November is Financial Literacy Month in Canada. But given the current low levels of knowledge among most Canadians, financial literacy warrants a year-round conversation.
Studies show a sizeable portion of our population remains vulnerable due to lack of financial knowledge. In the Canadian Financial Capability Survey 2014 conducted by Statistics Canada, nearly twice as many participants confessed to not being knowledgeable as those who considered themselves very knowledgeable.
Another survey, conducted by the Credit Counselling Society (CCS), showed that while nearly 66% of participants believed they were financially astute, they routinely carried a balance on their credit cards, lacked a budget or a spending plan, and were being squeezed by a mounting debt.
The hardest part for many individuals is making the decision to take control of their personal finances so as to save more, spend less and reduce debt, says Cairine Wilson, vice-president, corporate citizenship at Chartered Professional Accountants (CPA Canada).
"To be successful, financial-literacy education must focus on life-long learning," says Wilson, who oversees CPA Canada's financial-literacy efforts. "Therefore, it must start with our children and then be made available through the different stages of life, including retirement."
Those committed to the cause stress that the sooner financial education gets introduced in life, the better. "Parents can give their children an important advantage in life by starting in-home discussions about money matters at an early age," says Wilson.
However, many Canadian parents are unsure about how to proceed when it comes to educating the next generation on personal finance. A recent BMO survey found the "majority of Canadians would rather talk to their children about the facts of life than they would about their financial situation."
Cairine Wilson | |
Ashvin Vibhakar, senior advisor, future of finance, at CFA Institute, says there are barriers to overcome. "One of the problems is that finance is a complex topic," he says. "Because it is particularly mathematical, most people have a tendency to avoid it. Parents need to understand finance before they can teach their children."
To address this issue, agencies like CPA Canada are helping parents prepare their children for life's important financial decisions with practical resources like A Parent's Guide to Raising Money-Smart Kids, a comprehensive guide for teaching financial skills at home.
There's also the behavioural side of financial education, which Vibhakar says is just as crucial a part of the equation. "People associate satisfaction with immediate expenditure without thinking about the long term," he says. "If you create a mandatory savings concept for them, which squirrels away a certain percentage of their monthly income, it will have a considerable impact on their life as it progresses."
Instilling discipline to save and setting financial goals are fundamental to financial education. "People need to be taught that savings should be an expense decision; that you're expending your income for saving," says Vibhakar. "If money is easily accessible, people tend to spend it injudiciously, sometimes spending money they don't have."
Speaking at a recent economic summit, the Toronto Global Forum, Vibhakar asserted financial education should go beyond basic literacy to the investment side. "We also need to make sure investors know their rights and what they should be demanding of their service providers," he says. "How many people know exactly how much they are being charged for their investments? How many routinely ask this question?"
Further, investors often lack the financial education needed to detect conflicts of interests when it comes to professional investment advice. One of the biggest problems, says Vibhakar, is advisors putting their personal interests ahead of those of their clients. "Conflicts of interests will always exist in the industry, so the knowledge of how your service provider is dealing with it is important."
Financial education, he adds, is a vast field which could stretch far beyond saving and investing to balancing a budget, borrowing with a plan, debt repayment, pension contributions and consumer rights.
So how does one define financial literacy?
Jane Rooney of the Financial Consumer Agency of Canada (FCAC), and Canada's first financial literacy leader, defines it as having the knowledge, the skills and the confidence to make responsible financial decisions. However, she insists the process of learning never ceases.
Jane Rooney and Ashvin Vibhakar | |
"We don't stop and say we have everything we need to know because financial education is an ongoing, lifelong learning approach," she says. "There are new financial products and services coming out all the time. And as you reach different points in your life, there are different types of financial decisions to be made. You're either taking out a mortgage for the first time or starting a family or, in your senior years, turning your savings into retirement income."
Rooney, who coordinates financial literacy initiatives by collaborating with stakeholder groups across Canada, works with her team to help Canadians including low-income citizens, newcomers and aboriginals manage their money.
"Our unique challenge is to help them understand how to manage their debt, take advantage of government and private benefits, and protect themselves from fraud and financial abuse," says Rooney.
Fortunately, organizations such as the Financial Consumer Agency of Canada (FCAC), CPA Canada and the Investment Industry Regulatory Organization of Canada (IIROC) are working toward a common goal of improved financial literacy for Canadians. They are trying to make the subject fun and engaging, particularly in relation to today's younger, tech-savvy generation.
Vibhakar says it's about exploiting the medium of learning they prefer. "The way children learn today is different," he says. "Play the game that today's generation understands. Are we creating the education material in accordance with today's environment of YouTube and Twitter?"
No doubt organizations and educators are fast getting with the program. The Investor Education Fund, an Ontario Securities Commission initiative, is presenting financial education to students packaged in "funny videos" and "cool tools."
The FCAC's program for adults, called Your Financial Toolkit, has embedded videos and worksheets to impart knowledge in different ways. Rooney says that for kids, fun and engaging could also mean having a comedian visit a high school and talk about savings plans.
CPA Canada's Community Connect Program for the classroom is another useful resource that focuses on teaching basic financial concepts through interactive activities and planned workshops.
It's never too late to take action, but few would disagree that financial education should start early. Preferably at home where, insists Wilson, money should no longer be a taboo topic.
"Familiarizing young people with the family's financial situation opens the doors of conversation, produces a higher level of trust and helps youth develop their own financial goals," says Wilson. "It's also important to remember that how parents manage their money greatly influences their children."
The burden of developing financial skills, however, must also be shared by schools, the financial-services sector and government. No one entity can effectively address all of the challenges on its own.
In fact, the FCAC concedes in one of its consultation papers that "removing barriers, changing habits and fostering a culture of financial well-being will take a collaborative effort over many years, if not decades."