deal with understanding how current spending—by the individual or by the nation—must be balanced against future income prospects and future needs.

Financially literate consumers make the financial marketplace work better, and they are better-informed citizens as well...I am personally convinced that improving education is vital to the future of our economy and that promoting financial literacy in particular must be a high priority.

Education is essential for citizens to participate in a responsive democracy, and it has meant growth and progress for Americans. Historically, gains in educational achievement have gone hand-in-hand with the adoption of new technologies and improvements in our standard of living. And in our increasingly complex society, education is essential to making wise saving, investment, and occupational decisions that determine our life's financial prospects and economic well being.

Over the past several years, there has been an explosion of new and novel mortgage products...Many of these products can be useful financial tools for homebuyers...But to the extent that these new mortgage products promote homebuying decisions that are premised on unrealistic rates of home appreciation, they raise concerns. Some borrowers may not be able to sustain such a loan over a long time horizon if the pace of home price growth moderates. In particular, when the payments on these novel mortgages adjust upward, the homebuyer may not be able to refinance such mortgages unless the home has increased in value. Homebuyers need to understand these risks and thus financial education, as well as a down payment, is a key ingredient for creating solid footing on the path to homeownership.

Broad efforts to improve financial literacy may not add to a lender's near-term bottom line, but financial institutions, both individually and as a whole, depend critically on their customers' trust. And trust is built on understanding.

The value of financial literacy has become apparent...An electorate that has a broad appreciation of the efficiency of credit markets will also have an easier time sorting out when any particular policy proposal is truly in their interests.  In the long run, this is the path to better banking policy. After all, we in the United States have arguably one of the most efficient retail credit markets in the world. Let's not kill the goose that lays golden eggs.