Gary Rabbior is the president of the Canadian Foundation for Economic Education. This is the first of a two-part series on improving financial literacy.
Canada is emerging from a painful recession triggered primarily by global events. Yet, at the same time, it was a wakeup call for us all - that things just couldn't keep going the way they were going.
As a result, there is much talk of "financial literacy" these days - what we know, don't know, and should know about how to handle our financial affairs. I believe financial literacy can help - but we have to keep two important things in mind.
First, we must maintain realistic expectations and be careful in how we try to achieve our goal. Transferring a whole batch of information from one group (those who know stuff) to another (those who don't know stuff) will not change the world as we know it.
Consider an example. Most everyone has heard you should budget. There are hundreds of resources to help you budget. But the overwhelming majority of Canadians do not work with a budget.
Why? That is a fundamentally crucial question. We don't need more books on budgeting or more people to tell us to budget. We need to understand why people don't budget. Then, if they would be better off if they did, what would make them act differently?
People usually act on the basis of incentives - the hope of reward or benefit; or the fear of penalty or punishment. Incentives often overwhelm knowledge. Therefore, if we don't begin with a focus on why people behave the way they do - and what will make them behave differently - we could end up wasting millions of dollars.
If people know they should save for their kids' education, why don't they? If they would be better off if they saved for their retirement, used credit wisely, had at least a basic budget, diversified their investments, "lived within their means," protected their assets with insurance, read the fine print, why don't they? And, if we think they should, how do we change that? Not with books and websites. Those can be the tools for change. But we have to identify the "change motivators" - and learn how to create or adjust them.
Second, we have to accept the fact that people don't aspire to a life of debt, stress, and anxiety. People, generally, want to do well. They want to make good decisions, manage their affairs to achieve personal success, and build a good life for their family.
That is the good news aspect of the story. If we can get the incentives right and create a better environment to promote good decision-making, most Canadians are likely to want to get on board. As it is, though, many of the incentives often drive riskier decision-making that focuses more on spending and borrowing.
Consider drivers and incentives that are currently at work. Don't deny and disappoint your kids. Put your kids in university - maybe college - to achieve success. Keep up with the Joneses (those old pressures are as powerful as ever). Need more credit - no problem? Want to mortgage more equity in your home - no problem. Want no payments for 12 months - no problem. Car four years old? Here are some incentives to buy or lease a new car now. Can't pay your full credit card bill? Then pay this minimum. Buy now, pay later. Buy. Spend. Borrow. Borrow some more. And on and on it goes. Altogether, they can create a society of influence where a bright, caring person can find themselves in one huge financial mess.
Change is in order - and the new Tax Free Savings Account is an example of how we can change incentives. We need more.
Compounding all this is a peculiar reality. We are transferring more responsibility to Canadians - planning for retirement, paying for kids' education, managing easier credit and so on. At the same time, we still don't provide a basic economic and financial education for our kids to prepare them for those responsibilities. If we did, we could create a capable lifelong learner better able to self-educate as an adult with the resources available.
Why don't we? I have no idea. Nor do most Canadians. Happily we are starting to address this problem. The Canadian Foundation for Economic Education (CFEE) and the Manitoba Department of Education, Citizenship and Youth have agreed to work together over the next two and a half years on "The Building Futures Project" to integrate a basic economic and financial education into the compulsory core kindergarten to Grade 12 curriculum in Manitoba. Fifty new learning modules will be integrated into a range of compulsory courses over the kindergarten to Grade 12 learning years. Ontario has just announced similar plans - based upon the Manitoba model. So maybe - just maybe - our schools will begin to effectively prepare our youth for their economic and financial lives and responsibilities.
In closing, the economic turbulence of recent times has triggered many people and organizations to assign attention to efforts that will improve economic and financial capability. This is a good thing and the future lives of many may well be affected by their work.
Let's just hope they get it right.