Fed's Duke: "America's Poor Have To Make A Choice Between Paying Their Gas And Their Mortgage"

Tyler Durden's picture

And another pearl of wisdom from the Fed's uberthinkers, in this case Elizabeth Duke: "the recent increase in gasoline prices has affected consumer choices in housing and other purchases, big and small. Family incomes have not kept pace with rising costs and many families, particularly those with low-to-moderate incomes, are actually facing the decision between buying gas to drive long distances to work and paying their mortgage. During the housing boom, when gas prices were much lower, potential homebuyers moved steadily farther away from employment centers in search of more affordable homes. This was referred to as the "drive till you qualify" method of home buying. Foreclosures remain high in these areas where the cost of driving to work has become so great." At least America's poor can still afford to buying deflating iPads... And after all didn't they said QE2 was a success for everyone? Or maybe the recent Philly Fed finding that lower and middle class families are actually suffering under the QE2 mandate, much in line with expectations of everyone who is not a Princeton economics professor or alumnus, are finally being validated. Oh well, this is nothing that a little QE3 can't fix. And some more thoughts from a Ph.D. in Captain Obviousness: "the collapse of housing prices and resulting worker immobility has changed consumers' appetite for homeownership. In Fannie Mae's 2010 Own-Rent Analysis, the percentage of respondents who said they were more likely to rent their next home than buy climbed from 30 percent in January to 33 percent in December of the same year." It's insight like that that explains why those Fed governors get paid the big Bernankebux.

Full Duke Speech:

Research, Policy, and the Future of Financial Education

I would like to thank Eric Rosengren, President of the Federal
Reserve Bank of Boston, for inviting me to speak to you today. This is
the third in a series of conferences on the Future of Life-Cycle Saving
and Investing cosponsored by Boston University School of Management and
the Boston Reserve Bank. The audience here includes leading academics in
household finance and consumer financial education, industry
practitioners, and policymakers. The work you do every day is critically
important to the financial well-being of American consumers and to the
overall functioning of our economy.

Today's topic is a daunting one: how to improve consumers'
financial education
. I hope to set the stage for your discussions by
sharing my perspective on recent economic factors and trends in the
financial services industry and the impact they have had on consumers,
particularly those with low and moderate incomes. I will also give you
my thoughts on the role of financial education in facilitating effective
decisionmaking and suggest areas where additional research could help
shape policies and practices to benefit individual consumers and lead to
safe and sustainable economic growth.

The Case for Financial Education
I certainly don't need to impress upon this audience the
importance of financial education. Today's consumers are making
decisions among increasingly complex financial products and in the
context of uncertain economic times. A working knowledge of basic
financial terms and concepts can lead to better economic decisions and
outcomes for individuals over the course of a lifetime. In addition,
there is a clear relationship between individuals' financial decisions and the health of our entire economy.

The financial crisis and the slow recovery from it has obviously
had a dramatic impact on the financial decisions made by American
families. Many now have fewer financial resources and limited options.
The pace and timing of their saving and investing life cycle has also
been disrupted. For example, high unemployment levels among recent high
school and college graduates, especially among young African Americans,
means that this demographic likely won't be able to start saving and
investing as early in life as previous generations.

In addition, starting salaries for recent college graduates have also declined, which means that young Americans who are
employed will have fewer resources for saving and investing than their
predecessors. Young people are living with their parents longer, which
helps conserve their limited resources but likely places a strain on
their parents' budgets.

Also troubling is research showing that many consumers who should be saving
for retirement instead have been forced to take hardship withdrawals
from their 401(k) plans. According to an analysis by Vanguard, hardship
withdrawals increased by 49 percent between 2005 and 2010. Other types
of withdrawals increased by 56 percent.

The increasing use of retirement savings for other purposes is
particularly troubling given that the responsibility for saving for
retirement has shifted away from employers to individual employees.
Having a secure retirement is a high priority and a significant
long-term goal for many Americans, so it is especially important that
they have an understanding of what level of resources they will need in
retirement and the investment options available to them.

