them how the decisions made by the central bank affect them, their families, and the economy. throughout our event today, users can follow the federal reserve and join the discussion about the events. today, we're honored to bring new federal reserve chairman, ben bernanke. before coming to the board of governors in 2002, he was a professor of economics and public affairs at princeton university. he also chaired the to part of economics in 1996-2002. he served as the governor of the federal reserve system from 2002-2005. in 2005, he became the chair of the president's council of economic advisers. he returned to the federal reserve as chairman of the board of governors in 2006. ben bernanke grew up in south carolina and received a b.a. in economics from car were

university and a ph.d. in economics from the massachusetts institute of technology. he and his wife anna, also an educator, have two children. thank you joining us today, mr. chairman. [applause] >> good afternoon and welcome. i am delighted to have the opportunity to speak today with educators throughout the country on the topic of financial education. thank you for your participation and for the important work you do. as an educator myself, i understand the profound effect that good teachers and a quality education have on the lives of our young people. today i hope you will learn from each other and share ways to best promote learning and, in particular, to help students achieve greater financial literacy. financial education supports not only individual well-being, but also the economic health of our nation. as the recent financial crisis illustrates, consumers who can

make informed decisions about financial products and services not only serve their own best interests, but, collectively, they also help promote broader economic stability. smart financial planning -- such as budgeting, saving for emergencies, and preparing for retirement -- can help households enjoy better lives while weathering financial shocks. financial education can play a key role in getting to these outcomes. research by federal reserve board staff members on the effectiveness of financial education for young military personnel, for instance, found that those who had taken a high school financial education course were more likely to save regularly.1 effective financial education is not just about teaching students about financial products or performing financial calculations. it also involves teaching them the essential skills and concepts they will need to make major financial choices. high school students might not

recall specific information from a lesson about loans a year later when they go to get their first car loan or student loan. however, if they understand and remember some basic ideas -- for instance, that it's important to shop around for a loan to get the lowest interest rate, to review the fees charged, and to know how to contact financial counselors and advisers -- they will be more likely to make a good decision. a particularly valuable lesson we can teach students is how to apply an economic way of thinking to their decisions. for instance, the topic of student loan debt and whether students are prepared to service that debt upon graduation has received increased attention lately. students with some exposure to economic thinking will be more likely to conceptualize their spending on postsecondary education as an investment in their own human capital and choose their school, course of study, means of paying for their education, and profession with that thought in mind.

likewise, the economic tool of cost-benefit analysis should help students make sounder personal and financial decisions. financial education also provides a context for students to develop important skills that can be applied more broadly. making good financial decisions requires that consumers seek out relevant information from trustworthy sources, and that they use critical thinking, quantitative reasoning, and decision-making skills. these competencies are also some of the fundamental abilities our schools seek to inculcate in our children. as with other types of education, the format and quality of the content matters a great deal. providing financial education that is realistic, interesting, and relevant can help students retain information and remain engaged. games and simulations can be particularly effective at keeping students interested.

for example, in 2010, i spoke at the opening of the junior achievement finance park in fairfax, virginia. this organization, as well as similar facilities throughout the country, allows students to play the role of a family head with financial challenges and opportunities, giving them a chance to practice financial decision-making in a realistic setting. students and their parents can become financially literate together through exercises such as intergenerational homework assignments, which reinforce the concepts taught in class. such strategies allow educators to help adults who until then may not have been exposed to financial concepts. to provide the most effective education, curriculums should also have clear standards and goals. to that end, the federal government's financial literacy and education commission, of which the federal reserve is a member, has identified five core competencies that should be covered by financial

education: earning and income, spending, saving and investing, borrowing, and protecting. behind each of these competencies is a set of related knowledge and skills, and corresponding behaviors. for example, in the category of earning and income, students are expected to know the difference between gross pay and net pay, and information about benefits and taxes. with this knowledge, they can understand their pay stubs and take full advantage of their workplace benefits. the five core competencies are reflected in the national standards for personal finance being developed by the council for economic education. several of our federal reserve system colleagues are working with the council on this project. while it is important to begin teaching financial skills to children and teenagers, achieving and maintaining financial know-how is a lifelong undertaking.

