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.
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.