Fed's Lacker: Financial Education Essential In Avoiding Financial Turmoil

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Richmond Federal Reserve President Jeffrey Lacker said Thursday that consumers need a strong financial education in order to make sound financial judgments to help avoid future financial crises.

Speaking at the Council for Economic Education's annual conference in Washington, D.C., Lacker said that financial transactions entered into by citizens, and securities derived from those transactions, were at the heart of last year's financial crisis.

Lacker said that that while it is difficult to judge the merits of consumers' financial decisions without knowing the circumstances facing their households, bad decisions made by consumers are often caused by a lack of information.

"People do make bad decisions at times, and a lack of information is often the root cause," he said.

Lacker suggested that new rules adopted by the Fed to improve disclosure requirements would help consumers make informed financial decisions and also better help them evaluate the range of decisions they can make.

He did say, however, that in some cases, requiring less information to be disclosed might be more beneficial to consumers.

"Home mortgage disclosures are a case in point," Lacker said. "After all, the current housing boom and decline occurred in an era when lenders were required to disclose a huge amount of information to borrowers."

"It is arguable that if only the most significant terms of those mortgages had been disclosed - or at least highlighted - consumers may have been able to more easily evaluate their merits," he added.

The Richmond chief also spoke against regulation that would limit consumers' access to financial products, saying that such regulations might harm the consumers they were designed to protect.

"I would prefer to see more emphasis on giving people the information they need in a clear and understandable format - especially targeted information that will help them to avoid making serious errors - rather than restricting their access to financial products," he said.

Lacker then went on to say that financial education should focus on decisions - such as those concerning higher education, home buying and retirement - that will have "long-lasting" effects on consumers' lives.

He added that at the core of such financial decisions are fundamental economic principles, and that financial and economic education should be "inherently intertwined."

"It's hard to imagine teaching about the recent financial crisis without coming across the opportunity to discuss financial decisions like financing a home, or saving for retirement," Lacker said. "More generally, it's hard to teach economics without teaching about how to make financial decisions."

Richmond Federal Reserve President Jeffrey Lacker said Thursday that consumers need a strong financial education in order to make sound financial judgments to help avoid future financial crises. Speaking at the Council for Economic Education's annual conference in Washington, D.C., Lacker said that financial transactions entered into by citizens, and securities derived from those transactions, were at the heart of last year's financial crisis. (Market News Provided by RTTNews)