the types of financial decisions that people have to make -- from paying for school to buying a home to planning for retirement -- vary through the course of their lives, and thus we need to ensure that access to financial education is readily available at all stages of life. moreover, relevant, accurate, and reliable financial information must be readily available to consumers at the time they are making their decisions. given the ubiquity of smart phones, applications for mobile devices may be one effective method of delivering this just- in-time information at a relatively low cost. for example, our colleagues at the department of the treasury are currently running an app contest to design mobile tools to help americans make better financial choices. because financially capable consumers ultimately contribute to a stable economic and financial system as well as improve their own financial

situations, it's clear that the federal reserve has a significant stake in financial education. we demonstrate our commitment through numerous programs and resources offered by the federal reserve system staff and through partnerships our reserve banks have formed with local educators and institutions. for instance, the federal reserve bank of chicago, during its annual money smart week, conducts free classes and activities to help consumers better manage their personal finances. and the federal reserve bank of st. louis offers a broad selection of online personal finance courses that teachers can use along with their students. to find out more about what is happening in your area, i encourage you to visit the federal reserve system's education website, www.federalreserveeducation.org. i would again like to thank you for your participation today, and i look forward to your questions.

thank you. [applause] >> thank you, mr. chairman and now we will begin taking questions and the first one is from the miami branch. >> good afternoon, mr. chairman. i am in florida. thank you for the opportunity and here's my question -- what is your view of the current state of government budgets and what the implications for students in education? >> you have identified a key example of trade-offs which is what economics is all about.

governments have been facing fiscal challenges for some time, it is not just something that happened since the crisis. maybe some of you are aware of a study that just came up under the auspices of paul volcker that look at local and state government finances. it found that many governments are finding it very difficult to meet their long-term commitment for pensions and other benefits to their work force. during the recession and the crisis, of course, as the economy contracted and states and localities with balanced budgets, they cut back on their spending and if you look at employment over the last few years, even as the private sector has been adding jobs, state and local sector has been subtracting jobs and reducing the overall pace of gains in our labour market.

it is been a very tight situation for state and local government. on the other side, we have education which is the most basic kind of investment, the investment in human capital is the investment in our future and there is evidence that every year of education provide extra earnings power, extra job satisfaction, and adds to the overall social welfare of the tire economy. -- the entire economy. an official complication is that the quality of education and the amount we spend on education are not exactly correlate. there are other factors such as community support, quality of teachers, curriculum and so on so it is a complicated relationship. understanding very well that state and local governments, while things have been a little better lately, are still under a great deal of pressure. i hope making those decisions

and thinking where to put their limited dollars that state and local governments will keep in bed that we don't want towe wao investing in our future. with our young people who will be the workers, consumers, and citizens in decades ahead. >> next we will go to cleveland. >> i teach economics to students at mentor high school. how does the fed maintained a delicate balance between not having political party meetings are pressures and at the same time offer the best objectives of financial leadership for our country? >> good question -- one of the basic findings about central banks is that it helped the economy have a strong and

independent central bank. the central bank that can make monetary policy decisions without being influenced by short-term political pressures. the research shows that countries with independent central bank said lower inflation, more stable economies, and overall more confidence in their currency and so on. it is important to have that degree of independence. the reason for this is because monetary policy tends to work with a lag. you want decisions about monetary policy to be made by people not looking at elections a few months down the road looking at the long term saying was right for the economy. independent central banks are very important. we're in a democracy and, obviously, the central bank and federal reserve of the united states has to be accountable and transparent.

