Financial literacy is the elephant in the room that is finally getting the attention it deserves.
With the federal Task Force on Financial Literacy preparing to send its recommendations to the government next month and more plain-language investor information coming to mutual and segregated funds early next year, discussion of how to address this crucial issue is finally coming to the fore.
I make this statement not only as a long-time member of the investment management industry, but also as a father who wants to ensure his three children have the knowledge, skills and confidence to make responsible financial and investment decisions throughout their lives.
In its early comments, the Task Force states that nearly one quarter of Canadians are weak in three key areas of financial capability: keeping track of their finances; planning ahead; and staying informed about financial matters. One third of Canadians are struggling, or unable, to keep up with their finances. As well, TD Economics recently reported that household debt as a share of personal disposable income has tripled since the 1980s, from 50% to 146%
The thing is, financial literacy isn’t a luxury. As I see it, it’s a basic life skill, right up there with reading and writing, general fix-it know-how and learning how to swim. It’s about ensuring that you are given the correct change at the store, understanding what it means to only make the minimum payment on a credit card and knowing the risks and benefits of locking into a long-term mortgage.
It goes further than that of course. A solid grounding in the basics of personal finances is at the crux of understanding so many of the general issues that affect everyone’s ordinary financial life – whether it’s instilling a culture of savings to buy a house, building up a retirement nest egg, paying off debt or understanding the value of professional advice.
Being able to thrive – and not just survive – provides people with a sense of empowerment and self-sufficiency, helps them achieve their personal goals and instills self-respect and self-esteem.
Investment management firms have been at the forefront of financial education. For example, at AGF, we provide “Straight Talk” educational articles to investors on topics such as the importance of diversification and discipline in investing, as well as quarterly commentaries on our funds and insights as to how and why the stock markets have reacted the way they have. Other pieces are provided to advisors, who then provide a layer of valuable advice.
Other members of the industry have also been reaching out to investors to raise their level of literacy. A number of panels will be discussing the myriad approaches industry members are taking at a one-day financial literacy forum put on by The Investment Funds Institute of Canada at the end of this month.
While attitudes vary, I believe we must reach the consumers of the future as early as possible. Educators have long known that the younger you teach a child a specific skill, the easier it is for them to learn. Organizations like Junior Achievement (JA) have been spearheading this accomplishment.
In the end what we’d like to see are educated consumers and investors, ones who are at ease asking their financial advisors questions about issues they don’t understand. This will give them the confidence they need to make informed financial decisions and take an active role in the direction of their personal financial futures.
The Task Force will be making its report shortly. And with pension reform, low savings rates and high debt levels making front-page news, it will be incumbent on the government, educators and our industry to act immediately and decisively to raise the level of financial literacy in this country. Poverty because of a lack of financial knowledge is no longer an option in Canada in the 21st century.
Blake Goldring is chairman and CEO of AGF Management Ltd.