TEXT OF INTERVIEW
BOB MOON: Time now for the Straight Story with our own financial expert, Chris Farrell. And, well, what do you know? Seriously: What do you know — what do we all know — when it comes to financial literacy? And how are we ever going to learn all that we need to know on the subject, when it’s all so confusing? Federal Reserve Chairman Ben Bernanke talked about this the other day. And maybe he should have included some of his own government colleagues in his call for clarity in our financial lives.
BEN BERNANKE: The first line of defense, undoubtedly, is a well-informed consumer. Consumers who know what questions to ask are considerably better able to find the financial products and services that are right for them.
Well, how can you argue with that? Well, Chris Farrell is here. And Chris, I understand you have a beef with that? What could possibly be wrong with financial literacy? I mean, we do it every weekend here on Marketplace Money.
CHRIS FARRELL: I think financial literacy is wonderful. But, I have a minor complaint: Do you think that the regulators could kind of agree on what is financial literacy? Let me give you an example. The Securities and Exchange Commission — the SEC. So Zvi Bodi, he’s one of my favorite professors — finance professor, Boston University. He’s at an economic conference, and he goes around and he interviews economic professors with the Securities and Exchange Commission’s definition of savings and investing for the individual. And he reads it out. Every single economist gives the SEC a failing grade on financial literacy, and the reason is, is they all go “That’s not savings and investing. That’s not the definition. What are they talking about?” Savings is simply the dollar you earned today that you put aside, and you don’t consume it.
MOON: Well, I’ve got to cup my way through all of these terms in the credit card agreements and all of that sort of thing. And how am I supposed to know if they don’t know?
FARRELL: Right. So that’s part of it. Look, financial literacy is important. And people do need to take responsibility for their money. But I think it was the other part of Bernanke’s speech that was much more important, and that was the regulatory side. Because there’s many things you and I just can’t do. What I would emphasize is less the financial literacy and more good regulation.
MOON: So you’re saying we need somebody to protect us from all of that vague stuff that nobody really knows about?
FARRELL: It’s all the vague stuff like “double billing cycle,” which no one can really define. That’s one of the examples Bernanke uses. And there’s all these things. And, you know, we need simplicity, we need transparency. Consumers need to be able to make simple comparisons, because people are smart. But, you know, they’re working hard, they’re trying to raise families, volunteer in their communities. We’re all trying to do these things. We don’t have hours and hours to spend trying to become more financially literate compared to the financial institutions. So the regulation is really important. And by the way, Ben, could you sit down with the head of the SEC and come to some kind of agreement about what is savings and what’s investing?
MOON: Well thank you, Chris. I appreciate you being so illuminating about all these very hard to decipher topics.
FARRELL: Thanks a lot.
MOON: And Chris, you’ll be back in just a bit for some more “Getting Personal.”
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