we are indeed non-partisan and try to make our decisions on technical analysis based on the economy and not political considerations. this is where we have the decisions about monetary policy and there's never any discussion about political issues. is abouthere the economy is and where it is going. given that we are independent and a lot of provisions such as the fact that governors are appointed for 14 years and the term of the chairman goes across presidential terms, there are many provisions that give the federal reserve independent decision making but the quid pro quo is that we have to be accountable and we are very accountable by law i testified twice a year in from of the house and the senate to explain what monetary policy is doing

and i testified many more times than that. our market committee meetings are followed by a statement and as lette three weeks later deal with the members of congress and the white house and i'm responsive to people in government. for all those reasons, we try very hard to make sure we explain what we're doing and the elected folks were in the congress or the administration appreciate what we're trying to do. that is the balance will try to achieve. independence in order to make good decisions but accountability and transparency to make that independence consistent with our democratic framework. >> thank you, now we will go to a houston. >> i am in pasadena.

what effect is the european price is having on the u.s. economy? what would a centralized european fiscal policy have on the global economy? >> do you have one hour? [laughter] the european situation is very difficult. the basic problem is that like the states of the united states, they have a single monetary policy. there is one central bank that makes monetary policy for all 17 nations in the europe zone. unlike the united states, they don't have one fiscal policy for each country has its own parliament, it's on prime minister, and it's on fiscal policy. in the united states during a downturn, individual states know the federal government is there to pay social security and medicare and provide defense,

all of those broad government functions and each state and locality only have to deal with more local services it provides. in europe, each country is basically responsible for its own fiscal situation. since there are some countries that are weaker because they are involved in tightening their belts in a strong way, the results of that are a weaker economy in those countries and, indeed, most of europe is now suffering from a much weaker economy. on top of that, they're banking system is distressed by the fact that banks hold a lot of sovereign government debt which in turn is hurting the positions of the banks and reducing the amount of will -- lending their willing to do. the 17 countries are under a lot of economic stress. there has been a lot of steps taken to try to address that by

european leaders. there are strong incentives to address these problems. they want to maintain the political integrity, the european collaboration that has been going on now since world war ii. but it is very difficult and involves political crisis. -- choices. the effects on the u.s. are numerous. there are two basic types of channels by which the euro crisis is affecting us. first, europe is a major export destination. a weaker european economy means that both the u.s. borders and exporters from other countries are finding weaker markets. that is reducing demand for our products and slowing our economy. even more important is the fact that concerns about the european situation have created lots of stress and volatility in financial markets. and the stock markets and credit markets. those problems are affecting us here in the united states.

between financial cutbacks and the trade effects, the european crisis is slowing our economy. there are many other factors as well, including fiscal issues, credit tightness. the housing market and sell one. -- and so onbut this is one of the european situations -- one of the factors that is slowing the economic recovery. you asked about what happened in europe had a single fiscal authority that would put them in a much closer situation relative to the united states that would probably address many of the concerns they have. by getting to that point is very difficult. you have 17 different countries and each set of taxpayers want to make sure their own country is in being fairly treated. so it is a difficult, complex, political negotiation that has been going on now for a couple years.

here. we would like to go to omaha. i think they are calling in. hold on a second. >> i think you have a houston there. touchdown? [laughter] okay. i will give it another second. question. until we get them back in, we can go to washington, d.c. we have a teacher right here. let's go to d.c for the next question. >> good afternoon. i teach comparative politics and economics in sandy spring, maryland. how can we as educators emphasize the importance of

understanding how the invisible hand that to our current crisis while encouraging students to believe that the market can work? >> one of the most exciting moments in teaching economics is when kids understand the invisible hand idea. the idea that markets can achieve such complex economic outcomes without any kind of central planning. milton freeman have the example of saying think how complicated it is to deliver a pencil. you think of all the components -- the wood, rubber, paint and everything else and you get a pencil for $1 or whatever it costs. markets can do that because the invisible hand says even though each participant is working for their own interest only in there is no central planner involved, that markets still work somehow to deliver that

result. there is a lot of evidence that looking around the world, markets have played a tremendous role in creating the wealth. that we see in rich countries and emerging markets that are becoming rich. markets are an amazing thing. getting students to appreciate what markets can do is a very important part of teaching economics. that being said, the next level up is to understand that markets also have problems. there are market failures, there is a monopoly, there is externalities. many things that can go wrong in markets. understanding how to fix those problems is really an important key to thinking about economic policy in general. there were a number of places where markets or the combination of markets in government failed.

