While I serve (proudly) on President Barack Obama's new President's Advisory Council on Financial Capability, I write here as a private citizen, and founder, chairman and CEO of Operation HOPE. Versions of these policy recommendations have been provided to friends and colleagues both inside and outside government.
Growing up in South Central Los Angeles and Compton, California, with parents who divorced over money and having lost several businesses and real property due to the financial illiteracy of at least one parent, homeless for 6 months of his life, I know the ravages of financial illiteracy in and on one's life experience in America. I also know what it feels like to have hope nurtured, to aspire, and ultimately to open my first business at age 10 in Compton, California (The Neighborhood Candy House).
I recognize the value of finance, as I had no capital for my varied business enterprises growing up and was forced to rely on the make-shift finance provided through consumer credit cards.
I recognized the horrors of irresponsible subprime lending, and yet in the same breath, I also recognize the value of responsible subprime lending. My own father was very subprime but also, unfortunately, largely ignorant of financial literacy too, and so we lost our family home to a predatory lender when I was young.
Alternatively, I purchased this same home that my father lost when I was a child, when I became an adult, having gained a moderate to good understanding of what I now term "the language of money," and having accessed a responsible subprime loan offered by a mainstream lender on reasonable terms and with appropriate disclosures and understandings. I own this property today, having converted this former single family home of my youth into a 3-unit apartment building where my father occupies one unit and I rent the remainder to cover the note, utilities and expenses.
Responsible subprime lending is not evil, no more than money itself is evil. Money is agnostic, and we can turn it towards good or manipulative purposes. Responsible subprime lending helped my family, and helped me. It has helped lift countless low-wealth Americans out of poverty and created wealth and opportunity for many; allowing equity to build over decades so that young minority and low-wealth children could attend college, so that young people like me could start a business, now creating jobs for America. The problem was and remains irresponsible subprime lending, predatory subprime lending, fraud-based subprime lending, irresponsible speculative investing, and massive levels of low-wealth to middle-class consumer and professional financial illiteracy amongst a majority of Americans.
Likewise, credit card and electronic payment systems are not the problem, per se, but rather the predatory nature of same, combined with the tsunami effect of the financial illiteracy of one who accesses same too quickly, learning to slowly. When one chooses to use short term credit (i.e. credit cards) to replace long-term equity (i.e. those like myself who started and grew businesses on the back of credit cards early on), one really needs to know what they are doing. Understanding financial literacy, or the language of money is key.
The four stages of financial education
Financial and economic empowerment
My Policy Recommendations - Stage II
In many ways, stage one was covered well by the good work of the inaugural President's Advisory Council on Financial Literacy. The Council's 18 policy Recommendations can be found in it's final report, as well as the final report of the Council Committee on the Under-Served, which I chaired.
The following represent a summary of my policy Recommendations today, tied to the new U.S. President's Advisory Council on Financial Capability, chaired by John Rogers for President Barack Obama.
Policy Recommendation #1 -- K-12 Economic Education
When I was growing up I had the benefit of an enterprising father and a financially literate mother to create an environment that nurtured my skills, ambitions, talents and levels of understanding. I was also offered on in-school class entitled Home Economics, which literally shaped my thinking about money and day-to-day living, and which I still draw on today.
Building on more than 17 bills proposed in the last session of Congress and recommendations by the inaugural Council, and certainly in the backdrop of the global economic crisis, it is my hope that lawmakers, President Obama and the Administration would make it a policy imperative to require that all children K-12 receive mandatory financial education.
Policy impact: The long-term economic impact of this will be lower dropout rates (a cost), higher matriculation rates leading to college (leading to higher earners and more tax revenue for the nation), and higher levels of small business creation and entrepreneurship.
Policy Recommendation #2 -- Higher Education Financial Literacy
The #1 reason why young people, and certainly black and brown minorities, drop out of college is not academics it's money. Inspired by the work of Operation HOPE (HOPE) and the recommendation from the former Council Committee on the Under-Served, U.S. Congresswoman Sheila Jackson-Lee (D-TX) introduced HR1325 in the last Congress which would require all young people receiving student loans to also receive a course in financial literacy, and all colleges and universities received federal funds to require a course in financial literacy. This is bi-partisan policy framework, and should be embraced by both sides of the aisle.
Policy impact: The short-term impact would be more young people finishing college and university and graduating into the marketplace ready to take up opportunity (lower levels of financial aid default and higher levels of income, leading to more taxes income for the nation). The mid-to-long-term impact would be more support for financially struggling colleges and universities, such as HBCUs, as alumni graduate, do well, and begin to give back (and lowering said colleges and universities dependence on the government and on tuition for sustenance).
Policy Recommendation #3 - Universal Financial Access
According to the FDIC and their Committee on Financial Inclusion and the Chairman of the FDIC Sheila Bair, approximately 40 million Americans are either unbanked or underbanked. Putting this into context approximately 22 million Americans did not have the right to vote in 1962. Today almost double that number are unbanked or underbanked in the richest country in the world.
Growing up in Compton and South Central, I witnessed first-hand the toxic combination of being both unbanked (out of the financial mainstream access) and financially illiterate, which helped to encourage a predatory credit and lending environment. It also made targets of the elderly and those who were financially vulnerable.
Operation HOPE, civil rights icon Ambassador Andrew Young and I propose a Silver Rights Bill, providing universal financial services access to all at birth, no different than one gains a Social Security identification at birth. This can be done cost effectively and in concert with government and the private sector by way of an FDIC and NCUA insured, electronic, electronic accessed card for every American. This would reduce costs (no more printed checks), increase senior security (no more taking those checks to the local bank or worse, check casher), and provide both the motivation and the direct relationship-link of and for financial literacy education and empowerment for every American.
