BILL NUMBER: AB 2123 AMENDED BILL TEXT AMENDED IN ASSEMBLY MAY 23, 2008 AMENDED IN ASSEMBLY MARCH 28, 2008 INTRODUCED BY Assembly Member Lieu (Coauthors: Assembly Members Brownley, Coto, De Leon, Dymally, Garcia, Garrick,and HancockHancock, and Ma ) (Coauthor:SenatorCedilloCoauthors: Senators Cedillo and Padilla ) FEBRUARY 20, 2008 An act to add Division 22 (commencing with Section 70000) to the Financial Code, relating to financial literacy , and making an appropriation therefor . LEGISLATIVE COUNSEL'S DIGEST AB 2123, as amended, Lieu. California Financial Literacy Initiative. The California Constitution requires the Legislature to encourage the promotion of intellectual improvement. Existing law regulates financial institutions and their interactions with the public. Existing law recognizes the existence of specialized financial institutions that provide services, including, but not limited to, financial literacy training, to underserved communities. This bill would establish the California Financial Literacy Initiative for the purpose ofimproving financial literacy by offering instructional materials to citizens of Californiaproviding resources and instruction to Californians . The initiative would be administered by the Controller who would be authorized to provide, among other things, an online library of financial literacy resources and materials to be made available for all Californians. The Controller would be authorized to convene a Financial Literacy Advisory Committee that may include representatives of the office of the Superintendent of Public Instruction, the office of the Treasurer, the Department of Corporations, the Department of Financial Institutions, the Department of Consumer Affairs, the Department of Finance, a representative from the financial services industry, a representative from the nonprofit sector associated with consumer advocacy, and others invited by the Controller. The bill would require the Controller, as resources are available, to establish and oversee the California Financial Services Corps, which would provide certain financial information tolow- and middle-income Californians who do not have financial adviserspersons seeking personalized attention from individuals with financial literacy training . The bill would establish the California Financial Literacy Fund in the State Treasury and would authorize the Controller to deposit donationsfrom nonprofit entitiesinto the fund from entities with no direct financial interest in any financial products . The bill would continuously appropriate moneys in the fund to the Controller and would authorize those moneysin the fund, upon appropriation by the Legislature,to be used for the purpose of establishing the services specified in the initiative. The bill would require the Controller, beginning in 2010, to report to the Legislature annually on or before August 30 on the implementation of the initiative, as specified. The bill would require specified state agencies to use existing resources for the initiative if those agencies elect to participate. Vote: majority. Appropriation:noyes . Fiscal committee: yes. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. The Legislature finds and declares all of the following: (a) While California currently has no official statewide strategy for improving Californians' financial literacy, the need for coordinated state investment in financial literacy solutions is increasingly evident. According to a national survey conducted in the fall of 2007, nearly half of homeowners with adjustable rate mortgages admitted that they did not know how their adjustable rate mortgages will adjust or reset and nearly 75 percent did not know how much their monthly mortgage payments will increase when they do adjust or reset. Mortgage "resetting" of adjustable rate mortgages is expected to peak in the fall of 2008. (b) As the state's chief financial officer responsible for auditing state expenditures and balancing the state's checkbook, as well as being the chair or member of 72 state boards and commissions, including two of the nation's largest pension investment funds, the Controller has the experience and duty to lead an initiative to grow the state's economy by bettering Californians' fiscal literacy. (c) Many states have already recognized the importance of financial literacy. Delaware, Maine, Pennsylvania, South Carolina, Utah, West Virginia, and Wisconsin have all created financial literacy programs to improve their citizens' fiscal health.(a)(d) A recent survey by Dartmouth College and Harvard University researchers found that only 35 percent of respondents were able to correctly estimate how interest compounds over time, more than half of respondents did not understand how minimum payments are calculated and applied to a principal balance, and almost none of the respondents understood the financial difference between paying in monthly installments versus one lump sum at the end of a certain time period.(b) The average American household consumer credit card debt among low- and moderate-income households is eight thousand six hundred fifty dollars ($8,650).(c) High(e) California high school seniors taking part in a national survey of financial knowledge scored an average of52.4 percent, which is a failing grade.44 percent, four percentage points lower than the national average.(d)(f) There were 164 million credit card holders in the United States in 2003 and that number is projected to grow to 176 million in 2008. These same Americans own approximately 1.5 billion cards, which is an average of nearly nine credit cards issued per credit card holder. (g) The average American household consumer credit card debt among low- and moderate-income households is eight thousand six hundred fifty dollars ($8,650).(e)(h) More than 40 percent of American families spend more than they earn.(f) California does not have an official statewide policy or education plan for teaching of financial literacy.(g)(i) Americans 25 to 34 years of age now have the second highest rate of bankruptcy, just after those 35 to 44 years of age. The bankruptcy rate among those individuals between 25 to 34 years of age increased between 1991 and 2001, indicating that those individuals were more likely to file bankruptcy as young adults than were young baby boomers at the same age.(h)(j) The national annual savings rate has declined from 9 percent in the 1980s to approximately -0.4 percent of after-tax household income, a level not seen since the Great Depression.(i)(k) Less than 20 percent of United States workers are now in employer pension plans and nearly 28 million United States households, 37 percent of the total, do not have a retirement savings account of any kind.(j) California does not have an official statewide policy for the teaching of financial literacy.(k) Many groups are dedicated to increasing the financial literacy of Americans and a broad range of quality personal finance instructional materials and curricula have been created for this purpose.(l) Financial literacy materials and resources exist in many forms but are not organized or collected in a systematic manner.(m) As the 2007 subprime mortgage crisis demonstrates, there is a severe shortage of affordable financial advisers to counsel middle- and lower-income Californians and to advise them on how to plan for a financial crisis.