in the financial crisis. for example, basic invisible hand economics assumes that information is perfect. everybody understands basically what they are buying and selling. that was not always true obviously in the crisis when people were buying a complicated credit instruments that contained a variety of substandard credit products like the prime mortgages. and the people who bought that did not necessarily understand everything that was in those credit products. likewise, during the crisis, there was a huge uncertainty about which banks and financial institutions were in danger because it was hard to know what exposures were and what each institution held and what the rest were. -- what the risks were. another issue related to financial markets is that unlike most industries, financial markets are prone to rise. -- runs.

if people lose confidence in a particular institution and they are providing short-term deposits or funding to those institutions, they have an incentive to pull out their money as quickly as possible. if everybody does that, it is like everyone running to the exit in a crowded theater. nobody is better off. you create stress in the financial system. try to address the problem is why the federal reserve was created almost 100 years ago to provide support for the financial system during periods of crisis. i mentioned the too big to fail problem, a combination of government and market failure. institutions which are so big and complex, their failure would possibly bring down the financial system. there is a strong presumption in the market that the government will protect those institutions. that means that the market is not allowed to work in a sense because people will lend money to those institutions are saying i did not have to worry

about whether they are making good investments are taking too much risk because if they get into trouble, the government will protect them. that leads to bad allocation, increased risk in the system. to answer your question, let me close by saying market are a wonderful thing. it is important to understand that but the financial crisis showed there are ways in which markets did not always work well. it is just as important to understand that markets can fail as it is to understand that markets are powerful and can give good results in a lot of the time. >> let's go back to omaha. >> good afternoon. economics and current events go together. what current events would you consider essential that we

covered in the classroom? as a follow-up to that, with everything going on in the world, do you see any events on the horizon that teachers should be aware of and ready to talk with students about? >> we have had a lot of things happening in the economy in recent years. i think students who want to understand what they see around them, what they hear. what we have seen recently, very complex of that but such an -- certain parts of it can be explained. you can explain the problems with some time mortgages, for -- some prime mortgages. -- subprime mortgage is. example, which ties into financial literacy issues that we talked about.

the financial crisis is clearly something that kids would want to understand and the recession that followed as well. certainly they would want to understand fiscal policy, how is monetary policy being used in the current situation? what does the federal reserve do? fiscal policy is something that affects their lives in concrete ways. the decisions are being made about the long-term future of social security, for example. who will pay, who will benefit? that has a big effect on kids' futures. those are the kind of things that could interest them. some raise the question about europe. that is also something in the news and i know that people are interested in understanding what is going on there. these are complex issues and a complete analysis will be tough to put into a class in but there are many elements and aspect that you can use to try to give a better sense of what is happening in these situations.

i think going forward, there are many things you can look at from macro and micro economic. at the micro level, issues of pollution control and perhaps global warming interests students. what are the economics of that? what arethe economics of the demographics of our society, getting older. what are the implications of that for our economy and our young people's future? an interesting question now is why do countries compete to have the olympics in their country and is that an economically sensible thing to do or for national pride? there are lots of issues. look out the window. you will find things to talk about. and see what the students themselves a raise. they will raise questions themselves. they have heard things in the

