The Task Force on Financial Literacy has begun an unprecedented round of consultations with Canadians, including cross-country face-to-face meetings, written submissions, Internet outreach and roundtables with key stakeholders. The goal is to gather input on a national strategy to strengthen financial literacy and to report to the federal Minister of Finance by the end of 2010.
Since many programs and resources already exist to help individuals develop the knowledge, skills and confidence to make responsible financial decisions, it's fair to ask: "Why this, why now?"
Forty years ago, the financial landscape was far easier to understand. Credit cards were rare and debit cards non-existent, 25-year mortgages with simple conditions were the norm, jobs tended to be lifelong and pensions were predictable. Today, credit and debit cards are in most people's wallets, and personal debt is at historic highs. Thirty-five year mortgages with little money down are readily available and borrowers face a dizzying array of rates and terms. Changing jobs is now the norm, and saving for retirement has become far more challenging for most people.
Add to this an aging baby-boomer population and the pressures this will place on individual families and on our health-care system. Then place all of this against the reality that Canada is now firmly integrated into the global economy, making us vulnerable to the kind of shock wave that rattled savers and investors everywhere in 2008.
There is mounting evidence that this more challenging financial landscape is proving difficult for the average citizen. One in three is struggling or can't keep up with their finances; one in four is weak in key areas of planning and budgeting, and 30 per cent are not preparing for retirement. At the same time, personal debt relative to income has been climbing steadily for two decades.
How many of us have resolved to spend less each month, pay down debt or contribute more to an RRSP, yet never do so? The field of behavioural economics is yielding some promising insights into this gap between intentions and actions. The Task Force on Financial Literacy will be asking Canadians what motivates them to carry through a financial plan or resolution, and what can be done from a public policy perspective to encourage them toward positive choices and actions.
Financial literacy is also linked to solving Canada's "pension puzzle." Millions of Canadians have insufficient retirement savings and no pension plan other than the CPP/QPP and Old Age Security. Giving them the tools to plan, save and invest is a critical step forward.
The task force will be asking Canadians how to strengthen the learning foundation of financial literacy. Several provinces and territories have already integrated, or will soon launch, financial literacy curriculums in their school systems, and we'll be looking for ways to ensure consistent quality and access across the country. We'll explore the roles that should be played by parents, colleges and universities, the private sector and NGOs in strengthening this learning foundation.
Financial literacy is not a panacea. But it will help in ways too numerous to count. Individuals will manage their borrowing costs more effectively and choose better savings vehicles. They'll appreciate having a trusted adviser, will choose one more carefully and will ask them the right questions. They'll have more tolerance for market volatility and will make better investment decisions based on fundamentals of corporate performance rather than trying to "time the market." And they'll better understand how their need for income and protection changes throughout their lives and be better prepared to choose the appropriate mix of investment and insurance products. Knowledge is indeed power in the world of personal finance.
All of the more informed decisions that will be made by millions of Canadians will roll up into gains for the economy and society at large. Lower levels of personal debt, individuals less vulnerable to job loss or the financial impact of accidents or illness, fewer families requiring welfare or other social assistance programs, a higher living standard and greater purchasing power for seniors - these are benefits that will strengthen the balance sheets of individual families and of governments at every level.
Nonetheless, we need to manage our expectations regarding outcomes. Raising the financial literacy of Canadian consumers will take time, and results will appear over years rather than months. But, like productivity gains in the work force, it will bring about structural improvements for individuals and the economy that will pay dividends for generations and reduce our exposure to future economic downturns.
That is a welcome prospect for every Canadian, and we encourage you to participate in our consultations.
Donald A. Stewart is the CEO of Sun Life Financial and chair of the Task Force on Financial Literacy. L. Jacques Ménard is the chair of BMO Nesbitt Burns and vice-chair of the Task Force on Financial Literacy.