Individuals who are approaching retirement age, in particular,
are being forced to make changes to their plans for retirement. Social
Security Administration data indicate that in 2009 and 2010, the
proportions of men and women claiming social security benefits at age 62
began to rise again after several years of decline. Workers have either
chosen to leave the work force early in the last few years or, more
likely, have applied for social security benefits as early as possible
because of the weak job market.1 Opting
to receive a smaller social security annuity earlier in life is just
one of many hard decisions Americans have had to make in order to
balance their short-term and long-term financial needs.

The recession has clearly disrupted the future expectations and
financial plans of millions of Americans, but even in the best of
circumstances, effectively managing one's longevity risk requires a
level of financial knowledge well beyond that required of any previous
generation. The pending retirement of Baby Boomers means that millions
of older households will need to assess pension distributions and make
decisions about payout options for their defined benefit plans. Those
with defined contribution plans will need to make decisions about the
purchase of annuities or rates of withdrawal from these plans.

Younger workers, a majority of whom will not have pensions, will
need to make complicated decisions about their target amounts of
retirement savings, portfolio allocation, and asset management using
401(k) plans, individual retirement accounts, and other, non-tax
advantaged, accounts.

Financial products have also become more complex, adding a
significant degree of difficulty to the important task of managing one's
own retirement savings. Consumers need information and education to
understand their saving and investment options, to make the best choices
for themselves and their families, and to help them implement and
monitor these choices over time.

In short, your efforts to identify, address, and meet the
financial education needs of consumers in all stages of the life-cycle
have never been more urgent.

Changing Consumer Behaviors and Information Needs
The financial crisis has changed all of our assumptions about the
future. Naturally, consumer behavior is changing as a result, though it
is unclear whether these changes represent temporary or more permanent
shifts in thinking and planning for the future.

For example, the collapse of housing prices and resulting worker
immobility has changed consumers' appetite for homeownership. In Fannie
Mae's 2010 Own-Rent Analysis, the percentage of respondents who said
they were more likely to rent their next home than buy climbed from 30
percent in January to 33 percent in December of the same year.

Similarly, the recent increase in gasoline prices has affected
consumer choices in housing and other purchases, big and small. Family
incomes have not kept pace with rising costs and many families,
particularly those with low-to-moderate incomes, are actually facing the
decision between buying gas to drive long distances to work and paying
their mortgage. During the housing boom, when gas prices were much
lower, potential homebuyers moved steadily farther away from employment
centers in search of more affordable homes. This was referred to as the
"drive till you qualify" method of home buying. Foreclosures remain high
in these areas where the cost of driving to work has become so great.

But, even independent of recent economic trends and the
increasing complexity of financial products, consumers' need for
financial information and education is changing.

Evolving Education Needs
There is growing evidence that the changing financial services
landscape has disconnected young and other vulnerable consumers from
mainstream financial services, making them more prone to using
alternative financial products. For example, some consumers prefer using
reloadable stored-value cards to opening a deposit account at a bank or
credit union.2 
This choice could have significant implications for a consumer's
financial well-being, both good and bad. These cards, with their Visa
and Mastercard branding, make it easy for consumers to make purchases
online, but do not carry the same robust federal protections as debit or
credit cards and their use does not establish a relationship with a
financial institution that can serve as the entry point for other
financial services such as loans.

As more and more new products are introduced to the financial
marketplace, it becomes more important for consumers to be able to
evaluate and compare products' benefits and potential costs. Many
consumers seek the advice of friends and family when making financial
decisions. Online social networks are increasingly playing this role as a
source of financial information, particularly among younger consumers.3  At the same time, it is crucial that they also have access to accurate, comprehensive, and unbiased financial information.

Starting Financial Education Early
Successfully navigating the volumes of financial information out
there, whether from advertisements, advisors, or social media, requires
critical skills based on a foundation of numeracy, language arts, and
decisionmaking that is first developed in school. It is important that
these skills be included in curriculum and measured in student
achievement tests. If our schools can't spare the resources to provide
financial literacy as a subject unto itself, I believe that the concepts
required for sound financial decisionmaking should, at a minimum, be
incorporated into existing subject areas. Math problems can involve
consumer financial calculations. Social studies classes can help
students understand the real world financial issues and decisions they
will face as young adults. I also think that the work many of you are
doing to make financial lessons more appealing to school aged children
is extremely important given the competition for attention from media
and web-based entertainment and games.