media. >> thank you. now we will go to philadelphia. >> mr. chairman, i teach at germantown academy in fort washington, pennsylvania. my question is about federal reserve system itself. what do you think young people most need to know about the federal reserve and how it operates? >> the first thing they should know is what it is. [laughter] the federal reserve is of course it's very important economic institution and i think every informed citizens should know at least the basics of what the fed is and how it is structured and what it does. a good economics class will take students to look further. -- a little further. it will explain what is monetary

policy and how it works. i think the very basic thing that often gets lost is the difference between monetary policy and fiscal policy. monetary policy is a responsibility to the bed. -- to the fed. fiscal policy responsibility is to the administration and congress. those are very different. the work in different ways. understanding the distinction between those things is very important. the fed is also a regulator. and the fact that along with other banking regulators, we oversee banks try to help control the risks they take. what economic role does that play? all of that what probably have been sufficient a few years ago but recently, now getting to the ap class, a lot of things have happened. the fed has done things it had not done for a long time. over the last few years, we have been trying to ease

monetary policies to support the economy but it is already almost four years since the interest rate went almost to 0. we had been using other kinds of monetary policies involving the purchases of longer-term treasury securities, for example, sellinstead of buying short-term securities which is traditionally do in monetary policy, we are now doing longer- term asset purchases. kids in an advanced class would want to understand how that is conducted. even when short-term interest rates are close to zero. the other thing which is very important -- the federal reserve was founded in large part to deal with financial crises, to be available to support the financial system

during periods of panic and try to stabilize the financial system. this function got a lot less attention during most of the post war period and most of the people thought of the bed as primarily monetary policy institution. but with the crisis we have had recently and crises in other parts of the world, central banks have become much more engaged in supporting financial system and creating financial stability. and explaining that basic function is also very important. to summarize, basic structure and governance, monetary policy, distances between monetary and fiscal policy. -- distinction --those are the basics. that is what every citizen needs to know. and the most recent years, the fed as the new things, including buying longer-term securities to provide more monetary policies support and working to stabilize our financial system.

those of more complex subtexts but also of great interest. -- those are more complex subjects but also of great interest. >> now we're going to go to los angeles. here we go. >> mr. bernanke, i teach economics and business law in high school. what do you believe is the best way to anticipate another financial crisis? >> how to anticipate and prevent a financial crisis? [laughter] >> not an easy question. he obviously given the cost of the last financial crisis, we would like to do all we can to anticipate and prevent another financial crisis. if one happens, to mitigate its effects as much as possible. relatively speaking, the new

regulatory structure has a two- part strategy. the first is that we are now taking -- the financial regulators, the government in general, are taking a more systemic approach. before the crisis, every regulator had its own particular institution and a market that it was responsible for. nobody was there watching the system as a whole. the idea that regulators ought to work together to identify risks in the broader system was discussed even before the crisis but it is now part of what the new regulatory structure is trying to accomplish. so we have four examples of the call the financial stability

oversight council which is -- it is known as fsoc, which consists of 10 major regulators, including the federal reserve and some other regulators who do not have the votes. the fsoc's job is to look at the system as a whole, identify problems, see if there are risks that may threaten the system, are their weaknesses in the structure? gaps in regulation that need to be addressed? the federal reserve has its own office of financial stability which has a similar function to try to monitor the whole system and identify problems that might be rising. we work closely with the fsoc to look for new problems to see where there might be -- the next crisis might come from and take steps to provide a warning so we can collectively address

those problems. that is the first part which is to have a macro approach which is looking at the system as a whole, try to identify gaps and weaknesses and fix those as much as possible. we know perfectly well that we will not be able to identify every problem that comes along. the issues are very complex. historically, it just happens that very often need the private or public sector identifies the problem until it is upon us. the second part of the strategy is to make the system itself as resilient as possible. whatever happens, even if we do not identify or prevent it, the system will be stronger and able to survive and continue to provide credit, even in the face of a shock. there are many aspects of that. one example would be the new capital standards that had been

agreed upon by not just the united states but essentially all the major countries in the world. so-called basel 3 standard that would increase the amount of reserves capitol that the banks have. when banks, whenever they take significant losses relative to where they were before the last crisis, they will have lots of capital which can absorb those losses and prevent those losses from turning into a failure or a more broader banking panic. so greater capital, strong rules on derivatives trading, more liquidity for banks. do they have enough cash in hand? all those things are intended to make the system strong person -- stronger so that no matter what may happen, the system will be better prepared to observe the shop -- absorb the shock without going into crisis as we saw in 2008. >> now question from st. louis.

