Today, the federal government unveiled the new task force on financial literacy, promised in the January budget. I thought the choice of members said a lot.
The chair, Don Stewart, heads a life insurance company. The vice-chair is with BMO Nesbitt Burns, an investment dealer. Only two of the 11 others named to the task force can be called consumer advocates, Pat Foran of CTV and Laurie Campbell of Credit Canada.
Makes me wonder what will come out of this exercise. There’s a consensus that Canada needs to teach children about money management when they’re in school. That’s helpful, but not enough.
Financial literacy is being watered down and becoming a motherhood issue, one that all the big institutions can support. It’s about when to introduce courses in schools and how to teach compound interest to children when they’re old enough to understand it.
After thinking about what this idea really means and debating it with trusted colleagues, I have a few points to make.
— People only learn when they’re ready to learn, when they find a topic interesting or they have to make imminent decisions. That teachable moment often comes later in life than high school.
— There’s been a huge shift in risk from governments and employers to citizens. Decent pensions are becoming obsolete (except for civil servants). Medicare covers only the basics and any extras have to be paid for by private insurance. You have to cover the costs if you or a family member become ill and unable to work. You have to cover the cost of children’s post-secondary education.
— Governments have pulled back the safety net and created this “risk shift” to individuals, while not providing the educational supports that people need to make informed decisions.
To me, financial literacy is not just about distributing plain-language educational materials. It’s also about adopting new attitudes.
–One, you can’t delegate your money decisions to anyone else (an adviser, a friend, a spouse). You have to look after your own finances or face adverse consequences.
–Two, you can’t trust someone paid to sell products to have your best interests at heart. And in Canada, most financial advisers don’t have a fiduciary duty (a requirement to put the client’s interests first).
— Three, you can’t be an optimist where your money is concerned. Always ask about the worst case scenario when presented with a set of financial projections.
— Four, life has a habit of being unpredictable and often hurtful. So plan accordingly. Save as much as you can in case you lose your job. Buy insurance in case you’re sick or you die, leaving your family without income. But make sure you get the right advice and don’t enrich the pushers of high-priced and inadequate savings and insurance products.
–Five, don’t count on anyone to bail you out of a financial jam. The government or your employer may not give you a decent standard of living when you retire. Your parents may not leave you money in their will. Your house may not be worth more than you paid for it. Assume the worst and be prepared for bad stuff, even if it never happens.
–Six, don’t be too starry-eyed about your finances when love is involved. There’s a good chance your marriage or common-law partnership won’t last, so protect yourself. And remember that having children is a huge expense and shouldn’t be undertaken lightly. People with fewer kids often do better in life.
I hope that Canada’s financial literacy strategy is broad enough to encompass such points. I’m willing to give this task force a chance to prove itself. But the fact that the final report won’t come out until the fall of 2010 causes concern. How long will we have to wait to see any results?