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Investment Industry

Financial Literacy

Important at the best of times, vital in the worst

Jennifer Vieno, CFA

The plethora of financial options available today can appear daunting. Not knowing where to start, and faced with unfamiliar and specialized jargon, some people end up deciding that finances are just too complicated to navigate. Many experience great anxiety because they do not fully grasp some difficult concepts surrounding money. However, not having the necessary financial understanding, knowledge, confidence, and tools—otherwise known as financial literacy—can lead individuals to make poor financial decisions, be unable to put together or follow a budget, miss out on the benefits of available savings vehicles like RRSPs, TFSAs, and RESPs (which are, basically, free government money), and be much more likely to fall for a financial scam.

Financial literacy in dangerous times

The COVID-19 pandemic has had a widespread impact upon Canadians’ physical, mental, and financial health. Physical distancing measures imposed by all levels of government—implementing stay-at-home orders and forcing the temporary closure of most businesses—have helped to flatten the curve. The measures have also led to many businesses filing for bankruptcy and millions becoming unemployed or underemployed, with job insecurity rising among those as yet unaffected.

Budgeting during a pandemic

Budgeting is paramount to managing daily finances, keeping up with bill payments, and paying down debt. A proper budget can help stretch dollars further during times of hardship, and understanding the difference between a need and a want can increase the chances of exiting this pandemic while avoiding accumulating huge levels of debt. While no one could have predicted the extent of the pandemic, this lived knowledge will make it difficult for Canadians in future to question the need for an emergency reserve, which is often advised, to cover three to 12 months of expenses in times of crisis.

Financial fears and fallout

Fraudsters and scammers use times of uncertainty to exploit fears and anxieties and to steal personal information or assets. Being aware of these risks, and knowing how to recognize tactics used by fraudsters, can protect more Canadians from scams. A poll released by TransUnion revealed 30 percent of respondents have been targeted by a fraud scheme related to COVID-19, a percentage that is sure to keep rising. One recent scheme targets Canadians who have lost their jobs, probing for and stealing sensitive information while pretending to be processing EI claims. The Canadian Anti-Fraud Centre keeps a list of ongoing scams and tips on protection.  

Financial stress  is a major burden for many, with nearly half of Canadians reporting losing sleep due to financial worries, and 44 percent stating they had difficulty in meeting financial obligations if their pay was late. The 2019 Canadian Financial Capability Survey reports that household debt represented, on average, 177 percent of disposable income; that 17 percent spend in excess of their income on a monthly basis; and that 27 percent need to borrow to pay for food and daily expenses. COVID-19 has aggravated this general sense of financial stress as many have lost income-source stability as a result of the pandemic, while stock-market volatility has led to worries about the value of investments.

Financial stress leaches into other aspects of people’s lives, affecting mental health (i.e., through increased feelings of fear and anxiety) and physical health (through high blood pressure, sleep issues, headaches, e.g.). Negative effects on health affect work performance, as those who are financially stressed tend to be more distracted at work, which in turn leads to lowered engagement, increased absenteeism, and higher turnovers. Forty-three percent of respondents to the 2019 survey of employed Canadians by the Canadian Payroll Association (CPA) reported that their work performance had suffered as the result of their financial stress, which the CPA conservatively estimates costs the Canadian economy C$16 billion a year in lost productivity. The CPA also reports that only one third have been saving the 10 percent of net income generally recommended by financial advisors, and that 43 percent are living paycheque to paycheque.  

While more recent generations have been taught the basics of financial literacy in school, most people in Canada today were not; while they toiled over sine and cosine, they were never taught about fees, debt, or how to save. Providing opportunities for financial education to that segment of the population is an important component in building the tools and confidence to make smart financial decisions, ending the paralysis that can occur in the face of these choices, and helping people to know where to look for information and support. 

Leadership in financial literacy programs

The Financial Consumer Agency of Canada (FCAC) was established in 2001 by the federal government, and its consumer protection oversight role has expanded since then to include financial literacy. The FCAC helps coordinate Financial Literacy Month (FLM) every November, where organizations host events across Canada to increase financial literacy, with a new theme highlighted every year. The FCAC offers many free financial literacy programs including the Financial Toolkit, their comprehensive learning program, which provides basic information and tools targeted to adults that cover budgeting, banking, saving, credit and debt management, mortgages, insurance, investing, income taxes, retirement, financial planning, and fraud protection, with an action plan following each topic to reinforce the information provided and to put it into practice. As well, the FCAC offers the necessary materials, handbooks, and e-learning videos for organizations to run a hands-on financial basics workshop targeting young adults, and a dedicated workshop on understanding and improving credit scores. Their Canadian Financial Literacy Database is a searchable repository of resources, events, and tools from various Canadian organizations, even indicating those looking for volunteers. They have made available various calculators such as  financial goal, mortgage, vehicle lease or buy, retirement income, and credit card payment calculators, as well as tools to plan budgets, find out if one can qualify for a mortgage, and compare bank accounts and credit cards.

Some businesses and organizations are giving back by providing free volunteer-led financial literacy sessions. CPA Canada offers several of these free sessions, which target adults, seniors, new Canadians, small and medium-sized businesses, entrepreneurs, not-for-profits, remote communities, and low-income Canadians, with two focused on students. In addition, they run a financial blog and provide access to several publications. TD Bank Group, in partnership with ABC Life Literacy Canada, offers Money Matters, a free workshop that can be ran by community organizations or TD volunteers, and covers topics such as spending plans, banking basics, borrowing, and saving. The Community Volunteer Income Tax Program is another venue through which volunteers can give back through free tax clinics.

McGill Personal Finance Essentials, a free online course taught by McGill professors, is offered four times a year and tackles debt and borrowing, as well as investing and real estate.

National charities tend to partner with various stakeholders to develop and deliver innovative programming to various key demographics. Prosper Canada partners with businesses, government, and non-profits to build interventions into programs those partners already deliver in order to target their demographic of Canadians living in poverty. Prosper Canada produces toolkits that package information on topics including common tax credits and benefits, budgeting and saving, and dealing with debt, along with one to help during financial coaching and facilitating financial literacy courses, and recently added a timely toolkit dedicated to managing during COVID-19. The Canadian Foundation for Economic Education (CFEE) develops and provides free programs developed and reviewed by educators. CFEE also teams up with their funding partners along with education departments, school boards, schools, educators, and teacher associations, to develop and provide free programs developed and reviewed by educators and keep an updated document of all available COVID-19 related government support measures. MyMoneyCoach.ca, a free service provided by the charitable organization The Credit Counselling Service, provides free online webinars to educate participants on the wise use of credit and help them  understand all credit options. Their website deals with topics such as how to deal with creditors, fixing one’s credit, and tips on saving money and getting out debt.

In order to create money skills materials that appeal to children, some have turned to edutainment  (education through entertainment). VISA, for example, through Practical Money Skills Canada, created games (i.e., Peter Pig) and two Guardians of the Galaxy and Avengers comics, while Caisse Desjardins developed two apps to make learning about money matters fun.

Summary

These programs are helping build a more financially literate population that can better understand the complexities of the financial system, take charge of personal finances, and make smarter financial decisions with skills and confidence, all while reducing the stress associated with finances. No one could have predicted the widespread impact this pandemic would have on the world at large, but improving financial literacy can help all of us be better prepared for whatever the future holds—no matter how unexpected.

Jennifer Vieno, CFA, is a product manager at BMO Global Asset Management and a volunteer on the Member Communications Committee, CFA Society Toronto.

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