U S Department of Treasury : Remarks by Treasury Secretary Jacob J. Lew at the HOPE Global Forums Annual Meeting

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ATLANTA- Good afternoon. Thank you, John, for that kind introduction and for this award. I am honored by both.

Thank you, as well, for hosting this outstanding forum. John, you are a national leader for financial empowerment, a steady source of inspired ideas, and a friend. This forum is one of those inspired ideas, along with our celebration last week when we renamed the Treasury Annex building after the Freedman's Savings and Trust. The bank was established in 1865 as a place for newly emancipated African Americans to build wealth by saving. With the naming of the Freedman's Bank building, we honor its legacy and we recommit to pursuing financial inclusion and the opportunity of a better life for all.

I know this room is full of leaders who share that commitment. Thank you for all you do and for giving me the opportunity to join you here today.

Over the past seven years, President Obama has advanced policies to build an economy that offers opportunity to everyone willing to play by the rules and work for it. Wall Street reform made critical repairs to our broken financial system and put in place new consumer protections to prevent future abusive practices. We invested in innovation, education, and infrastructure to help grow the economy, create jobs, and strengthen the middle class. And the results are clear: over the last six years, businesses have added more than 14 million jobs, including 275,000 last month, extending the longest streak on record. The unemployment rate has been cut in half from its peak in the wake of the crisis to 5 percent today.

On Tuesday night in his State of the Union address, the President said, 'For the past seven years, our goal has been a growing economy that works better for everybody. We've made progress. But we need to make more.' That is why the President and I spend a lot of time working on policies to make more progress towards shared economic growth. One clear way to achieve that goal is to better connect the millions of Americans-and billions around the world-who are currently excluded from our financial system and make sure that they have the access they need to succeed.

Everyone deserves a chance at financial security. But even in 2016, many Americans, especially low-income and minority families, are virtually locked out of the financial system. Without a credit or banking history, it can be difficult, if not impossible, to qualify for the most basic access to a home mortgage or small business loan. If you are cut off from the formal financial system, it is almost impossible to build the savings and investments that are essential for a secure financial future. And without financial education, many do not even understand the tools they need to build this future.

To help move people toward a more secure future, we need to better connect individuals and enterprises to our financial system. Financial inclusion makes individual lives and households stronger and more resilient, but it also helps make our communities, our country, and the world more prosperous, stable, and secure. We all gain when individuals improve their own lives and expand their economic potential. And our country and financial system are more stable when families can withstand financial shocks, like the temporary loss of a job or unexpected healthcare costs.

That is why at the Treasury Department financial inclusion is such an important priority. And that is why, on the day before Martin Luther King Jr.'s birthday, I am so pleased to be in the city he called home. Dr. King's life, work, and words are an inspiration for all of us. And his leadership is a reminder that real progress requires the contributions of people from many backgrounds and ways of life. Each of us in this room-policymakers, bank leaders, lenders, philanthropists, activists, and teachers-has a role to help open our financial system to give more people the opportunity and the tools to realize a brighter future.

Scope and Stories

It is important to start with a clear understanding of how big this challenge is.

More than two billion people around the world rely solely on cash transactions. Almost ten million American households lack basic access to mainstream financial products, like checking and savings accounts; and 25 million households have bank accounts that fail to adequately meet their needs. Even more Americans―nearly half by some studies―do not have the savings or credit to handle an economic shock, and millions cannot look forward to a secure retirement. In the United States and around the world, these statistics are even worse for women, young people, and workers of color-all of whom are less likely to use formal financial services.

These are not just numbers; they represent real lives, real families, and real communities.

Last Spring, I visited with students at Frederick Douglass High School in Baltimore where I heard from a young man who told me how he earned money mowing lawns, only to put it in a box at home rather than in a savings account. He was ahead of many, because he knew he should have a bank account; but he did not have access to one. I have heard stories about individuals and families like a woman named Gloria, who lives in Jackson, Mississippi. Gloria earned enough to cover her family's expenses, but had to borrow $300 dollars from a payday lender to repair her car when it broke down. Eventually, to stay current on the $300 debt, she had to take out a total of eight loans for more than $2,000 dollars. That experience is too common in parts of Mississippi and too many other communities around the country.

The Time is Ripe for Greater Financial Inclusion

Now is the time to act here at home and around the world. It is time to close the gap in Baltimore, so that student can take his savings from a shoebox to a bank. And it is to time act so people like Gloria never need to go to a payday lender again.

There are several reasons why now is the time when we can make real progress.

