Jane Rooney should be driving up to the release of Canada’s national financial literacy strategy on Tuesday in the Batmobile.
That’s the level of urgency that will be in play as the country’s financial literacy leader heads to a Toronto YMCA to explain her plan to help people make better financial decisions. Ms. Rooney and her federal government contact, junior finance minister Kevin Sorenson, have the benefit of working on a file that is practically ticking, time bomb style.
Nobody can question the need for greater financial literacy at a time when household debt levels are running close to historical highs and rising month by month at levels well in advance of pay increases. Plus, there are questions about whether some of us are saving enough for retirement and making smart decisions about student debt and buying houses and cars.
Ms. Rooney hopes to see some progress on financial literacy in the short term, but has likened the objective of making people more effective money managers with anti-smoking campaigns or ParticipACTION, a federal program to improve physical fitness. Here’s how long she really has to get some traction: Until interest rates start to make a sustained move higher.
Unless there are hidden, undeclared reservoirs of cash in every basement, people are going to struggle to pay their debts and meet all their other obligations when rates rise. Striking now, before rates move, gives Ms. Rooney a chance to help people prepare themselves and shock-proof the broad economy.
As the plan unfolds, how will we know if it’s up to the job? For one thing, it has to address the financial industry as a primary risk to the financially illiterate. This can be done by requiring improved disclosure of fees and penalties, and by reforming practices such as foisting home equity lines of credit on people who just want a mortgage. Banks and other financial institutions should be stakeholders in promoting financial literacy, but not partners.
Financial literacy month, held in November, should tell the story where banks stand. They should be welcome to run their own events on this occasion, but appearances alongside top financial literacy operatives will raise questions about who’s really running things.
If you ask parents about improving the financial literacy of their kids, they so often put the responsibility on the schools. That’s sensible for two reasons – quite a few parents aren’t so savvy with money themselves, and schools are our specialists for training young minds. A federal financial literacy leader has to be careful in getting schools involved because education is a provincial jurisdiction. But there’s still opportunity for a financial literacy leader to create standardized content that can be used at schools across the country.
A role for parents must also be outlined in the strategy. I’m going to help out in this regard by producing a quiz for parents to gauge their readiness to teach their kids about money. Our national financial literacy initiative would do well to develop some sort of toolkit for parents. Politely and respectfully, it would offer key messages to parents who may not have the firmest grasp of their own finances.
Another sign of a financial literacy strategy that means business is an acknowledgment of the tension that exists between our consumption-focused society and financially responsible behaviour. Basically, we need people saying no a little more often to spending on goods and services. The financial literacy strategy doesn’t have to advocate frugality; it would be enough to remind people of the savings benefit of going a little lighter on the accumulation of stuff.
Finally, we’ll know the financial literacy strategy is a force if it specifically targets debt levels in some way. There’s endless debate about whether current debt levels are of no great concern, or a serious economic vulnerability. The financial literacy leader’s Number One job: Guide people into moderating their borrowing behaviour before our ability to manage high household debt is tested by rising rates.
The financial literacy strategy dates back to June of 2009, when then-finance minister Jim Flaherty created the Task Force on Financial Literacy. Mr. Flaherty said at the time that “our economy is built on millions of everyday financial decisions by Canadians.” The subtext then was that not enough sound decisions were being made, and it’s all the more true today.
National strategy to target debt, savings and fraud protection
The financial sector will be urged to offer more free information to Canadians about how to save for retirement as part of a new national strategy for financial literacy that will be launched Tuesday.
The strategy is the result of months of consultations aimed at addressing concerns that Canadians lack the information they need to make informed decisions about how they manage their money.
A national strategy is already in place that is aimed at seniors. The expanded strategy will be for all ages.
According to a government source, the strategy is meant to encourage governments, the private sector and non-profits to work together in three specific areas: managing money and debt, saving for the future and protecting against fraud and financial abuse.
A National Steering Committee on Financial Literacy will be responsible for promoting the strategy.
The 15-member committee was formed in October, 2014, and includes senior officials from the banking and insurance sectors, the credit-counselling sector, the Ontario Securities Commission and two personal-finance journalists. Plans for the national strategy were signalled in the Conservative government’s April 21 budget, which noted that Canada’s banks will contribute $10-million toward a five-year “Financial Literacy Partnership Fund.”
The announcement will be made in Toronto by Minister of State for Finance Kevin Sorenson and federal Financial Literacy Leader Jane Rooney.
[“source – theglobeandmail.com”]