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rob carrick

Has anyone noticed that the big push to make people more financially literate in the past few years has coincided with rampant growth in household debt?

The most basic lesson of financial literacy: Don't spend more than you have. The way we do things in Canada: If you don't have enough to buy what you want, borrow.

The easy conclusion here is that efforts to promote financial literacy have been a failure, but that's wrong. We've simply overestimated how quickly and effectively people can be helped to understand money better.

It happens that Thursday marks the start of Financial Literacy Month, where non-profit organizations, government agencies and banks try to give some visibility to a cause that everybody supports because it's so commonsensical.

The fallacy of financial literacy is in thinking it's a game-changer. You can barely mention the topic of high debt levels without someone commenting: "Yes, that's why we have to start teaching financial literacy in schools." The assumption is that teaching people about money quickly produces better decision making, which hasn't happened yet.

Our national financial literacy push began in the aftermath of the financial crisis, which left everyone feeling a bit clueless on the subject of money. Finance Minister Jim Flaherty announced a national task force in the 2009 budget and, after extensive public consultations, a report with 30 recommendations was issued in early 2011.

Ontario schools started teaching financial literacy in 2011, and we've seen the emergence of independent educational websites such as (disclosure note: I am a guest blogger there). The banks have also done some things to help people learn more about money, although they continue to be as much the problem as the solution on financial literacy.

While all of this was happening, Canadians began a borrowing spree that has taken the debt-to-household-income ratio to levels beyond those seen in the United States before the housing crash and recession. Years must pass before we understand the true impact of all this borrowing. What we know so far is that our national effort to raise the level of financial literacy has had little or no effect on debt levels.

That's partly because there are limits to what financial literacy can do, and partly because we haven't always been that effective in promoting it.

Consider what's happened with the top recommendation of the financial literacy task force, which was to appoint a national financial literacy chief. More than a year and half after the report was issued, legislation to create a national financial literacy champion is still working its way through Parliament. Bank of Canada Governor Mark Carney and Mr. Flaherty have done all they can to talk down personal debt levels. They need help, and a national financial literacy chief might conceivably have delivered it.

Another problem with our financial literacy strategy is that it hasn't been aggressive enough in challenging important economic franchises such as the banking and real estate industries. Instead of talking in generalities during Financial Literacy Month, how about starting a national dialogue on why the houses we live in shouldn't be treated as investments. Or on why being careless about portfolio fees is a greater threat to your investing success than wonky stock markets or low interest rates.

What's the national definition or standard of financial literacy, anyway? Do we want to discourage people from borrowing beyond their capacity, or are we satisfied if they know that a home equity line of credit is a way better borrowing tool than a credit card?

Finally, financial literacy needs to reflect a better understanding of human psychology. It has to equip people to feel okay about themselves if they drive a small car, if they don't own a house, don't travel to exotic spots and don't have a big-screen TV. It needs to explain that the way to acquire these things is a blend of saving and strategic borrowing.

Even if we do take a smarter, tougher approach, promoting financial literacy still has its limits. One is that it mainly speaks to people who know what they don't know about money and are looking for information. No matter how good a website is, people have to find their way to it.

Another limitation is that every helpful message promoting smarter money habits is offset and then some by a financial industry that reaches people through all available media – TV, radio, print, online and social media. Who's going to bankroll an equivalent financial literacy onslaught?

The best we can hope for in promoting financial literacy is steady but slow improvement in the way people handle money. The real game changer is personal responsibility.

For more personal finance coverage, follow me on Twitter (rcarrick) and Facebook (Rob Carrick).

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