Greenspan: Nation needs dose of financial literacy

Associated Press

WASHINGTON — Improving financial literacy among children and adults is particularly crucial given the expanding financial choices facing consumers, Federal Reserve chairman Alan Greenspan said Friday.

Greenspan also stressed that understanding basic financial concepts such as budgeting and saving should begin as early as possible in the learning process.

"In many respects, improving basic financial education at the elementary and secondary school levels can provide a foundation for financial literacy, helping younger people avoid poor financial decisions that can take years to overcome," Greenspan said in a speech delivered via satellite to the National Council on Economic Education meeting in Chicago. A copy of his speech was released in Washington, D.C.

In his speech, Greenspan did not discuss the future course of interest rate policy or the state of the U.S. economy.

To help the tottering economy, the Federal Reserve has cut interest rates nine times this year, with two reductions coming after the Sept. 11 terrorist attacks. Many economists expect another rate reduction when the Fed meets next on Nov. 6.

Becoming more financially fluent also is important as technology takes on an increasingly larger role at home and at work, he said.

Greenspan said surveys demonstrate a strong link between education and the use of new financial technologies. A Fed survey suggests that a higher level of education significantly increases the chances that a household will use an electronic banking product, Greenspan said.

In 1998, he said, the typical user that electronically assessed information for savings or borrowing decisions had a college degree, a level of education achieved by only about one-third of U.S. households at that time.

"As market forces continue to expand the range of financial services, consumers will have more choice and flexibility in how they manage their financial matters, and they will demand education about use of the new technologies to make informed decision," Greenspan said.

Greenspan said a sound financial education also would be helpful to poor people, those with an education of high school or less, and minorities who didn’t appear to enjoy the big financial gains that others did during the economy’s recent boom.

"That families with low to moderate incomes and minorities did not appear to fully benefit from the highly favorable economic developments of the mid 1990s is, of course, troubling," he said, adding that is something that warrants closer study.