Financial (Il)Literacy

Please forgive me in advance if any of this comes across as sarcastic or bitter, because it probably is. Election season is a time when I typically become a rather resentful individual mostly due to what I view as some of the biggest issues facing this great country being blatantly ignored time and time again. These issues are that of healthcare and financial literacy. I understand why no one is talking about healthcare as there are few easy answers and whoever talks about changing it is less than likely to be elected, fine. But I cannot understand why we are hearing so little about financial literacy when it has never been more important to everyone.

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Financial responsibility is increasingly being passed on to the individual now that defined benefit pension plans are a thing of the past and that, while a longer life expectancy is no doubt a good thing, it means how we save and spend our dollars is all the more important as those dollars need to be stretched that much further.  Even though this real estate market never seems to stop, we can add to the potential issues that the usual financial fallback of home ownership is becoming less of a ‘sure-thing’. Making one wrong move with big-ticket, life changing choices such as buying a home or higher education can seriously hurt long-term financial success, so it is easy to see the importance of financial literacy.

So what is financial literacy exactly? I think most would agree that it is actually fairly easy to become financially literate. Individuals do not need to have a strong grasp of the net present value formula or an understanding of the neoclassical growth model (i.e. cool sounding finance words I use to sound bright).

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A simple understanding of compound interest, the importance of saving, where to look and who to use (or not use) when investing and a knowledge of the tools out there to help you (RRSP, TFSA, RESP, employee matching, home buyer plan, etc.) would be a great starting point and none of it is anything too complicated.

To be fair, while our leaders do not talk about financial literacy, we do have a month dedicated to financial literacy but this seems more of a lip service than anything. Also, Jane Rooney was named as a Financial Literacy Leader in April 2014 after a recommendation from a report issued in 2011. While I am not certain of what form this group will take and whether it has any power to implement any real change, it is a step in the right direction. This new position seems to raise even more questions since there is obviously some sort of sentiment that financial literacy is an issue. Knowing that this is a recognized issue, why do we still hear nothing about it during election time?

Before revealing the ‘revolutionary’ idea of how to fix this problem, we should first visit what will not work and likely never work: self-education. In my opinion, relying on the individual to go out of their way to teach themselves about a problem that wont be a tangible issue until 40 years from now (retirement) is unrealistic and this long-delayed gratification is likely the crux of the issue for most. Most individuals simply will not bother with teaching themselves about compound interest or what an RESP is. These topics are boring to many individuals and involve some math, which can be scary. No amount of advertising, access to material, or months dedicated to the issue will make someone who doesn’t care or doesn’t know that they should care go to a website and improve their knowledge on the power of saving.

Realistically, those that are proactively improving their knowledge aren’t the ones that truly need the help.

Related: Financial Literacy

While understanding that things are more complicated than simply ‘doing it’, it seems that solving this problem would be simple: Teach the basics in high school as a mandatory course. Yes, this would cost money and no, I do not have any idea of what goes into a curriculum change. But if we could do it for a half credit ‘careers’ class (if it even still exists in Ontario?) I am sure we can do it for a course on financial literacy. As for the costs involved with such a change, I would be fairly confident that any costs would be recouped through individuals being more financially independent and in turn lessening the burden on the pension and welfare systems. This is a topic that truly affects everyone and can be quite interesting. After all, who doesn’t get excited about the idea of having a dollar today become two dollars tomorrow?

Ryan Modesto is a Managing Partner at 5i Research and regular contributor to the Canadian MoneySaver magazine.