More broadly, financial education is a life-long endeavor. Sound
financial decisions are made when consumers have access to information
that is clear and culturally relevant and that is provided at critical
"teachable" moments, such as when a consumer is financing education,
buying a car, starting a family, purchasing a house, or planning for
retirement. These are just a few examples. As academicians,
practitioners, and policymakers, we need to identify as many of these
moments as possible and determine how best to support positive financial
outcomes for consumers at those moments.

Reaching Consumers
There's a saying among communications professionals that "the medium is
the message." In that vein, I believe that how we deliver financial
education has a significant impact on how effective the lessons will be.
New technologies present exciting new opportunities to deliver timely
financial lessons. Mobile payments and financial services are growing at
a rapid pace.4 
Financial management "apps" for smart phones abound, making it possible
for consumers to get just-in-time information. The developments in
mobile financial services have only begun to exploit the potential of
this technology to provide tools for consumer financial decisionmaking. I
will be particularly interested to see how technology can be used to
better serve lower-income populations who may be more focused on
stretching their paychecks to meet monthly expenses than on investing.
If you can have an app to track what you eat, certainly you could use
one to track what you spend.

Evaluating the Effectiveness of Financial Education
Until now, we have had a limited understanding of which methods
work best with respect to financial education. For years, one of the
correlates of higher scores on the JumpStart Financial Literacy test was
participation in the Stock Market Game, an enrichment program offered
in many schools. The FINRA Education Foundation sponsored a study to
determine just what it was about the game that made a difference. Not
surprisingly, the answer is that the game seems to develop math skills.5 

Entertainment-based financial education also seems to be
effective in capturing attention and instilling knowledge among youths.
Young people who played one of the Doorway to Dreams (D2D) financial
education games reported increases in financial knowledge, aspirations,
and self-confidence.6 

Among young adults, financial education was found to be most relevant when it was tied to financial outcomes.7 
For example, in a Federal Reserve study conducted with Army Emergency
Relief, young enlisted service members who participated in a financial
education program seemed to make better car-buying decisions. These
soldiers had higher down payment-to-loan ratios and shorter-term loans
than a comparison group who did not take the financial education

These are notable examples, but the fact is that we have very
limited data on how effective financial education is in improving
financial well-being. The Financial Literacy and Education Commission,
of which the Federal Reserve is a member, has only recently developed a
core set of financial competencies, and has yet to establish the
knowledge, skills, and behaviors that will meet these competencies.

In order to develop an effective financial course of study, we
need to find the answers to some important research questions. I believe
the answers to these questions will be quite important:

  • What do people need to know in order to improve their long-term
    economic well-being? How does this content vary across demographic
    groups, such as by income, employment status, age, or culture?
  • How do people obtain and process financial information? What
    sources do they use? Do outcomes vary by the source or timing of the
  • Is instilling financial knowledge enough to improve consumer
    outcomes, or do we need to fundamentally change consumer behavior as
    well? How can we as policymakers influence financial behaviors?
  • How should financial literacy be measured to evaluate the impact
    of financial education on financial outcomes and predict future
    behavior and well-being? Should these measures vary across demographic
    groups and the context in which consumers make financial decisions?

Undoubtedly some of the research shared at this conference will
shed light on these questions and also raise others. I look forward to
learning from your work and to implementing and supporting programs that
have demonstrated results.

Decisions about saving and investing have a profound effect on
the financial well-being of individual consumers. Collectively, those
same decisions shape our national economic outcomes. Changes in the
financial products offered to consumers and in the economic
circumstances of those consumers have added even more complexity to the
financial decisions faced by consumers. Comprehensive, effective
regulation of consumer products is the first step in ensuring positive
outcomes for consumers. But consumers must also be equipped with the
necessary quantitative and decisionmaking tools, and supported with the
right information at the right time in order to make the best possible
choices. While much attention and many resources have been devoted to
financial education, we still have surprisingly little information about
the effectiveness of financial literacy efforts. I hope that the dialog
facilitated by this conference and future research will focus on
understanding the best who, what, when, where, and why of financial
education that will help American consumers make better decisions and
achieve better financial futures. The outcomes of this conference will
help us develop the tools to do that. I commend you for your efforts and
wish each of you success here and in the future.




Our own thoughts on first steps in improving consumer's financial education? Cease all Fed speechs in perpetuity. Effective immediately

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The Profit Prophet's picture

Why would anyone still be paying their mortgage???.....bitchez.

