Evidence indicates that many U.S. consumers could benefit from improved  financial literacy efforts. The Federal Government’s Approach to Financial Literacy Has Been Fragmented

Federal financial literacy programs and resources are spread widely  among many different federal agencies, raising concerns about  fragmentation and potential duplication of effort. We conducted a review of the Commission in 2006 and made  recommendations related to enhancing public-private partnerships,  conducting independent reviews of duplication and effectiveness, and  conducting usability testing of the Commission’s MyMoney.gov Web site. Our 2006 review also found that while the Commission’s initial national  strategy was a useful first step in focusing attention on financial literacy, it  was largely descriptive rather than strategic. To supplement this national strategy, the Commission  has said it will be releasing an implementation plan for the strategy by the  end of this fiscal year. While the new national strategy clearly identifies  action areas and related goals and objectives, it still needs to incorporate  specific provisions for performance measures, resource needs, and roles  and responsibilities, which we believe to be essential for an effective  strategy. The new strategy will benefit if the forthcoming implementation  plan incorporates these elements, as well as addresses the fragmentation  of federal financial literacy efforts. More recently, the Dodd-Frank Wall Street Reform and Consumer  Protection Act (Dodd-Frank Act) requires the establishment of an Office of  Financial Education within the new Bureau of Consumer Financial  Protection, further underscoring the need for coordination among federal  agencies on this topic. Coordination and partnership among federal, state, nonprofit, and private  sectors are also essential in addressing financial literacy, and there have  been positive developments in these areas in recent years. The Federal Government Must Determine What Works and Focus Resources Accordingly

Although numerous financial literacy initiatives are conducted by federal,  state, local, nonprofit, and private entities throughout the country, there is  little definitive evidence available on what specific programs and  approaches are most effective. In addition, discerning the impact of the financial  literacy program as distinct from other influences, such as changes in the  overall economy, can often be difficult. Nonetheless, given that federal agencies have limited resources, focusing  federal financial literacy resources on initiatives that work is important. The Financial Literacy and Education  Commission and many federal agencies have recognized the need for a  greater understanding of which programs are most effective in improving  financial literacy. Moreover, we are pleased to see that the Commission’s new 2011 national  strategy sets as one of its four goals to “identify, enhance, and share  effective practices.” The new strategy sets objectives for reaching this goal  that include, among other things, (1) encouraging research on financial  literacy strategies that affect consumer behavior, (2) establishing a  clearinghouse for evidence-based research and evaluation studies, (3)  developing and disseminating tools and strategies to encourage and  support program evaluation, and (4) forming a network for sharing  research and best practices. In addition, it is important to note that financial education is not the only  approach—or necessarily always the best approach—for improving  consumers’ financial behavior. We will host another forum on financial  literacy later this year to bring together experts in financial literacy and  education from federal and state agencies, nonprofit organizations  representing consumers, educational and academic institutions, and  private sector employers. This forum will address the gaps that exist in  financial literacy efforts, challenges that federal agencies may face in  addressing these gaps, and opportunities for improving the federal  government’s approach to financial literacy. In addition, as part of our audit and oversight function, we will continue to  conduct evaluations of the efficiency and effectiveness of federal financial  literacy efforts. While personal  financial decisions are made by individuals and their families, the federal  government can play a role in helping ensure that its citizens have easy  access to financial information and the tools they need to make sound  decisions. Financial Literacy and Education Commission: Progress Made in  Fostering Partnerships, but National Strategy Remains Largely  Descriptive Rather Than Strategic. Highlights of a GAO Forum: The Federal Government’s Role in  Improving Financial Literacy.
Why GAO Did This Study

Financial literacy plays an important role in helping ensure the financial health and stability of individuals, families, and our broader national economy. Economic changes in recent years have highlighted the need to empower Americans to make informed financial decisions, yet evidence indicates that many U.S. consumers could benefit from a better understanding of financial matters. For example, recent surveys indicate that many consumers have difficulty with basic financial concepts and do not budget. This testimony discusses (1) the state of the federal government's approach to financial literacy, (2) observations on overall strategies for addressing financial literacy, and (3) the role GAO can play in addressing and raising awareness on this issue. This testimony is based largely on prior and ongoing work, for which GAO conducted a literature review; interviewed representatives of organizations that address financial literacy within the federal, state, private, nonprofit, and academic sectors; and reviewed materials of the Financial Literacy and Education Commission. While this statement includes no new recommendations, in the past GAO has made a number of recommendations aimed at improving financial literacy efforts..

What GAO Found

Federal financial literacy efforts are spread among more than 20 different agencies and more than 50 different programs and initiatives, raising concerns about fragmentation and potential duplication of effort. The multiagency Financial Literacy and Education Commission, which coordinates federal efforts, has acted on recommendations GAO made in 2006 related to public-private partnerships, studies of duplication and effectiveness, and the Commission's MyMoney.gov Web site. While GAO's 2006 review of the Commission's initial national strategy for financial literacy found that it was a useful first step in focusing attention on financial literacy, it was largely descriptive rather than strategic. The Commission recently released a new strategy for 2011, which laid out clear goals and objectives, but it still needs to incorporate specific provisions for performance measures, resource needs, and roles and responsibilities, all of which GAO believes to be essential for an effective strategy. However, the Commission will be issuing an implementation plan to accompany the strategy later this year and the strategy will benefit if the plan incorporates these elements. The new Bureau of Consumer Financial Protection will also have a role in financial literacy, further underscoring the need for coordination among federal entities. Coordination and partnership among federal, state, nonprofit, and private sectors is also essential in addressing financial literacy, and there have been some positive developments in fostering such partnerships in recent years. There is little definitive evidence available on what specific programs and approaches are most effective in improving financial literacy, and relatively few rigorous studies have measured the impact of specific financial literacy programs on consumer behavior. Given that federal agencies have limited resources for financial literacy, it is important that these resources be focused on initiatives that are effective. To this end, the Commission's new national strategy on financial education sets as one of its four goals identifying, enhancing, and sharing effective practices. However, financial education is not the only approach for improving consumers' financial behavior. Several other mechanisms and strategies have also been shown to be effective, including financial incentives or changes in the default option, such as automatic enrollment in employer retirement plans. The most effective approach may involve a mix of financial education and these other strategies. GAO will continue to play a role in supporting and facilitating knowledge transfer on financial literacy. GAO will host a forum on financial literacy later this year to bring together experts from federal and state agencies and nonprofit, educational, and private sector organizations. The forum will address gaps, challenges, and opportunities related to federal financial literacy efforts. In addition, as part of GAO's audit and oversight function, GAO will continue to evaluate the effectiveness of federal financial literacy programs, as well as identify opportunities to improve the efficient and cost-effective use of these resources.