No wonder it's such a struggle to raise the level of financial literacy. Current efforts to teach people about money are boring and a turn-off to kids, says Moshe Milevsky, a finance professor at York University's Schulich School of Business and author of a new book called King William's Tontine: Why the Retirement Annuity of the Future Should Resemble Its Past. In a Q&A we did to coincide with the recent introduction of the federal government's financial literacy strategy, Prof. Milevsky offered some blunt talk about the challenges of making Canadians smarter about money. Here's an edited transcript of our conversation:
Prof. Milevsky, can you give Canada a letter grade on financial literacy?
Teetering between a B and a C.
That's better than I thought – can you explain?
At some point, you have to be cautious about telling people they failed, or that they don't have enough financial literacy. This is an average grade between people out there who are A's and people out there who are F's.
Lots of parents think schools should teach financial literacy. How well does that work?
If you teach financial literacy too early in the life cycle, it's boring and uninteresting and it will never stick. In some sense, we need a just-in-time delivery system for financial literacy. It could be that high school is too early.
As a university professor, what's your view on the financial literacy of young adults?
I'm actually going through a mini-battle right now to get my business school to approve a mandatory financial literacy course for every student there. I think we need it. The next battle is to get it required for every student at York University.
Why are people informed shoppers for things such as cars and trips, but not finance?
You're buying a car, you're paying for it now. You're paying for a vacation and you're getting it now. With financial decisions, we're talking about events that are going to unfold over 10 or 20 or 30 years.
Is there overconfidence about financial knowledge – do people know what they don't know?
Overconfidence has been observed in many aspects of life. You ask people if they're a better than average driver, they say yes. If you ask them whether they're doing a better than average job at work, they say yes. It's not necessarily a weakness of finance.
I see a lot of deference to the financial industry, more so than even with doctors. Why are we so compliant?
There's a sense that these are complicated things. If you sound confident and you sound like you know what you're talking about, people become deferential. There's an intimidation factor as well. People are scared – 'I don't want the bank to reject my mortgage application, I don't want them to call my loan.'
Let's cover some examples of financial behaviour in Canada that suggest weak financial literacy. Are you concerned about high household debt levels?
I am. I'm concerned that about a million to two million families, when I look at the data, are borrowing too much.
Are people saving enough for retirement?
We won't know until this very bizarre episode in housing prices unfolds itself. It could very well be that all these folks who are taking out enormous mortgages and not saving a lot in their RRSPs and their pension plans got the bet correctly. But at the same time, it could be that the housing market is going to start to decline. So there's a risk there.
What are your thoughts on tackling financial literacy by requiring the financial industry to be more transparent in their documents and ads?
I think we have to shame (the financial industry). We have to look at the things they're doing and say, 'Come on, you're taking advantage of people.'
Any parting thoughts on how to improve financial literacy?
We have to make it interesting. For you and for me, this is really fascinating stuff. But for most people, their eyes glaze over. We have to reduce the glaze effect.
Facebook Q&A: Join my colleague Jacqueline Nelson and me on Facebook at 8 p.m. ET Monday for a discussion on financial literacy. Find us at facebook.com/theglobeandmail