>> hi. i work for a special school district with mastodons. -- of st. louis county and the work with math students. my question -- should the public school system add more courses like economics and finance to the curriculum? >> we are all in favor of that. [laughter] there are lots of ways to do that. it is good to have students understand the basics of economics and finance and financial literacy. there are lots of ways to do it. one way to do it is if you're high school has ap courses. there are forces in micro and macro economics. -- there are courses in micro and macro economics. students who want to do that can do college preparatory work in

economics. so you can do significant and serious economic forces if you want. -- economics courses if you want. but i say that because there are lots of other ways to incorporate economics. when i took history in high school, i said this is all about kings and queens and wars. of course economics tells how people lived, how they make a living, how societies function, how markets function to read trade. all those aspects of history which are so important. integrating economics into history, integrating economics and to civics so that didn't understand the importance of -- so that students understand the important institutions like the federal of reserve and regulators and fiscal policy and so on. beyond that, is financial literacy. which is so very important for all students. i do not think or any students who should not be exposed to in these basic financial literacy concept.

that can be done as an individual course, as a part of a course, be combined with something like a junior achievement program which is very good to get kids interested in. or integrated into a math class for other kinds of contexts. so there are many ways to do it. it depends on your resources and the kinds of interests that didn't have. -- that students have. but if you think about what people do every day, what adults are required to do in terms of managing their finances and preparing for retirement, economics and financial literacy are critical parts of education. there are lots of ways to incorporate it. i hope everyone here will do that. i congratulate you for that and encourage you to keep making that effort. >> now a question from boston.

>> could you share your thoughts on the current crisis regarding the current student loan debt and, at the burden of currents in loan debts for our young people impact the economy in the future if the same bar hours are -- if the same bar were a not in a position to borrow for are things like automobiles are starting up new businesses? >>texted loan debt which is now student loan debt is a one of the largest categories of now debt of any type is a two edged sword. it is a very important way of increasing earnings power. it is an investment of human capital. we do not want to have a world in which talented students are unable to get additional education because they cannot

afford it. having a student debt market are student debt program helps everybody. that allows people to get the education and helps everybody of students go on and get additional preparation forit is very important to have this kind of restitution. -- institutionsit is a to edge sword. . it is a two-edged sword. if people make bad choices, burdened with debt, large amounts of it, you cannot discharge student debt in bankruptcy. basically, you've got it. if you acquire a lot of debt and your school does not prepare you for a good job, then you are really in trouble because you do not have the income but you have the debt.

what i wouldn't rise on that is -- what i would first advise on a that just like any other that is investment, when investing in your own capital, you have to be smart. you have to know what it is you are buying. those of you who do guidance counseling type work think of it as being an investment adviser. --'re explaining to listed to the student among kind of job or career he expects to get out of your additional education, what are the graduation rates? does all this makes sense given how much debt you have to take. what kind of income can you expect to earn? that is not the only reason people take debt. and take additional education. but as an economic proposition, it is important to understand what is your buying. counseling should be an important part of the decision making process for kids taking

out the debt because it sticks around for a long time. in terms of the economy, i think the main issues there are fiscal issues, most student debt is now provided by the federal government. whatever losses or problems there may be on that side will be fiscal problems that will be borne by the taxpayer ultimately. there are also issues of students being burdened by debt if they deny use it in a smart -- if they don't use way to get themselves the kind smart of income they need to pay it off. so burden on future consumers and fiscal burdens for future taxpayers, those are some of the reasons to try to use debt wisely. i do not think that student debt is a financial stability issue to the same extent as