First, the explosion in technological innovation has provided new ways to manage money and less costly administrative platforms. The smart phone alone provides opportunities that would have been impossible to imagine a decade ago. The private and public sectors both have a role to play to support and develop these new technologies. At Treasury, we use our Financial Empowerment Innovation Fund to support research and evaluation of new products, such as a mobile app that teaches high school students about budgeting and managing savings at their school-based banks.

Second, our ability to harness data offers ways to better understand consumer needs and discover new ways to meet these needs. For example, together with our partners at USAID, the Treasury Department last month hosted a first-ever Financial Inclusion Forum where Fair Isaac Corporation, the people who generate FICO credit scores, announced an alternative credit score, using data like history paying consumer bills to identify creditworthy individuals. This is a tool that should open the door to credit for many, who lack sufficient financial history to qualify under the old score, but are, nonetheless, just as likely to pay their bills.

And third, the growing and diverse industry of financial services providers-many of you at this forum today―demonstrates how many new and exciting ventures exist in this space.

Of course, each new technology and product also presents potential risks, so we also need to make sure consumers are protected by making sure that oversight keeps pace as technological innovation, new data uses, and an increasingly diverse private sector give us a chance to integrate more and more people into the formal economy.

How Treasury is Improving Financial Inclusion at Home

To capitalize on the opportunities before us, Treasury is working with public and private partners to help get people the financial education - or as John Hope Bryant says, 'get [them] the memo'- that too many missed out on. And we are working to connect people, households, and communities with safe and affordable products.

You can see the power and the potential of educating and connecting people in three of our key financial inclusion efforts that are now underway: first, our work to include more young Americans, second, our work to help all Americans save and build wealth for retirement, and third, our support for expanding the financial services offering in more and more communities.

Young People

We know that that financial inclusion must begin early with young Americans, like that student in Baltimore. Research shows that financial habits are often formed early in life. While bad habits are hard to change and can lead to mistakes that have life-long impact, good habits do the opposite-they build on themselves in a positive way. As many of us know from our own experience, opening a bank account, balancing a checkbook, and building savings are experiences that lead to a virtuous cycle.

At Treasury, we work, with private and public partners, helping educate young people to develop sound financial habits. For example, we are working with the Labor Department to set standards and improve delivery of financial education in youth jobs programs so kids learn to use their earnings well. In Washington, D.C., local government, banks and credit unions, and financial educators, used in-person and on-line training, including an Instagram contest, to reach nearly 4,500 young people last year. This summer, we expect more than 25 cities will have similar programs.

Of course, good financial habits are hard to practice without the right tools. Treasury is encouraging public and private sector partners to make sure that young people in their summer jobs programs get a safe bank account along with what may well be their first paycheck. Cities like Chicago have already been making progress: in just one initiative last summer, more than 3,000 young people opened accounts and used direct deposit to start to build savings.

And I am pleased to announce that this year's budget will provide funding for Treasury to work with the Labor Department to provide starter accounts to young people in jobs programs. This effort aims to foster access, develop financial capability, and inspire a savings habit that will serve them well later in life.

myRA

In the State of the Union, President Obama talked about retirement security. We know that it is important to start saving for retirement as early as possible, but too many Americans put off the decision. Treasury is working to help Americans, including younger Americans, plan for a secure future, by encouraging them to save more, particularly for retirement. We know too many Americans put off the decision to save because of complexity, risk, and cost; but we also know that once people get started, they are likely to continue saving and building toward a future with greater financial opportunity and security. Even on a modest income, saving $5 per pay period, the equivalent of a couple of cups of coffee, can make a real difference over time. As $5 dollars becomes $100 dollars in less than a year, the message that savings add up is quickly apparent, and as that $5 dollar deposit becomes $10 dollars or $20, the savings build even faster.

But to get started, people need a safe, simple, and affordable way to save. That is why, late last year, we launched myRA, a starter retirement savings option. It is free; there are no minimum balances and no fees. There is no risk of losing money because savings are invested in risk-free U.S. Treasury bills. And with simple on-line enrollment and paycheck funding options, all you need to do to get started is go to myRA.gov to sign up. In short, myRA removes the barriers that make it hard to save for millions of Americans.  

Putting away money with each paycheck is one great way to save. Another great opportunity is when you get a tax refund, so we are also working with tax services providers around the country-in community centers, in storefronts, and on-line, including through the Free File Alliance-to make sure that Americans know that they can automatically save part of their tax refund in a myRA account. I hope each of you will spread the word about myRA.

Communities

In addition to reaching out to include young people and eliminating the obstacles to retirement savings, Treasury is also helping to create and expand financial services offered in underserved communities. Without safe and affordable financial services, people often turn instead to alternatives that are very costly and can undermine a community's financial stability while draining its wealth. And when people keep cash at home instead of in local institutions, that money does not work for them or their community and it is at risk of being lost, stolen, or spent.

