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Preet Banerjee

Kids shouldn't have to learn about money the hard way Add to ...

I have yet to find a single person opposed to the integration of financial literacy in the education system. If I had a time machine and went back 20 years, I could probably say the same thing.

There are countless studies, opinion pieces and policy briefs that date back to before the turn of the century calling for action in getting basic financial decision making a core part of the educational curriculum.

Hopefully I won’t have to advocate for that 20 years from now – an effective plan will have be implemented. There are some positive steps being taken now.

The federal government set up a $5-million financial literacy task force in the 2009 budget. They released a report with 30 recommendations earlier this year, but they aren’t the only ones working away at the problem.

Created and organized by the Financial Literacy Action Group (FLAG), November is now Financial Literacy Month in Canada. Along with the Financial Consumer Agency of Canada, seven non-profits have collaborated to organize a full slate of events and discussions on financial literacy this month.

So what has been the hold-up?

You would think that we are trying to come up with a plan to teach kids how to perform their own open heart surgeries by the time they graduate high school. But really we just want to impart financial common sense – the equivalent of: smoking is bad, you need to exercise a bit, watch what you eat and if something hurts go see a doctor.

If we wait much longer, there is a greater chance that we will need a harsh reckoning and not an intervention. In spite of the colossal meltdown of our southern neighbour’s economy, our average debt to household income has increased in Canada. Conversely, the same ratio has been on the decline in the U.S. While those who have kept their jobs may be tightening their belts, that lower U.S. ratio also factors into account those who have reduced their debt loads due to bankruptcy.

We need that ratio to come down by choice, not by force.

Tom Hamza, president of the Investor Education Fund, which is a member of FLAG - which in turn is funded from the fines imposed by the Ontario Securities Commissions on miscreants - has plenty to add. (Disclosure: I write for the Investor Education Fund’s website GetSmarterAboutMoney.ca.)

“The question of how financially literate we are has been answered repeatedly in the last five years: by us, by industry, by other stakeholders. We need to move beyond the press releases and start implementing ideas that change this,” Mr. Hamza says.

Currently, we’re not all on the same page. Some school systems have started to integrate financial literacy into curriculums already, while others have not. There is also debate as to when to start. Plans seem to indicate it will begin at Grade 4, but research suggests rudimentary concepts can be incorporated much earlier than that. Remember, we’re not looking to have 16-year-olds fluent with credit default swaps, but if they know that they pay could pay more money in interest on a mortgage than they paid on the original price of a house, that might get them thinking differently about credit.

Minister of Finance Jim Flaherty is expected to name a national financial literacy czar in the near future, which is exactly what we need: a financial surgeon-general. We don’t need everyone to know how smoking causes cellular changes that leads to cancer, we just need to realize that smoking kills so we can make an informed decision about what to do about it.

We need someone who is going to make sure that 20 years from now we’re not still talking about how we need to teach the basics of personal finance in schools. We know that. Now we have to do it.

A beginner’s financial literacy test

Try these three questions to gauge your knowledge about the basics

1. Suppose you had $1,000 in a savings account and the interest rate was 1 per cent per year. After 5 years, how much do you think you would have in the account if you left the money to grow: more than $1010, exactly $1010, less than $1010?

2. Imagine that the interest rate on your savings account was 2 per cent and inflation was 3 per cent. After 2 years, would you be able to buy: more than, exactly the same as, or less than today with the money in this account?

3. Do you think that the following statement is true or false?: “Buying a single company stock usually provides a safer return than a stock mutual fund.”

Questions very similar to the above were asked in a study by Annamaria Lusardi (Dartmouth College) and Olivia S. Mitchell (The Wharton School, University of Pennsylvania). Only 56 per cent of respondents answered the first two questions correctly, and only 52 per cent answered the last question correctly.

Answers: 1. More, 2. Less, 3. False

Preet Banerjee, BSc, FMA, DMS, FCSI is a W Network Money Expert, and blogs at wheredoesallmymoneygo.com . You can also follow him on twitter at @PreetBanerjee

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