Last year the results from a Task Force on Financial Literacy were published and the findings were totally not surprising to me.
The Task Force defines financial literacy as “the knowledge, skills and confidence to make responsible financial decisions” that are applicable to the many decisions that people make on a daily basis – comparing prices at the grocery store, negotiating a mortgage, or making an investment.
Many Canadians carry too much debt, lead lifestyles beyond their means, have no savings/retirement plan and put too much blind trust in financial institution advisors to help them choose the right products.
Out of 30 Task Force recommendations, the most obvious one calls for financial literacy to be taught as part of the regular school curriculum throughout Canada.
The role of financial institutions
I found it interesting to note that the financial institutions were quick to applaud the report. After all, increased savings benefits them. According to Nancy Hughes Anthony of the Canadian Bankers Association, “banks recognize that they have a shared responsibility in contributing to financial literacy.”
However, financial illiteracy is exploited by the financial services industry.
- Do mutual fund companies want the public to know that ETFs are less costly than mutual funds?
- Do credit card issuers really want debtors to know the ill effects of paying only the minimum monthly balance?
- Do life insurance companies really want us to buy low cost term life insurance instead of the more lucrative whole-life policies?
- Why do financial advisors sell complex products that are difficult to understand?
Banks rarely offer good unbiased advice such as discouraging someone from contributing to an RRSP when they have excess debt.
Failing to take free money
Many seniors are missing out on government benefits because they don’t apply for them. The Task Force says that 160,000 eligible seniors don’t get Old Age Security ($1 billion worth), 150,000 don’t get the Guaranteed Income Supplement, and 55,000 aren’t getting CPP.
Many seniors also do not take advantage of the many discounts available to them for movie tickets, banking services and restaurants, to name a few.
Related: How CARP Benefits Aging Canadians
Only 40% of those eligible take advantage of the Canada Education Savings Grant. The median RRSP contribution represents only 6% of total eligible room.
When employees decline to join the company pension or employee savings plans they are giving up free money if the firms match their contributions.
People who fail to contribute to their Tax Free Savings Account are passing up tax-saving opportunities that could improve their financial position.
Too little preparation for retirement
A number of surveys show that we aren’t saving enough for retirement. Canadians don’t have the financial knowledge or the capability to plan for it. Few are aware of the retirement savings options available to them, or even of the particulars of their own company pension plans.
The shift away from defined benefit pension plans, which provide predetermined dollar payouts to defined contribution plans, which must be managed by the individual can reduce the income of retirees substantially.
Financial literacy is a lifelong pursuit. Questions differ depending on the stage in life. High school students want to know how to save for new clothes or entertainment. University students need to know what it costs to live on their own, how to manage their student loans and how to start investing.
You don’t have to be a math whiz. It’s not complex. The basics of personal finance are – make a budget, spend wisely, pay off high interest credit card bills and other debt, save for the future, have the proper level of insurance and be tax aware.
Related: The Best Time To Start Saving Is Now
With all the information available on TV, newspapers, magazines, and online there’s no excuse for the shocking lack of financial knowledge that most of us have. Choose your own destiny, or someone else will.