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Gary Rabbior is the president of the Canadian Foundation for Economic Education . This is the second of a two-part series on improving financial literacy.
There is much interest in improving financial literacy today. What are some of the possible key things to consider in trying to achieve this goal in Canada? Here are some suggestions.
1 - Recognize the challenge extends beyond getting "information" to Canadians. Knowledge will be insufficient. People know they should budget but most don't. Why? We need to affect behavioural change and learn more about the incentives at work - and change incentives if they need to be changed.
2 - Also, transferring knowledge and understanding needs to be just that. "Disclosure" can't be mailing out a document. Fine print on a credit card statement won't be read. Most Canadians don't understand insurance policies. I could go on.
3 - Assign the highest importance to starting young. The older you are, the more entrenched are behaviours - and the harder it is to change. Look at seat belts. Most children today won't ride in a car without a seat belt. The kids force parents to wear them. I now wear mine all the time. They, more than laws, changed me. New modified behaviour in one generation!
4 - Ensure help is provided by "trusted" sources. Trust is key and vital to Canadians becoming engaged in efforts to improve their economic and financial capability. They don't want to be sold anything. They just want effective help and advice.
5 - The federal government should exploit the many ways it connects with Canadians - through RRSPs, RESPs, CPP, EI, Student Loans, Canada Savings Bonds, the Canada Revenue Agency and taxes, immigration offices, etc. The government connects with Canadians in many ways and can create new incentives and improve capability. The new Tax Free Savings Account is one good example.
6 - Recognize that quick hits don't work. There is little retention, assimilation, and application of knowledge and skills via the one course, one workshop, the one learning opportunity route. The acquisition of effective and relevant knowledge, skills, and attitudes is a long-term, lifelong investment. Research shows that those who take a single course in money, finance, or economics perform no better when tested for financial literacy. It's a lifelong challenge - not a quick fix.
7 - Most Canadians will not voluntarily self-educate without motive. But many motives exist and can be exploited. It is key to tap the "learning moments in life" that provide motivation for learning. Learning opportunities peak when one graduates, gets married, gets a job, loses a job, nears retirement, pays off a mortgage, gets an inheritance, and so on. We need to capture these "learning moments" and exploit them.
8 - A basic economic education is as important as a basic financial education. We can teach a person what a mortgage is and how to get one. But, if they don't have a basic economic understanding to have a sense of where house prices and interest rates are likely headed, they can make huge miscalculations. That can cost them tens of thousands of dollars. If financial education provides the tools for building a successful future, an economic education provides the insight into how to build that future - how to make good decisions - and achieve success.
9 - A key challenge is to build confidence in Canadians so that, equipped with reasonable competence, they will be willing and able to ask questions before making key decisions. Asking questions - especially the right and relevant ones - can avoid mistakes and reap significant benefits. Ignorance breeds passivity and vulnerability. Understanding and capability breed confidence and a capacity for self-protection.
10 - Perhaps the most important concept is an understanding of "trade-offs" and "opportunity cost." We can't have it all - in spite of what some may think. Every decision for one thing - what to buy, where to go on a trip, whether to take a job, which program at college or university to take - involves giving up the next best alternative we could have had. The consequence of more Canadians pausing to consider this fact before making decisions could be dramatic.
In closing, with such heightened interest in this area of learning, we have an extraordinary opportunity to develop a national strategy to improve the economic and financial capability of Canadians. We should wish them well. The future lives of a great many Canadians may well be affected by what we can do in this time of opportunity to change things. Let's hope we get it right.
See also It takes incentives and more than education to change our ways.