Q&A with Roger W. Ferguson, Jr.

Leading the Federal Reserve on 9/11.

How would you define resilience when it comes to the intersection between financial security and society?

Resilience is synonymous with financial well-being and feeling confident about your financial life, no matter what’s happening in the economy and markets. It’s less about how much you make and more about understanding the concepts of personal finance–like knowing how to use credit wisely–and having long-term financial goals, like planning for a financially secure retirement, even as you manage your short-term needs and desires. In this way, resilience is intricately related to financial literacy; you need a sound base of financial knowledge to make wise decisions about your finances.

In today’s increasingly complex world, financial literacy is more important than ever. Younger people must strike a balance between paying off student debt while saving to buy a home and to build their retirement nest egg. Older people (some of whom are also carrying student debt) must ensure that they have saved enough for retirement at a time when lifespans are increasing while fiscal pressures threaten the viability of programs like Social Security and Medicare. Unfortunately, financial literacy levels in the United States remain worryingly low. To increase Americans’ resilience, which has important implications for our nation’s future economic strength and vitality, we must commit as a nation to increasing financial literacy.

You were the only Governor of the Federal Reserve in Washington on 9/11, so you led the response: keeping the Fed open, providing ample liquidity to backstop the banks, and sending extraordinary amounts of cash to avoid having ATMs run out of money. The whole country could have otherwise gone into a banking panic. What did you learn about “preparing for the worst” in an economic crisis that you would apply, if ever needed, in a future scenario?

Although I had the responsibility of leading the Fed on 9/11, I was hardly alone. Every division of the organization played a role in safeguarding and protecting the U.S. financial system in the face of a historic challenge. There were two key factors in our success: the team’s commitment to working as one and the collective technical expertise they brought to the task.

While the Fed had always planned for how we’d respond to various threats, no one could have imagined or planned for the combined physical, technical, psychological, and financial threat we faced that day. Yet the team was able to develop and quickly execute a game plan, grounded in its deep knowledge of the workings of the financial system.

Ironically, some of the tools we used and the plans we executed were first conceived around a different crisis that ultimately did not occur: the Y2K bug, which threatened to shut down computers worldwide in the year 2000. A key lesson learned is that expertise, however it’s gained, is always valuable in a crisis. It’s impossible to know in advance when it will be put to work in creative and unexpected ways.

Given how long we’re living, planning for lifetime income has become more important than ever. But, as you said in a recent speech, too many people focus on their income accumulations, “hoping to achieve some magic number that may or may not be enough to support them during a long retirement.” You have advised people to do two things: consider annuities as an excellent source of steady income and find a trusted financial advisor. Can you talk in greater detail about the value of both?

Today’s longer lifespans have given rise to increased anxiety about running out of money in retirement. One way Americans can ease that concern is by creating a source of “guaranteed income” that will never run out. Social Security plays this role for most retirees, but the payments typically cover only 30 to 50 percent of pre-retirement income. For most people, that won’t be enough. That’s where annuities come in. Annuities can guarantee the payment of a stream of retirement income for as long as a person lives. Among economists, there is a consensus that they offer exceptional protection against outliving one’s savings. But it’s important to remember that some annuities are better than others. A low-cost annuity from a trusted company is far different than a high-fee annuity carrying hidden expenses.

A trusted financial advisor, someone who is focused on your needs alone, is
invaluable in helping you understand your options and choosing the solutions that are best for you. At TIAA, we believe that financial advice and counseling are essential elements in helping people to not only prepare for a secure retirement, but to achieve financial well-being throughout all the stages of their lives.

You are a frequent speaker at college campuses and at commencements. How do you advise young people to set up a financial future for themselves in a rather uncertain economic environment?

I advise young people to devote as much attention to their financial lives as to their careers and social lives, because without a solid financial foundation, their ability to have an impact on the world will be limited. Here are the specific actions I recommend:

  • Enroll in your employer’s retirement program and contribute as much as you can, taking advantage of any matching contributions offered. If you’re paying down student debt, this may require a delicate balancing act, but it’s important to invest in your long-term financial security even as you meet your loan obligations.
  • Take advantage of the power of compound interest by beginning to save for retirement as early as possible in your career. As the earnings on your savings get reinvested and generate their own earnings, you’ll be reaping the benefits of what Albert Einstein called “the most powerful force in the universe.”
  • Diversify your investments, and allocate your savings based on your risk tolerance, financial situation, and goals.
  • Create and build an emergency fund. Even if you can only make small contributions at a time, doing so on a regular basis will ultimately enable you to ensure that you are well-prepared for a rainy day.

I understand you’re a fan of nonfiction, and recently finished a book about when the United States went off the gold standard. What do you think we can all stand to learn from reading about America’s history as it pertains to our financial system that can be applied to how we understand present-day challenges?

There are three lessons we can learn from reading about the financial history of America.

The first lesson is that we’ve had a number of different kinds of cycles. The most visible one was obviously the Great Depression, but before that there were a number of so-called “panics” in the 1800s, and of course, we’ve seen a range of challenges since then. We’ve recovered from all of them and we should expect to continue to have ups and downs.

The second is that the American system has been driven, in some sense, by
experimentation. From the creation and abandonment of various kinds of paper money in challenging times like the Revolutionary War and the Civil War to the creative innovations of founding father Alexander Hamilton and beyond, our history is filled with examples of how the United States has responded to uncertainty through trial-and-error and creativity.

The third lesson is that because of some of the great inherent strengths of the country—geography, population, technology, innovation, and immigration, for example—we fundamentally have a very strong system.

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Roger W. Ferguson, Jr.

Roger W. Ferguson, Jr. is President and Chief Executive Officer of TIAA. Prior to joining TIAA, Mr. Ferguson was head of financial services for Swiss Re, Chairman of Swiss Re America Holding Corporation, and a member of the company’s executive committee. Ferguson is the former Vice Chairman of the Board of Governors of the US Federal Reserve System. From 1984 to 1997, he was an associate and partner at McKinsey & Company. He began his career as an attorney at the New York City office of Davis Polk & Wardwell. Ferguson is a member of the Smithsonian Institution’s Board of Regents. He is a fellow of the American Academy of Arts & Sciences. He serves on the boards of Alphabet, Inc.; General Mills, Inc.; and International Flavors & Fragrances, Inc. He is Chairman of The Conference Board and serves on the boards of the American Council of Life Insurers, the Institute for Advanced Study, and Memorial Sloan Kettering Cancer Center. Ferguson holds a BA, JD, and a PhD in economics, all from Harvard University.

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