BILL ANALYSIS
AB 2457
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Date of Hearing: April 19, 2010
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
AB 2457 (Salas) - As Introduced: February 19, 2010
SUBJECT : California Financial Literacy Fund.
SUMMARY : Establishes the California Financial Literacy Fund in
the State Treasury. Specifically, this bill :
1)Requires the California Financial Literacy Fund to be
administered by the State Controller.
2)Authorizes the State Controller to deposit private donations
into the California Financial Literacy Fund from entities with
no direct financial interest in any financial products.
3)Requires private donations to be made available upon
appropriation in the annual Budget Act.
4)Requires the State Controller, beginning in 2012 to provide an
annual report to the chairpersons of the Assembly Committee on
Banking and Finance and the Senate Committee on Banking,
Finance and Insurance on the use of the funds, when
appropriated. This report shall be submitted no later than
August 30 each year.
5)Enables partnerships with the financial services community and
governmental and nongovernmental stakeholders to improve
Californian's financial literacy.
6)Makes findings and declarations regarding financial literacy.
EXISTING LAW does not have an official statewide policy or
educational plan for the teaching of financial literacy.
FISCAL EFFECT : Unknown
COMMENTS :
Currently, California does not have a one-stop shop system for
collecting and administering financial literacy funds and
implementing programs. A number of financial institutions and
non-profit organizations conduct their own events and workshops
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to promote financial literacy. AB 2457 would provide an outlet
for the Controller to deposit private donations into the
financial literacy fund from entities with no direct financial
interest in any financial products. Through the financial
literacy fund, the Controller would have the ability to promote
financial literacy events, create and distribute financial
literacy documents and make the public aware of more serious
issues related to scams. The bill contains a reporting
requirement allowing the Legislature to receive necessary
information into how the funds are used and appropriated on a
yearly basis.
More efforts aimed at promoting financial literacy can produce
long-term, beneficial effects, onto California citizens.
Promoting financial literacy allows consumers to make smarter
financial decisions that reduce personal financial collapse and
ease the corresponding burden on the state. The economic 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 overall impact of the
foreclosure crisis may have been less. 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 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
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.
According to the author, "Financial illiteracy and the
consequences of uninformed financial decisions are a growing
problem in California. A 2008 financial literacy survey
revealed that only 59 percent of young adults, ages 18-29, pay
their bills on time every month. Providing Californians more
financial literacy tools is an important part of the solution.
The creation of a financial literacy fund would provide a
central funding source for organizations who with to partner
with California on financial literacy efforts. In the long run,
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educating Californians would result in benefits to the economy
by helping to prevent bankruptcies, foreclosures, and job loss."
According to the sponsor, the California State Controller, "This
bill would express the state's financial interest in reducing
unmanageable credit card debt, bankruptcy, and predatory lending
misfortunes like those that contributed to the current economic
meltdown. Importantly, this bill will ensure that the
Legislature is notified of all sources and uses of the donated
funds, allowing you and the other members to make more timely
and informed decisions on financial literacy issues."
FINANCIAL LITERACY STATISTICS:
The 2008 Financial Literacy Survey of adults, conducted on
behalf of the National Foundation for Credit Counseling, Inc.
and MSN Money, revealed that:
One in every 10 Americans with a mortgage reports being
late or missing a mortgage payment in the last year.
7% of adults are either getting calls from collectors
or seriously considering filing for bankruptcy.
Only 59% of the young adults in Generation Y
(ages18-29) pay their bills on time every month.
More than one-third of adults say they do not have any
non-retirement savings. And though a majority is currently
saving for their retirement, more than one-quarter are not.
Almost half of those who closely monitor their finances
are more likely to say that they learned about personal
finance from their parents or at home, underscoring the
potential positive influence parents can have on their
children financially.
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Only one-quarter expect their income to outpace
inflation. And more than half of all Americans believe
their income will shrink, not keep pace with inflation, or
stay even.
According to a 2008 study of college students sponsored by the
National Association of Retail Collection Attorneys:
31% of students polled do not worry about debt, believing
that they can pay it back once they are out of school and
earning a regular paycheck.
More than 25% think it is reasonable to run up a debt to
splurge on a special celebration with friends at a restaurant
or to use a credit card as a way to "raise cash."
An average of 23% chooses to ignore overdraft penalties and
the prospect of months or years of paying off a debt incurred
for a moment of fun.
Less than half (46%) always keep records of their spending
and receipts.
92% agree that bad debt - defined as failure to pay bills
that extends so long that a debt collector has to contact the
consumer - will have a significant impact on a person's
ability to get credit in the future.
42% of those who already have been contacted by a debt
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collector would develop a payment plan to repay the debt over
time.