T.E.I.N. everyone!

Xibalba's picture

The choice is rather: gas, food, or RENT.  The poor do not have a mortgage.  They live in their cars. 

Weisbrot's picture




if you really want the price of something to rise just start giving it away and watch the cost of that item skyrocket!!!



silberblick's picture

Click below to see a visual graph of Bankster's dirty needs arranged according to Abraham Maslow's hierarchy of needs: http://thesilvergoldhedge.blogspot.com/2011/05/banksters-dirty-hierarchy...

Sudden Debt's picture


Food, beer,dope or Ipad apps


FEDbuster's picture

Better just to live in a Walmart parking lot.  No rent (it's free), no fuel (you don't have to go anywhere) and food is only 200 yds and an EBT card away.  Plus free WiFi, if there is a McDonalds or Starbucks out front.  If you are really ambitious, you can get a part time job handing out smiley face stickers to the kids.

financeguru500's picture

The walmart in my town only let's people use the extra parking spots for 24 hours. Any longer and the vehicle would get towed.

On the main point of people making choices, I call bullshit. If people really cared they would be carpooling with each other or driving less. Look on any city street in any city in the U.S. and you will see 90% of drivers driving alone and traffic congestion now is as bad or worse than it was 5 years ago.

The truth of the matter is we are in the situation we are in because everyone consumes as much as they possibly can. They won't lower their consumption until they are forced to. I say bring on $10 gas.

sun tzu's picture

You're right! People are just out there driving around town for no reason in order to waste as much gas as they can afford

downwiththebanks's picture

You say that because it will make YOU money, banker-gangster.  That's the only reason.

That's Capitalism, baby!  "Fuck you, cause I got mine!"

Chuck Walla's picture

What Capitalism?  Who's forming Capital these days?  Where are the factories and products?  China?  And you say THIS is Capitalism?

downwiththebanks's picture

Of course it's Capitalism to move factories abroad so the buyers of labor (i.e., capitalists) cut costs.  Isn't that common sense?

The unholy race to the sweatshop bottom is fundamental to the entire con game!  To suggest that Capitalists care about 'nationality' or political ideology is to misunderstand the whole system.

Chuck Walla's picture

What Capitalism?  Who's forming Capital these days?  Where are the factories and products?  China?  And you say THIS is Capitalism?

Chuck Walla's picture

What Capitalism?  Who's forming Capital these days?  Where are the factories and products?  China?  And you say THIS is Capitalism?  Obama and his gangsters hand out cash to their friends and you say THIS is Capitalism? You got a funny definition that not even Marx would recognize.


Chuck Walla's picture

What Capitalism?  Who's forming Capital these days?  Where are the factories and products?  China?  And you say THIS is Capitalism?  Obama and his gangsters hand out cash to their friends and you say THIS is Capitalism? You got a funny definition that not even Marx would recognize.

FEDbuster's picture

At our Walmarts you are supposed to get a parking permit for RV parking.  That rule is being ignored and stores aren't enforcing it.  Park far away from stores enterance and you are ok.  At one store most RVs are over by the Olive Garden.  Another favorite spot is the empty lot next to Sam's Club (no other stores ever built there).  Smaller RVs, vans and car occupants can get away with it in grocery store lots or malls.  Kmart is also a popular place to park and sleep.  Daytime you will find them in public parks cleaning up and taking care of "business" in the public bathrooms.  We also have a national forest nearby, which is a popular squating spot off of the backroads.

NotApplicable's picture

Carpooling is not feasible for the majority of the population. It is better suited for large factories where many people arrive and leave all at once. Where I work, for example, I'm in an office with about 30 people. Only one of them travels on the highway I live on, and he isn't on the same schedule as me.

Popo's picture

And why is the Fed reporting on this as if it is an impartial, 3rd party observation -- rather than the direct result of Fed policy?

