Deeper in debt than ever before, Canadians need to do a better job of handling their money.
The Investor Education Fund has taken on the daunting task of teaching people how to do just that. The independent organization, which draws its funding from penalties and fines imposed on financial institutions and individuals by the Ontario Securities Commission, spends about $3-million a year on innovative in-school programs, videos, an interactive website, and an expanding presence in social media.
IEF president Tom Hamza recently scored a big success: getting the Ontario government to include financial literacy on the province’s school curriculum from Grades 4 though 12, starting this fall.
What is the key demographic you’re aiming at?
Typical users [of our material are]intermediate investors – people 35 to 50 who are already in the markets, and who want to know more about how to find a new adviser, how to assess their current one, or what they need to know about X, Y or Z product.
[But]in the last couple of years, we’ve really made a strong effort to go beyond that. [We are]taking advantage of some things that weren’t available before, specifically social media, to try to reach a younger demographic as they are facing certain financial issues. They have decisions relating to student debt, or getting married, or finding a place [to live] and are probably taking out a mortgage, and possibly have an RRSP.
How has social media changed what you do?
It allows us to be a lot more direct and one-to-one [with users] We can find out their interests and we can suddenly start to develop a relationship. If we, for instance, place ads on certain websites that talk about student debt, the take-up rate on them is remarkable.
How do you get people’s attention for what can be a dry subject?
You have to make it is as sensational as the other things that are on that [Web]page. If you are on Amazon news and your [link]says: “Make sure you plan your finances for your retirement,” it is a non-starter. But if you do something like a quiz [which says:]“Figure out whether these quotes are from Gordon Gekko or from Warren Buffett,” that has huge take-up. We can [then]bring in the other material and sort of hook them. [The Web]has definitely changed our tactics.
What is the No. 1 personal finance issue for Canadians?
From an aggregate perspective, debt is the biggest issue. There is no question we are at historically high levels. We’ve seen the implications of this in other societies that have had major financial crises … in Ireland and in the U.S.
[For individuals] if you look over your lifetime, what costs the most is a mortgage. If I were to rank the thing that can make [the most]difference in your pocket, shopping around your mortgage and shopping around your renewal [is No. 1.]Something like 85 per cent of Canadians renew with their original lender.
Is there a need for more education on retirement savings?
Absolutely. That is where we started. The intention was to get investment information out to people who were planning for retirement. Retirement is being severely affected by debt levels, [and some]people who are getting close to retirement still have mortgages. It is happening with disturbing frequency.
More importantly, people aren’t putting enough money aside. Not only is the amount short, but the options are wider and the opportunity to make mistakes are bigger, because there are a lot more products, and many of them require more sophisticated understanding.
Are people putting too much faith in advisers, in the face of those complex products?
As we have more structured products that have more fees that are less transparent, there is more of a blind reliance [on advisers] But a reliance on advice without having the knowledge yourself isn’t always a good thing.
Are people generally well-served by their financial advisers?
A high percentage of advisers are competent, have a really strong understanding of what they are doing, and really care about their clients. On the other hand, one of the challenges is that they have to sell certain products, and they have to make a living. They are expected to have a lot of clients to sustain enough revenue for their institution and for themselves. They have tremendous pressure. Just as we second guess our doctors, we should have a critical eye on our relationships with our financial advisers.
What is the key question people should ask their financial advisers?
The question that people should be asking is: How have I done relative to an appropriate benchmark over the last year and five years and 10 years? Statements don’t tell you what you need to know. They don’t really tell you where you are going, or where you’ve been over an appreciable time. So you’ve got to ask that question.
Are financial services fees too high?
They certainly can be. It is important to be aware that you may be able to get a comparable product at a lower cost. If I want a Canadian equity fund that has certain characteristics, there are only so many stocks that [a fund manager]can buy and fill that fund with. So I’m pretty sure that one company isn’t going to have a lightning-bolt better product than another. I am buying the same basic assets, so I’d better be buying them at the lowest cost possible.
Why should financial literacy be taught in school?
When I graduated from high school, credit card marketing was pretty unsophisticated. We didn’t have cold callers offering us lines of credit. We didn’t have the opportunity to get into debt. Retirement options, and savings and investment options, were far more limited in scope. Everything has changed. There is much more opportunity to get into trouble. Young people have an average of $25,000 debt after university and $19,000 out of college. There are minefields right away. You have to make sure that you arm people to avoid them.
How will the new financial literacy program work in Ontario?
Our recommendation was to introduce it from Grades 4 to 12, make in mandatory, and interweave it with every opportunity that we have. In math there are obvious opportunities. There are some opportunities to make a link between math and social sciences as well. There is career planning in Grade 10.
Part of it is making the message interesting to kids. That’s why [we have] things like our animation series or our “funny money” program, [where we] hire comedians. [They]deliver a message in a way that is totally relevant, in the language of those kids. I’ve seen shows that are in inner-city Toronto in some of the roughest schools, and the audience just loves it. … They are lapping it up.
What advice would you give someone who is 22 and starting their first job?
Make sure you save. Make sure you pay off your debt. But most important, keep it simple. Go to a no-fee banking institution, so you don’t pay any money. Set up automatic banking so that you are paying yourself first. If you set up a simple discipline off the start, then 80 per cent of the work is taken care of, because you won’t have debt and you are saving. Where it gets tricky is when people try to do too much and they get intimidated by it, and they see it as a topic that they want to avoid. You don’t have to Gordon Gekko your life in order to take control.
How has your background in consulting helped you run this organization?
One of the things I learned in consulting, that is important to financial literacy, is planning. So much of this business is a matter of setting objectives and managing toward them and being accountable.
In strategy consulting, an enormous part of what I did involved managing data. [But]getting data [about how Canadians manage their money]is the hardest part of what I do here. That’s something that the financial literacy community has to continuously address. Often many of the decisions are made by feeling, and I don’t think that’s sufficient.
Do you think you’ve moved the needle on financial literacy?
I’m proud of a couple of things. Changing the curriculum is something that has been a tremendous accomplishment, because it is a very difficult thing to do. We have done research on people who have used our material [and]the financial literacy and capability of those people has improved. That said, have nationwide debt levels been conquered? No. I think it’s going to take years and really intelligent efforts to make an impact on those numbers.
President, Investor Education Fund
Born in Toronto; 39 years old
Bachelor of Business Administration, Acadia University
MBA from Richard Ivey School of Business, University of Western Ontario
1996-1999: Strategy consultant at Deloitte Consulting
2000-2003: Worked for A.T. Kearney Consulting
2003-2006: Vice-president of finance at Futura Loyalty Group
2006: Joined the Investor Education Fund as president