A 2008 study by the Boys & Girls Clubs of America and the
Charles Schwab Foundation of teens participating in the
financial education program Money Matters revealed that:
Teens who reported learning a great deal about goal-setting
were significantly more likely to also report that they had
saved money for something they wanted and then purchased it
(79%), compared to those who reported they learned little or
nothing about goal-setting (58%).
Teens who reported learning about managing savings and
checking accounts were more likely to report having opened
both types of accounts (57% vs. 44% opened a savings account;
36% vs. 28% opened checking accounts).
Those who reported learning about saving money were more
likely to save regularly (72% vs. 57%).
Teens who learned to track spending were more likely to report
having developed a budget (50%) vs. those who learned little
or nothing (29%) and also more likely to save money to
purchase something (80% vs. 60%).
Youth who reported learning to create and maintain a budget
were more likely to report actually developing one (50% vs.
30%).
A 2008 Pew Research Center survey of adults revealed that:
Three out of every four Americans say they aren't saving
enough.
Americans now save, on average, less than 1% of their
incomes, and the savings rate has been in almost continuous
decline for more than two decades.
Fully six-in-ten adults (61%) with family incomes of $150,000
or more say they aren't saving enough money for the future.
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Among those earning between $100,000 and $150,000 a year, the
proportion soars to 79% and stays roughly at that level among
income groups farther down the scale.
Three-in-ten (31%) college graduates say they save enough,
compared with 19% of those with just a high school degree.
At the end of January, 2010, Americans were $2564 billion in
debt, excluding home mortgages.
According to CardWeb.com, the average credit card debt per
borrower (not per household) is $5,710 at the end of October,
2009, about 6% higher than one-year ago.
OTHER STATES: In Vermont, during the 2008 Legislative session,
legislators authorized the establishment of a trust fund to
finance financial literacy in Vermont. According to the
legislation, "The purpose of the fund is to promote the adoption
of fiscally sound money management practices by Vermonters
through education and outreach efforts that raise awareness of
the need for and benefits of practicing such skills; and to
create opportunites to build and encourage the development of
new financial literacy activities and educational products for
Vermont citizens." The Treasurer's Office is authorized to
accept funding from a variety of sources to support these
activities.
In 2008, Ohio established the financial literacy education fund
in the state treasury, administered by the director of commerce.
(The Ohio Department of Commerce is one of the state's chief
regulatory agencies.) The fund is used to support various adult
financial literacy education programs developed or implemented
by the director of commerce. The director of commerce requires
that at least one-half of the financial literacy education
programs developed or implemented, and offered to the public, be
presented by or available at public community colleges or state
institutions throughout the state. The director of commerce
shall deliver to the president of the senate, the speaker of the
house of representatives, the minority leader of the senate, the
minority leader of the house of representatives, and the
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governor an annual report that includes an outline of each adult
financial literacy education program developed or implemented,
the number of individuals who were educated by each program, and
an accounting for all funds distributed.
According to the Jumpstart Coalition, Tennessee and Iowa have
used their partnerships with state and local business leaders
and the financial sector to establish Financial Literacy Funds.
These funds are gathered as partners are asked to donate when
participating in discussions regarding curriculum, teacher
trainings, and classroom tools. The Funds are then used to
ensure teacher training and materials are available to educators
delivering financial education.
FEDERAL ACTION: Recently, President Barack Obama named April,
National Financial Literacy Month. The President said in a
proclamation that a better understanding of the financial system
can help prevent another economic crisis. He called on Americans
during April to recommit "to teaching ourselves and our children
about the basics of financial education." The president is
currently looking into creating a new Consumer Financial
Protection Agency, which has been stated, would give Americans
"clear and concise financial information."
The Federal Government established The Financial Literacy and
Education Commission under Title V, the Financial Literacy and
Education Improvement Act which was part of the Fair and
Accurate Credit Transactions (FACT) Act of 2003, to improve
financial literacy and education of persons in the United
States. The FACT Act named the Secretary of the Treasury as head
of the Commission and mandated the Commission include 19 other
federal agencies and bureaus. The Commission coordinates the
financial education efforts throughout the federal government,
supports the promotion of financial literacy by the private
sector while also encouraging the synchronization of efforts
between the public and private sectors.
PREVIOUS LEGISLATION :
AB 550 (Lieu) 2009 Legislative session. Would have established
the California Financial Literacy Fund in the State Treasury and
enable the California State Controller to administer the Fund.
Held in the Assembly Appropriations Committee. Appropriations
determined, "Unknown costs, presumably in excess of 150,000, to
the controller to administer the new initiative and prepare
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annual reports."
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
American Federation of State, County and Municipal Employees
(AFSCME) , AFL-CIO
California State Controller John Chiang
California State Treasurer Bill Lockyer
The California Chamber of Commerce
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Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081