Correction to Duke's speech:  "WE have created, through our own actions, a scenario in which lower income Americans *must* default on their mortgages.   We're sorry.  We honestly thought if we flooded the system with liquidity, and debased the dollar, that animal spirits of economic prosperity would rise up from the Earth and bestow blessings of wealth uponAmericans of all classes.   How this could have failed is beyond my small, academic brain which treats economics as a belief system akin to a religion -- and refuses to examine data empircally.  Thank you for attending.  There will be hors d'oerves served in the atrium."



pavman's picture

Its workin for me.  Course I don't have a mortgage. ;)  Good 'ol animal spirits.  Although I would like some nice stock bargains again, so no QE3 please ... trying to jump to the upper class here.  What does one need these days to be considered part of the upper class?  A billion or two?  Hmm, might need alot of stock bargains...let's make a deal.. you don't do QE3 and I'll vote in your puppet master in 2012.

NotApplicable's picture

I was going to ding you for the "honestly thought" statement, but then you stated it's all a belief system anyway, so I guess it's all good.

swamp's picture

"Poor" have mortgages? lol  Only in America.

BobPaulson's picture

No choice required: not enough debt collectors in US to meet demand. Pay neither. Buy a flat screen TV. Somebody in China will pay for it.

writingsonthewall's picture

You have hit on a brilliant idea - if nobody pays their debts, the amount of debt collectors required will be huge - all the unemployed can then become debt collectors - collecting each others debt!

The successful debt collectors can use their pay to pay back their own debt collectors.


A brilliant scheme - what could go wrong? - I'll ask my mate Bernie if this is a good idea, give me a couple of days as he can only receive 2 calls a week!

southsea13's picture

Hats off to you mate: that`s one hell of an idea - a kind of CDO, but with `real` `live`(ish) humans. I`m not quite up on the mechanics of how this could work, but then I don`t really need to be as it`s got the makings of a great Ponzi scheme and therefore *cannot fail* as if anything goes wrong, the scheme will be too big to fail and the government will have no choice other than to step in and stop the unemployed people becoming...you got it: unemployed! There must be a market for setting up consultancies and investment seminars too. Count me in! 

writingsonthewall's picture

I've already got SEC approval!

I told them

"it's a money making scheme which will make the Government a fortune in taxes - can't say too much at the moment as it's all a bit secret - me and Southsea13 have a lot of 'consultancy' work penned in at great cost"

They actually stamped the approval after I said the word 'taxes' - the rest fell on deaf ears.

All we need now is about 300,000 suckers volunteers investors in the scheme and we're in business.


Goldman have promised to fund the startup costs - all I had to do is sign some piece of paper with the words 'soul' and 'devil' on it.

pavman's picture

I'd like to get on the ground floor so I can get out before the ship hits the proverbial iceberg...where do I sign up?!

Always remember: The guys who were in first w/ Maddoff and Ponzi were the winners (just like Charlie Sheen).

FEDbuster's picture

I've got a name, "Americollects", the new civilian collection corps.  Do two years of paid service in our debt collection army, and earn credits for reduced (or waived) student loan interest rates, preferred hiring status at government or TBTF banks and a few thousand lucky participants will receive title to a free and clear Fannie/Freddie owned condo in Las Vegas, Phoenix or Miami.

Calculated_Risk's picture

Do I get to carry a shotgun like the jackboot thug banker slavery enforcement agency IRS?!

writingsonthewall's picture

Hell we'll even give you a uniform - how does 'Big Bird yellow' grab you? - you need to be visible.

A nice cap and a double breasted suit will finish it off nicely.


No boots though - too militant - I think a nice pair of kickers.

Bubbles the cat's picture
Bubbles the cat (not verified) writingsonthewall May 24, 2011 12:32 PM

OK. Count me in. I am well qualified for this. I gotta molecular PhD and know nothing about employment law, taxation, debt collection or honesty, integrity, accountability or responsibility in business, banking and finance. I am completely clueless in such matters and therefore consider I have a strong case for appointment as CEO of this new, yet somehow oddly familiar, enterprise. I pledge a couple of mill of Gen Alpha pension funds to assist startup. And....no, I don't already work for GS.

fuu's picture

We should start right away with the DVD series on how to get started in the unlimited growth market of self help debt collecting. A couple of web pages, some slick glossy brochures, and a 10 part dvd set of people with super shiney teeth explaining how you too can make millions a month collecting on the debt of your freinds, neighbors, and relatives!


Buy now at the low low introductory price of $99.99 per installment for 5 installments!