(l) Fifty-five percent of American workers do not know how much they will need to save to make their retirement dreams a reality. (m) Financial literacy education is an essential ingredient for creating an active citizenry able to understand how the state's budget decisions will affect their personal lives. (n) The growing negative economic effects of financial illiteracy has spurred the nonprofit and private sector to dramatically increase their investment in financial education and counseling, and to build more partnerships within and between the two sectors. At this crucial economic time it is imperative that the state consolidate its financial literacy resources and seek ways to reinforce efforts in the nonprofit and private sectors. SEC. 2. Division 22 (commencing with Section 70000) is added to the Financial Code, to read: DIVISION 22. California Financial Literacy Initiative 70000. For purposes of this division, "initiative" means the California Financial Literacy Initiative. 70001. (a) The California Financial Literacy Initiative is hereby established as a program for improving financial literacy byoffering instructional materials to citizens of California.providing resources and instruction to Californians. (b) The initiative shall be administered by the Controller who shall establish an Office of Financial Literacy Advocate for these purposes to be funded as resources are available. 70002. (a) Thegoals for the initiative are to accomplish both of the following:(1)Provideprimary goal of the initiative shall be to utilize high-quality instructional materials and training already established by nonprofit and private sector entities to provide Californians with the tools they will need to manage financial commitments associated with borrowing, credit, and other important financial decisions.(2) Promote high-quality programs that provide instruction on pertinent financial literacy issues as determined by the Controller.(b)TheTo achieve this goal, the Controller may doall ofthe following: (1)ProvideOrganize and provide an online libraryofand reference to financial literacy resourcesand materials to be made available for all Californians.. (2) Coordinate and collaborate with financial institutions, financial services providers,and nonprofit community organizations in collecting and distributing financial literacy materials.(3)Organize financial literacy materials, to be made available in a manner that ensures that materials are accessible to Californians with only a basic financial education.state and local governments, and nonprofit organizations in collecting, creating, and distributing financial literacy materials and developing innovative solutions to improving financial literacy. 70003. (a) The Controller may convene a Financial Literacy Advisory Committee to develop strategies to improve financial literacy and review materials that can be provided on the Internetin a centralized location for purposes of ensuring that Californians have access to appropriate financial literacy resources.and other accessible locations. (b) The Financial Literacy Advisory Committee shall be chaired by the Controller and may include representatives of the office of the Superintendent of Public Instruction, the office of the Treasurer, the California State Library, the Department of Corporations, the Department of Financial Institutions, the Department of Consumer Affairs, the Department of Finance, a representative from the financial services industry, a representative from the nonprofit sector associated with consumer advocacy, and othersto beinvited by the Controller. 70004. As resources are available, the Controller shall establish and operate a financial literacyinformation toll-free telephone number and Internet Web site to provide basic financial information on the followingclearinghouse for information through an Internet Web site to include information on these and related subjects: financial credit scores, credit card applications, bank account applications, simple and compound interest calculations, retirement calculations, and mortgage and interest rates. The Controller shall attempt to provide this service inthe following languages: English, Spanish, Chinese, Tagalog, Vietnamese, and Korean.English and the five languages other than English most widely spoken by Californians in their homes, according to the most recent United States Census data.70005. Financial institutions, financial services providers, nonprofit community organizations, and other entities whose materials or resources are included in the online library provided pursuant to paragraph (1) of subdivision (b) of Section 70002 may include in those materials a means of collecting data, including, but not limited to, all of the following: (a) The estimated number of users. (b) The age of the user. (c) Any other relevant information that would aid in the purpose of furthering financial literacy pursuant to this division.70006.(a)As resources are available, the Controller shall establish and oversee the California Financial Services Corps. The purpose of the California Financial Services Corps shall be to provide clear, professional, and objective financial information, without promotion of any financial products, to low- or middle-income Californians who are not currently using a financial adviser. Volunteers with professional certifications in financial planning or comparable professional training shall be invited to serve in the corps. Financial information shall pertain to the following major consumer purchases: automobile, home, or any other loan or investment not to exceed ten thousand dollars ($10,000).(b)The Controller shall attempt to staff the California Financial Services Corps with individuals who speak the following languages: English, Spanish, Chinese, Tagalog, Vietnamese, and Korean.to persons seeking personalized attention from individuals with financial literacy training or professional background. 70007. The California Financial Literacy Fund is hereby established in the State Treasury and is continuously appropriated to the Controller . The Controller may accept donations fromnonprofit entitiesentities with no direct financial interest in any financial products and deposit those donations into the fund, that, upon appropriation by the Legislature,may be used for the purpose of establishing the services described in this division.The California Financial Literacy Fund shall be subject to annual audit.70008. Beginning in 2010, the Controller shall provide to the respective chairpersons of Assembly Committee on Banking and Finance and the Senate Committee on Banking, Finance and Insurance an annual report on theController'sCalifornia Financial Literacy Initiative. This report shall include, but not be limited to, the approximate number of persons assisted by the financial literacy informationtoll-free telephone number and Internet Web site, a description of the inquiries made to those servicesWeb site , steps taken to partner with the financial services community and governmental and nongovernmental stakeholders to improve Californians' financial literacy, a description of the basic financial skills information available on the Controller's Internet Web site and plans to improve that clearinghouse of information, any nonstate funding received for purposes of this initiative, and any additional recommendations to enhance financial literacy in California. This report shall be submitted no later than August 30 of each year. 70009. It is the intent of the Legislature that state agencies involved in the Financial Literacy Advisory Committee shall actively support the initiative. State agencies in the executive branch of government, including boards, commissions, and constitutional officers, shall use existing resources for the initiative if they elect to participate.