Should Canada invest in financial literacy?

September 11 2008 by Ellen Roseman

I just came back from a conference in Montreal. We talked about how to raise the level of financial awareness in Canada.

Is there a link between better financial education and better financial decision-making? The research isn’t clear. Lauren Willis, a law professor writing in Money magazine, says we should just give up on educational efforts.

Stop trying to turn everyone into a financial planner. Instead, try to get everyone to understand that the people selling you financial products often don’t have your best interests at heart.

In my panel discussion, I agreed that we shouldn’t teach people about products — since the products constantly change. We should teach them to take a skeptical attitude, to ask questions and to stop being so trusting.

Why do some folks believe what they’re told by someone whose only goal is to get them into a deal that they can’t extricate themselves from without a stiff penalty? I wish I could get everyone to ignore door to-door salespeople, seminar sponsors and telemarketers. Just say no.

Many international experts came to the conference to talk about how they’re trying reach, teach and change behaviour.

Britain, for example, has introduced tax-free investment accounts for newborn babies. The government is giving vouchers worth about $500 to every child in the U.K. born after Sept. 1, 2002. The children get another $500 voucher when they turn 7.

The parents can invest the vouchers, but not touch the capital. When the children turn 18, they can withdraw the money for any purpose.

The Child Trust Fund (now closed to new accounts) is designed to change the savings habits of a new generation of British citizens. But some parents, it seems, can’t be helped. About 350,000 vouchers worth $200 million had been left to languish in the first year

“It seems you just can’t give money away,” said one British financial executive. However, many parents have made significant extra contributions to the tax-free savings accounts.

In New Zealand, the government sponsors TV commercials with the slogan, “You’ll lead a richer life when your money’s sorted.” The slang term “sorted” or straightened out is the branding for a rich financial literacy program that has been going for 15 years and includes a website.

In the private sector, a big U.S. bank has given away 60,000 copies of a book, The Citi Commonsense Money Guide for Real People. It uses major life events, also called “teachable moments” to bring home the need to save and invest.

Finally, a U.S. financial regulator has organized a website that’s aimed at groups, such as seniors and soldiers, who are often exploited. There, they can find online help that is full, fair and free for the asking.

I’m excited about what other countries are doing and hope campaigns will be launched in Canada. Such help is needed as the economy goes into a downturn and debt-to-income levels rise higher than ever before.

5 comments

  1. WhereDoesAllMyMoneyGo.com

    Sep 12 2008

    It is truly a shame that Canada has not adopted personal finance education into the curricula of most levels of school. It doesn’t matter what career you choose in life, everyone faces the same decisions with respect to money. And the views you raised about foregoing individual product information for a heightened self sufficiency in analyzing financial decisions is bang on.

  2. The Rat

    Sep 12 2008

    Great post.

    I agree with the first comment by WhereDoesAllMyMoneyGo, in a sense that personal finance education should be taught to our Canadian children at a younger age.

    We often have our youth attend post-secondary institutions and actually graduate through the system prior to having sufficient knowledge gained with respect to approaching one’s own personal finances and respecting the value of a dollar.

    Talbot Stevens, a Canadian personal finance author who was more prominently known several years ago, began a petition to lobby our government to support such reform in our educational system, but to no avail.

    To answer the original question of the post, I say yes, Canada should invest in financial literacy.

  3. Optionsforstocks

    Sep 12 2008

    Ellen, with due respect, I do not agree with you or Lauren Willis. How can you differentiate between a trustworthy and not trustworthy adviser if you do not have enough knowledge of the financial products he/she is advising you to buy?

    I would support the opinions of earlier commentators “WhereDoesAllMyMoneyGo” and “The Rat” that an early exposure to financial education plays a great role in future financial planning, irrespective of what profession you end up with.

    Most of the people do not believe that a “$10 per week” investment starting at age 20 can significantly alter your retirement outcome. This is simply because they do not understand the power of compound interest.

  4. Gean Oliveira

    Sep 17 2008

    I know that this is important for children. As an immigrant living in Canada, it is hard for us too. It is our decision to immigrate to Canada and then, we need to learn everything.

    I found an interesting website that I’ve been using: Financial Consumer Agency of Canada.

    It is not what you’re talking about, but maybe it could help.

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