For twenty years, Treasury has worked through the Community Development Financial Institutions Fund to fund and support mission-driven financial institutions in some of our nation's most distressed communities. The CDFI Fund has awarded more than $2 billion in grant funding to local community financial institutions all over the country. While we are proud of the work the CDFI Fund has achieved, we recognize that there is still more work ahead to reach individuals who still lack access to financial services in so many communities in our country.

Treasury is taking a number of steps to further leverage the CDFI Fund to include more communities. I am proud to announce that Treasury is partnering with the National Credit Union Administration to double the number of CDFI-certified low-income credit unions in 2016. This unprecedented increase will expand safe and affordable financial products and services in underserved communities. We are expanding the reach of our flagship CDFI Program to diversify the ways awards can be used for financial inclusion and raise awareness that CDFIs can partner with retail financial institutions to offer much-needed services. Our new budget will also propose to fully fund the Bank Enterprise Award Program, which provides funding to FDIC-insured banks and thrifts. As the program continues to evolve, these institutions can increase the number of small dollar consumer loans, youth savings accounts and other retail financial services they provide. And this year's budget will propose a new Small Dollar Loan program to help CDFIs address the issue of predatory lending in their communities and provide an alternative to payday lenders.

What Treasury is Doing Abroad

We are also working to promote financial inclusion globally and to protect the financial system from illicit activity. These two objectives must be complementary, not conflicting, as we know that financial exclusion undermines the integrity of the entire financial sector and inclusion promotes transparency and creates stakeholders around the world committed to positive change.

As China assumes the G-20 presidency this year, we are working closely with them to ensure that countries agree on specific steps to accelerate technology-enabled financial inclusion to reduce costs and expand the reach of financial services. Treasury is working closely with international standard-setting bodies to establish rules that address safety and soundness, anti-money laundering and countering terrorist financing, and other safeguards on services, such as savings, insurance and payment systems.

We are partnering with philanthropic entities, like the Bill & Melinda Gates Foundation, the Ford Foundation, and Citi Foundation, as well as private sector funders such as Visa and MasterCard, to advance our financial inclusion efforts through the Better Than Cash Alliance, which promotes digital transactions. In addition, JPMorgan Chase is working with the Gates Foundation and others to launch the Catalyst Fund, which, in addition to work in the United States, will deploy grant capital and in-kind advisory services to about 20 start-up enterprises around the world. Lastly, we are helping link the multilateral development banks to Better Than Cash Alliance and advocating for them to adopt digital payments wherever they are able.

We advance financial inclusion when we strengthen the integrity of the global financial system, and particularly, when we help countries meet high standards of transparency and compliance. Working with the Financial Stability Board, the World Bank, and other international bodies, we are helping governments implement sound regulatory and supervisory guidelines. And through our Office of Technical Assistance, Treasury is helping financial regulators and supervisors in countries oversee new or previously unsupervised financial activity such as mobile money operators. This is a way to make sure that even people in developing countries can be connected safely to financial services in their own community and the global economy.

We all need to Do More

We work every day to improve financial capability and expand access for more people and communities, but government alone cannot complete this work.

While governments around the world are removing barriers to entry for digital financial services, the private sector must reach these new markets to realize these new opportunities in ways that advance financial inclusion in safe, affordable, and responsible ways.

Here at home, as Treasury works, with public and private partners, to help make communities and potential customers financially healthier, the private sector needs to create real or virtual doorways for these new customers to enter. That will require financial service providers-banks, insurers, lenders, and others-to make short-term investments to realize the long-term benefits that these young people, families, and communities will bring to the economy and to your organizations.

You will continue to hear from us on this. Those of you who participated in our Financial Inclusion Forum in December know it was a great discussion. It also served as a platform to generate and announce private sector commitments, as well. As the ten initiatives launched at the Forum are implemented, we know that we still have much more to do. That is why, as we work to implement commitments already made, we will continue this conversation and foster additional initiatives in the year ahead.

Conclusion

Near the end of his too short life, Dr. King, writing about inequality and poverty, said, 'If democracy is to have breadth of meaning, it is necessary to adjust this inequity. It is not only moral, but it is also intelligent.' He was right.

We all must redouble our efforts to include those currently excluded from our financial system - that student in Baltimore, people like Gloria in Mississippi, and so many others across the country and around the world. We do so not just because it is the morally right thing to do, after all everyone deserves a chance at financial security. But we do so because it is the smart thing to do: we know their financial inclusion helps make their communities, our country, and the world more prosperous, stable, and secure.

We have made progress together, but it is just a start. I look forward to working with each of you in the year ahead, and beyond, to help build on this progress.

Thank you.

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