mortgage debt was in the last crisis because most of it is held not by a financial institution but by the federal government. >> now question from chicago. >> hello. this is helen roberts from the university of illinois at chicago. the center for economic education. i teach all ages. there is widespread misunderstanding about how the federal reserve supports the economy and the short run and long run effects of monetary policy. stephen sometimes think of the -- students sometimes think of fed is being in a position to solve all economic problems and some possibly the federal reserve is not doing enough to fix the economy. they blame it for addressing problems that really have the responsibility of fiscal policy. what does the federal reserve need to do to educate the public about the limits of

monetary policies of people ha more realistic expectations? >> your basic point is absolutely right. the federal reserve is an important economic policy institution, monetary policy as well as financial regulation have a very important role to play in providing a stable economy. stability involving both growth and inclement and in terms of prices. -- and employment and in terms of prices. but as i've often said, monetary policy is not a panacea. it does not solve all problems. there are many issues that are more appropriately dealt with by the fiscal authorities to spending decisions for tax policies. beyond that, there are decisions made by trade policy makers, education policy makers, all the different areas of economic policy. i think it should be basic part of civics our government or

whatever heading you put that under that students understand that the government is not just congress and the administration. there are many other institutions. including the federal reserve but doesn't -- including regulators as well. and to have a sense of what these institutions do and have -- how to divide the responsibilities is very basic. a very basic bit of economic education. we have in putting together in this discussion to kinds of financial and economic education. the personal type of education where understanding better financial decisions and also the education that involves understanding how our society works to make you a better citizen and better able to understand what is happening in world events.

this is in that latter category. a basic understanding of modern government involves understanding the principal economic policy institutions and their division of labor. much our policy is very important. -- monetary policy is very important. the federal reserve is the primary institution involved in that. it has the important role of crises. it can be very helpful in helping to restore full employment and providing support for a recovery. but in particular, the long term types of things like providing a strong educational system, providing a good tax code, creating a free-trade, helping unemployed workers gain skills they need and so on, there are so many of these things which are really responsibilities of a wide variety of economic policy

makers together with the private sector. so i basically agree with the point that it is important for students to understand who does what and what the different types of policy can achieve. >> thank you. the next question is from minneapolis. we cannot hear you. >> good evening, mr. chairman. >> we can hear you now. >> i teach economics and government in albany. many of us work hard to teach the importance of saving and investing get interest rates return at historic lows. how can we teach students they will be rewarded for saving giving that returns on investments are currently so low? >> good question. obviously interest rates are very low. they are low for a good reason.

[laughter] which is that our economy is still in a fragile recovery and low interest rates are intended to help the economy recover and to restore a more normal levels of employment and growth in our economy. for investors, it is essential that the economy be strong overall. if you think about what investors invest in, some of it is in fixed income management like certificates of deposit or government bonds, but a lot of what people invest in our stocks and corporate debt and small businesses and a variety of other assets. those assets are not going to perform well unless the economy is strong. so the kind of return that you can get as an investor and as a saver depends on having a strong economy. there is really no shortcut to

that and that is the reason why we have a low interest rates now as a way of trying to restore that vitality that will give investors higher returns in the future. that is the reason that rates are low but of course they are low. that being said, there is an awful lot that can be taught, even with rates being lower. there are still many incentives to save if you want to buy a house. now since the financial crisis, down payment requirements are much higher than the work. -- than they were. if you want to go to college and increase your earning power, if you want to retire, all of the things that people want to plan for over their lives still require saving. you probably have to save more to get to a certain point.

there is a lot to be learned about it. for example, if you're going to be saving, he did not want to -- you don't want to save a dented just one form. say than just oneyou want to diversify and save form. it into different types of assets. you need to understand the trade-off between risk and return. you need to understand how taxes affect the returns to different types of assets. there is a great deal to be learned about how to save and how to invest. even in a low interest-rate environment. i think students find it pretty interesting to have for example and make believe portfolio make their investments and they can check the paper every morning and see how they did and they may learn that putting all their eggs and into one basket may not be the best idea. so there are many basic ideas like diversification and risk reduction that students can learn and would enjoy learning.