We can call it Wecovery Services LLC. The url is available.

southsea13's picture

I`ve been thinking: why don`t we set up a Ponzi scheme? Everyone here is pretty much up to speed on how to set one up, and I reckon it`d be an internet first. Another bonus is that as it`s `virtual` (with some Russian proxy servers and PGP encrypted Thunderbird clients for email and so on), it would be very hard to identify and prosecute the `directors`. In true Bilderberg fashion we could meet in small cabals in (unlike Bilderberg) unheard-of destinations (membership strictly limited) and think up new ways to entangle the government in `too-good-to-be-true-too-big-to-fail` schemes. Also, a good slice of profits could be dispensed in charitable donations and financing groups who want to take on the banksters and give them a very hard time. :) As has been shown, if you can wrap shit up in hard-to-open, but shiny `blingy` packages, some chump will buy into it. 

MissCellany's picture

Only potential trouble I see is if the debt-collector jobs get outsourced to India or someplace. ;^)

southsea13's picture

Given the rash of suicides and indebtedness of people in India (and the rest of the developing world), I see that as an opportunity to `assist` people in `reaching their aspirations`. :)

BobPaulson's picture

Let's call the business: "Sheriff of Nottingham's Collection Services". The beauty of this business model is that if you subcontract to the right debt collection professionals, they don't really need to know how much "debt" you have, to be able collect. Working on the assumption that everybody is in debt, they can just go out and collect, in cash, electronic equipment, jewelry and other more liquid assets. All you need then, is a special clearing house, say for example, we call it "Freddy the Fence's Asset Redistribution Office" where debt collateral is received and recycled into new collateral for higher risk/return debt that you operate through another window, say "Knuckle's Loans". 

With the right people, you can blow away the puny returns of the small minded chumps in the more conventional lending business.

southsea13's picture

That`s pretty good and hard to top imho: collect debt in cash or other assets, liquidate and then lend out at stupendous APR. Strip the customers of their assets, but also offer *debt counselling and restructuring services (at `competitive`rates), and entrap them in such a way that the cycle becomes endless until someone defaults and goes bankrupt (to minimise the risk, prey on the least-educated most vulnerable (and needy) clients). To reinforce this structure, open a few `foundations` from the huge profits (to forestall bad press) and also start selling the shakiest debts on *before* people default, leaving yourself `hands-clean`. Buy a few off-the-peg politicians and you`re laughing! :)

Any other ideas? Now where`d I leave my copy of Business Plan Pro? 

writingsonthewall's picture

A few payments to the authorities to fill the gaps in their budget - and we're legit!


Seriously - what can go wrong with this plan?

Someone pen a letter.

Dear Ben,

I hear you have financial woes.....well have I got the solution to all your troubles, and best of all it's more reliable than your existing scheme..

firstdivision's picture

Wouldn't educating the low-moderate income families be counterproductive to how the American markets operate?  If we tell people that they do not need to buy the crap marketed to them on an unending basis, then those companies will have lower revenues.  Of course, with lower revenues comes lower stock prices, and that goes against the Fed's ultimate mandate.

tgatliff's picture

No worries... All those multi-nationals have an SIV to hide all those "inconvenient" losses...

Manthong's picture

"Today's topic is a daunting one: how to improve consumers' financial education"

Curious. Must be some kind of death wish.

If you educate the sheeple in finance, they will understand the scam and want to shutter the FED.

downwiththebanks's picture

Not just the Fed's mandate - the accumulation of Capital is the mandate of Capitalism.

That's why Uncle Sam has been chiefly concerned, since the Slavers Republic was created, to protect the interests of Capital Uber Alles.

sun tzu's picture

More nuggets of wisdumb from the bastard child of Mao

downwiththebanks's picture

Shouldn't you be giving Vikram Pandit a massage?

tgatliff's picture

Oh, thats an easy one Mr. Fed...  The average american you have been screwing over for about 3 years now should pay the gas and screw the banks to undue all of that "good" you have been doing.  Actually, it would be a cost savings.  I mean with all of the foreclosures, the average american probably has 18 months before the bank even has a chance to file the paperwork.  If they are lucky, they might be able to squat another 12 months after that.

Now that is financial education that actual helps the average guy...

Husk-Erzulie's picture

What's all the debate?  Just inflate inflate inflate...bitchez.

Debtless's picture

We really don't need these Fed people do we?