Federal Reserve Chairman Ben Bernanke said Tuesday he suffered a "lapse of judgment" by talking to a CNBC reporter recently, a conversation that caused the stock market to tank when his comments were reported.

Sen. Jim Bunning, R-Ky., asked Bernanke about the episode during a Senate Banking Committee hearing on financial literacy.

Bernanke, who took over the Fed job on Feb. 1, rattled financial markets when his comments were reported, and the May 1 incident raised questions about his communications skills.

CNBC reported that day that Bernanke said investors had misinterpreted his recent congressional remarks as an indication the Fed was nearly done raising rates. Stocks — which had been up for most of the day — slumped.

Bernanke, in a congressional appearance on April 27, had raised the possibility of the Fed pausing its two-year, credit-tightening campaign. Stocks rallied that day.

The Fed chief's remarks came at a hearing focused on financial literacy.

Sharpening Americans' financial know-how and skills is crucial to consumers' ability to make smart money choices and is also good for the overall economy, Bernanke told the panel.

"Clearly to choose wisely from the variety of products and providers available, consumers must have the financial knowledge to navigate today's increasingly complex financial services marketplace," Bernanke said in prepared remarks to the Senate Banking Committee, which was holding a hearing on the matter.

Consumers with the necessary skills to make informed financial decisions about buying a home, financing an education or their retirement or starting a business will almost certainly be economically better off than those lacking those vital skills, Bernanke said.

Having financially savvy consumers is also good for the overall economy, he said.

"Informed financial decision-making is also vital for the healthy functioning of financial markets," Bernanke said. "Like any businesses, financial service firms will provide better products at better prices when they are subject to market pressures imposed on them by informed consumers," he said.

Bernanke made clear that he believes competition is the best way for promoting the provision of better, cheaper financial products to consumers.

He said research shows that financial education and credit counseling can help people make better choices. That's important not only for adults but also for teaching young people the basics of making good financial decisions, he said.

But young people are flunking when it comes to their understanding of basic financial matters.

On average, high school seniors answered correctly only 52.4 percent of questions about personal finance and economics, according to a nationwide survey released in early April. Still, that was a smidgen better than the 52.3 percent in the previous survey in 2004 and was up from the lowest-ever score of 50.2 percent in 2002.

The surveys, done every two years, were sponsored by the Jump$tart Coalition for Personal Financial Literacy, which wants students to have the skills to be financially competent.

Bolstering financial literacy — while important — isn't a cure-all, Bernanke said.

"Financial education is a critical component of a robust and effective financial marketplace, but it is not a panacea," he said. "Clear disclosures, wise regulation and vigorous enforcement are also essential to ensuring that financial service providers do not engage in unfair or deceptive practices. Even the most financially savvy consumer may fall victim to fraud or deception," he said.

Securities and Exchange Commission Chairman Christopher Cox, who also appeared before the panel, stressed the importance of investors having the necessary information on businesses and other things to make decisions.

"It is not our job to tell people how they should invest," Cox said. "Putting them in the driver's seat means giving ordinary investors the means to interact directly with companies' information in a way that allows them to compare, contrast and put that information into contexts that are meaningful to them."

Even armed with an outstanding financial education, "very few investors are able to slog through the swamp of legalese" known as corporate annual reports and mutual fund prospectuses, Cox said. He said the SEC would like to see such financial disclosures written more clearly so they are easier to understand.