>> we have one final question. once again we will go to a teacher from the richmond district who is here in the room. >> good evening. -- good afternoon. i am from hanover county, virginia. we hear this upcoming generation will be the first generation worse off than their parents. i am a little school teacher and -- i am a middle school teacher my here -- and kids think are and invisible. everything is far away and we think -- and they think we are ancient. do you think this generation will not be better off than their parents? if your own kids were middle schoolers today, what would you ask their teachers to do to help impart this important information to them? question. [laughter] obviously. all kinds of things can happen in the world but my best guess

is that our kids will be better off than we are. for that. the first of that our living standards depend most fundamentally on gains in productivity. we are living in a world of technological change. forefront of that. we have some of the greatest universities in the world here and we are doing pretty well at finding ways to commercialize the invention and discoveries coming out of those universities in place like silicon valley and research triangle and the washington, d.c area. technology will continue to provide opportunities. the u.s. economy is well placed to take advantage of that. we have a very entrepreneurial culture. we have a lot of market-

oriented oriented. i guess i would come back to one issue which cuts both ways which is our demographics. one of the challenges that we face collectively is the fact that our society is getting older. this fraction of people who are retired and receiving social security or medicare is increasing. that creates fiscal burdens and burdens on future taxpayers. the good news is that relative to most other and the stroke -- industrial countries and compared to some emerging market economies, the demographics of the united states are not that bad. we have a very healthy immigration rate, health the fertility rate. -- help the fertility rate and

soour demographics are favorable compared to a number of other countries. there are a lot of reasons to think our society will be transformed by new technologies, new products, new markets. that the united states will play an important role in that and that will give opportunities for our children to have better quality of living than we did. there is certainly some very important challenges. i already mentioned fiscal challenges. our educational system, we need to keep improving it. it is not even a question of -- our educational system is both failing many of our students but it is creating a law that inequality also. -- a lot of inequality also. you have some very good schools and some that are very poor and that creates a different starting line for kids coming out of those different backgrounds.

education, health care, there are a lot of issues that we have and in the near term, it's coming out of high school or college right now are not facing a very good job market and that will make it harder for them to get into the workforce and to gain experience. so there are lots of challenges that. over the medium term, the intrinsic features of the u.s. economy which have made it the richest economy in the world together with the ongoing improvements in technology and the strengths we have in terms of our markets and our demography, all those things will be positive. in terms of advice, i think that's the way the world is going towards a more globalize system where trade and services can grow very easily across borders to a highly technological society, the benefits of education are going to get greater and greater.

this is not going to be a kind of world in which an unskilled worker will do well. you need to have enough knowledge that you can adapt and accommodate the many changes that are happening and will happen in the coming years. the good news for you is that your product is becoming more and more valuable. [laughter] and people who are smart will take every possible advantage of it. >> thank you for all of your great questions. that concludes our session for today. we hope you have gained insights into this conversation that will help you in your work in the field of economic and personal finance education. on behalf of the federal reserve system, thank you especially to the participating teachers. we are pleased you could join us today. once again, we will like to think chairman bernanke for taking the time to speak with us today. [applause]

[captioning performed by national captioning institute] [captions copyright national >> here on c-span at two o'clock 30 eastern, a counter-terrorism adviser is that the council for relations. on c-span 2, we will be covering the airline pilots association conference and on c-span 3, mitt romney makes a campaign stop in des moines, iowa. in about 45 minutes, we will talk with the editorial board writer on "the wall street journal." also democratic congressman gerry connolly