Smart money

A controller isn’t the person who tells you where to sit at a wedding party. John Chiang, California’s controller going on seven years, oversees the Golden State’s accounting and cash management. Which isn’t just figuring out what to do when California runs out of money; it’s also moving the state forward when it comes to financial literacy and many other issues. SN&R sat down with Chiang—who’s running for state treasurer next year—to discuss what government can do to help people use their money more wisely.

Let’s talk about financial literacy. Why have you made this a new priority for this office?

It’s just part and parcel of who I am. I came from a family with parents who came to this country with no money. They worked really hard. I think they’re representative of most Americans, and part of this is that it would have been a lot easier for my parents if they had access to financial knowledge.

And when there’s a lack of knowledge, of basic financial literacy, what happens? What are we seeing?

You see 2008, 2009. You see what has happened to America. … So, for the long term, you can’t spend more than you earn. You can take on debt, but smart debt for a college education, if you’re getting good rates, if you’re going to go to a good school. … I’m not trying to build financial security—I’m trying to build financial opportunity by using that knowledge.

On one hand, people need to know how things work. On the other hand, a lot of people are dependent on info from financial institutions, who arguably have not been doing their job in terms of helping to encourage good financial planning.

You have quite a few who failed, obviously, when you witness what happened with the mortgage market. … That’s why we want to get individuals separate from those who have a financial interest to participate in [literacy] and to identify the best practices. The participants, the programs, how do we move people forward—I don’t think there is anything that is a community model, a state model, a national [model] on how we do this.

If I purposely write a check that I know I don’t have the funds for—a couple hundred bucks—to pay my rent or whatever, I can go to jail. But financial institutions have committed, seemingly, much more egregious ongoing offenses, and so few are going to jail. There doesn’t seem to be adequate penalties for our large financial institutions.

They haven’t built a model of accountability for those large financial institutions. They’ve sort of hidden behind the corporate veil. It’s a corporation—how do you impose punishment? They have imposed fines, but those fines are a drop in the ocean compared to the revenue that has been brought in by those practices. Obviously, they’re going to have to have much stricter enforcement and greater accountability.

Is the government doing its job in terms of protecting its citizens?

Government has to do a better job. Here’s my issue: During the last financial crisis, you had people that made decisions that put not only their institution [and] their customers in harm’s way, they [also] put this nation’s financial foundation in harm’s way. Basically, the government provided a backstop and didn’t do enough to challenge that leadership, and much of that leadership remained in place. You basically serve as a backstop for those who engage in risky practices, and now, a lot of those people who engage in risky practices are upset that government is providing greater regulations. We needed to hold those people accountable, and there is something deficient in the system where you couldn’t take out those people engaged in those horrible practices, and now a lot of them are pushing the edge, trying to return us to those ugly days.