BILL ANALYSIS
AB 550
Page 1
Date of Hearing: April 20, 2009
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Pedro Nava, Chair
AB 550 (Lieu) - As Amended: April 14, 2009
SUBJECT : California Financial Literacy Initiative.
SUMMARY : Establishes the California Financial Literacy
Initiative for the purpose of providing financial resources and
instruction to Californians to improve financial literacy.
Specifically, this bill :
1)Enables the California State Controller's office to administer
the initiative.
2)Establishes the California Financial Literacy Fund in the
State Treasury.
3)Authorizes the Controller to deposit private donations into
the fund from entities with no direct financial interest in
any financial products.
4)Requires money deposited into the California Financial
Literacy Fund to be made available upon appropriation in the
annual Budget Act.
5)Requires the Controller, beginning in 2011, to report to the
specified committees of the Legislature annually on or before
August 30 on the implementation on the initiative.
6)Makings findings and declarations in relation to financial
literacy.
EXISTING LAW recognizes the existence of specialized financial
institutions that provide services, including, but not limited
to, financial literacy training, to underserved communities.
FISCAL EFFECT : Unknown.
COMMENTS :
What is financial literacy?
The U.S. Financial Literacy and Education Commission defines
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financial literacy as "the ability to make informed judgments
and to take effective actions regarding the current and future
use and management of money."
A number of statistics demonstrates the important need for
financial literacy in California:
Average credit card debt among low- and moderate-income
households is $8,650;
(Source: Generation Broke, The Growth of Debt Among Young
Americans, by Tamara Draut and Javier Silva)
Americans age 25 to 34 now have the second highest rate of
bankruptcy, just after those aged 35 to 44. The rate among
25-34 year olds increased between 1991 and 2001, indicating
that those persons were more likely to file bankruptcy as
young adults than were young Boomers at the same age.
(Source: Generation Broke, The Growth of Debt Among Young
Americans, by Tamara Draut and Javier Silva)
According to the U.S. Census, there were 164 million credit
card holders in the United States in 2003 and that number is
projected to grow to 176 million Americans by 2008. These same
Americans own approximately 1.5 billion cards - an average of
nearly nine credit cards issued per credit card holder.
According to the U.S. Census Bureau, in 2008, credit card
holders will average nearly $5500 in credit card debt
A recent survey of 1000 adults conducted by Dartmouth and
Harvard 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.
According to Prof. Peter Tufano, Sylvan C. Coleman Professor
of Financial Management at Harvard Business School
"There is a strong link between financial illiteracy and
excessive debt. Those who severely underestimate the
power of interest compounding don't understand how
quickly debts can grow. They end up with more debt than
they can handle."
(The study is based on a representative national sample of
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1000 people aged 18+ in the TNS 6th Dimension Access Panel.
The internet-based survey was conducted during the week of
November 5, 2007.)
Less than 20% of U.S. workers are now in employer pension
plans.
(Source: Forbes Magazine: Retirement Doomsday by Dan
Ackman. April 5, 2005.)
Social Security is typically replacing less than 40% of
pre-retirement income.
(Source: Forbes Magazine: Retirement Doomsday by Dan
Ackman. April 5, 2005.)
Nearly 28 million U.S. households--37% of the total--do not
own a retirement savings account of any kind.
(Source: Forbes Magazine: Retirement Doomsday by Dan
Ackman. April 5, 2005.)
Just 11% of all Americans have retirement savings of $250,000
or more. (Forbes)
(Source: Forbes Magazine: Retirement Doomsday by Dan
Ackman. April 5, 2005.)
California does not have an official statewide policy for the
teaching of financial literacy.
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.
Financial literacy materials and resources exist in many forms
but are not organized or collected in a systematic manner.
As the 2007 subprime mortgage crisis demonstrated, there is a
severe shortage of affordable financial advisors to counsel
middle and lower income Californians and advise them on how to
plan for a fiscal crisis.
NEED FOR THE BILL:
The Jumpstart Coalition for Personal Financial Literacy
conducted a survey of college students in 2007 that found more
than 75 percent of the respondents wish they had more help
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preparing for their financial future. Despite surveys and
reports documenting Americans' poor knowledge of personal
finance basics, financial education is currently only required
learning in twenty states. California is not one of these
states.
The current mortgage crisis demonstrates there is a vast need
for people to become more financially literate. California does
not require financial education which makes constituents more
susceptible to scams and other forms of financial abuse. If
California did have more education requirements in place, the
impact of the mortgage crisis may have been lessened. Although
this bill does not place education requirements in schools, it
does take a step in the right direction by establishing a fund
in the State Treasury for the purpose of financial literacy.
The sponsor of the measure, California State Controller, John
Chiang, states, "I firmly believe this legislation constitutes a
prudent investment by the State in its citizens' long-term
financial viability. The need for AB 550 could not be clearer:
A recent article reported that poor asset management is an
epidemic problem in California, as 43% of Americans spend more
than they earn. Financial Literacy is recognized as a critical
issue throughout the U.S, with nearly 35 states implementing
some kind of financial literacy program."
The author of this bill has carried three previous measures all
related to promoting financial literacy in this state. All
three pieces of legislation have been vetoed by the Governor.
The author remains committed to this area and has introduced
this bill to ensure the Treasury gets the authority needed to
create the California Financial Literacy Fund.
FEDERAL ACTION:
The President's Advisory Council on Financial Literacy was
created on January 22, 2008 by President George W. Bush. The
Council's purpose is to help keep America competitive and assist
the American people in understanding and addressing financial
matters. Each member of the Council represents an industry
involved with the delivery of financial education to American
citizens. The President and the Secretary of the Treasury have
tasked the Council to work with the public and private sector to
help increase financial education efforts for youth in school
and for adults in the workplace, increase access to financial
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services, establish measures of national financial literacy,
conduct research on financial knowledge and to help strengthen
public and private sector financial education programs.
PREVIOUS LEGISLATION :
ACR 113 ((Niello & Lieu) Res. Chapter 32, Statutes of 2008)
declares the month of April, 2008, as Financial Literacy Month,
in order to raise public awareness about the need for increased
financial literacy.
AB 2123 (Lieu), 2008 Legislative Session. Would have
established the California Financial Literacy Initiative for
the purpose of improving financial literacy by offering
instructional materials to citizens of California. Vetoed by
Governor Schwarzenegger.
AB 150 (Lieu), 2007 Legislative Session: Would have required
the Superintendent of Public Instruction to administer a
California Financial Literacy Initiative (CFLI) as a program for
improving pupil financial literacy. Vetoed by Governor
Schwarzenegger.
AB 1950 (Lieu), 2006 Legislative Session: Substantially similar
to AB 2435. Vetoed by Governor Schwarzenegger.
AB 2435 (Wiggins), 2004 Legislative Session: Would have
permitted school districts to provide instruction in economics
courses related to the understanding of personal finances
including budgeting, savings and credit. Vetoed by Governor
Schwarzenegger.
The Assembly Banking and Finance Committee conducted an
informational hearing on Financial Literacy on February 20,
2007. The Committee found through this hearing that numerous
programs exist in California from the financial community and
from non-profit organizations but no central authority
determines what materials or programs are best suited for
Californians.
REGISTERED SUPPORT / OPPOSITION :
Support
California State Controller (Sponsor)
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New America Foundation (Co-Sponsor)
California State Treasurer
California Chamber of Commerce
California Credit Union League
California Society of Certified Public Accountants
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081