Policy Recommendation #4 - Responsible Subprime Lending and Encouraging Real Property Ownership
My childhood and adult experience tells me that there is a definitive and necessary role for responsible subprime (less than prime) lending in American society. Unless one has an 800 credit score and 30% down payment for every large consumer purchase they make, responsible less-than-prime lending by reputable, mainstream lenders is essential. Right now no reputable, mainstream lenders will touch this space.
Likewise, we need to get young families and entrepreneurs in real estate off the sidelines and back into the market of the American dream by encouraging the ownership of single family to 1-4 unit real property.
I recommend the consideration of both (1) a re-instatement of the very good Obama Administration purchase tax credit (this proposal was recently advanced by the Operation HOPE Special Task Force, chaired by board member Mary Lee Widener, entitled Solutions for Economic Recovery) and (2) the development and endorsement of one or several responsible, financial literacy-centric subprime mortgage lending products for the (reputable) financial services industry's active adoption. Operation HOPE has developed several potential financial literacy-centric mortgage products for consideration, post crisis. We will also need adoption by the secondary market and GSE's (Fannie Mae and Freddie Mac).
Policy Recommendation #5 - Fostering Entrepreneurship
Nothing is more important right now than stabilizing the economy and creating jobs. That said, traditional corporate jobs will not save us, and government jobs shouldn't save us. Every big business was once a small one. Operation HOPE and Ariel Capital Management, as just two examples, were once just mere ideas, and today both are thriving, employing, making a difference across the nation. This is a good example of good capitalism, and making free enterprise and capitalism actually work for the poor and the under-served.
The former Council Committee on the Under-Served inspired the creation of the first ever U.S. SBA Office of Entrepreneurship Education, and with it, the President's Council Financial Literacy (volunteer) Corps within the federal government. This was a good start, but neither were brought online or integrated into federal policy (or American life) in any real way.
I respectfully propose that lawmakers and the Administration take up entrepreneurship and the encouragement of same in a way and manner never attempted by any modern Presidential Administration. This "Generation Entrepreneurship" Agenda would or could include:
- Using the SBA Office of Entrepreneurship Education as a Multi-stage baseline.
- Tying financial literacy education from K-college into the aspirational goal of entrepreneurship (creating enterprise, and JOBS in America, for Americans). Note: see the work being done around the new Gallup-Operation HOPE Financial Literacy Index for more encouragement here.
- Encourage Americans, business leaders and small business owners to get involved in their local communities as financial literacy empowerment volunteers, encouraging entrepreneurship or at the least, and "entrepreneurial spirit" amongst a generation of young people going through school today. Change the pitch, tone and culture of their school experience, and with it, raise their aspiration for personal success. Note: see the work of the 5 MILLION KIDS Initiative of HOPE, as well as the coming Make Smart Sexy Tour, focused around breaking the high-school dropout cycle in America today, particularly in low-wealth communities and amongst minorities.
- Create a fund or funds to encourage and inspire young people to dream again, to crate new ideas for business and entrepreneurship, by funding small-dollar projects in local communities. Note: this should have the knock-on effect of decreasing dropout rates and increasing school attendance and student "engagement."
Ultimately, it will spark a self-help, job creation mentality as well amongst communities of the under-served.
- Creating tax and other incentives to encourage entrepreneurship in low-wealth to middle-class communities (and with it job creation).
Policy Recommendation #6 - Financial Literacy Corps
When a volunteer banker (who happened to be Caucasian, but it didn't matter) came into my classroom in Compton at age 10 and taught me a class in financial literacy, in changed my world and my world view. I remember asking him, "what do you do for a living, and how did you get rich, legally?" Answering these two questions fired my spirit and gave me reason to "stick" to school and education, and a role model to aspire to be.
As noted above, a President's Council Financial Literacy Corps was created but never codified.
I propose a resurgence of the President's Council Financial Literacy Corps, re-launched under President Obama's bold, youthful and inspired leadership, and to use the upcoming Dr. King's holiday as a national call of, for and around financial literacy empowerment and volunteerism (Americans going door-to-door for fellow Americans), as Dr. King's next movement was about MONEY (the Poor People's Campaign of 1968).
With this, propose a modest financial stipend for college students, seniors, retirees, and those skilled yet unemployed, to support their volunteerism of "x" hours a month, covering a "y" year commitment of service and servant leadership, in support of a rebirth in base American values.
Background on John Hope Bryant
A Young Global Leader for the World Economic Forum, an Oprah's Angel Network award recipient, a TIME Magazine 50 (Leaders) for the Future (94'), John Hope Bryant is an entrepreneur, the founder, chairman and chief executive officer of Operation HOPE, the Inc. Magazine/CEO READ bestselling author of LOVE LEADERSHIP: The New Way to Lead in a Fear-Based World (Jossey-Bass), advisor to the last three sitting U.S. presidents, a thought leader, public speaker, and an innovator in the business of empowerment.
Mr. Bryant serves U.S. President Barack Obama on the President's Advisory Council on Financial Capability, and prior to that Mr. Bryant served U.S. President George W. Bush as vice chairman of the U.S. President's Advisory Council on Financial Council, and chairman of the council Committee on the Under-Served.
With the publishing of Love Leadership, Mr. Bryant became one of the few African-American business bestselling author published in mainstream business leadership in the country. Love Leadership: The New Way to Lead in a Fear-Based World (Jossey-Bass), has made the Inc. MagazIne/CEO READ Business Best Seller List a total of 11 months since being published.