Urgent action is needed to improve the financial literacy of Canadians, as individuals must increasingly take responsibility for their own future, according to the Task Force on Financial Literacy. The task force submitted its final report to the federal government this morning.
“Financial literacy is critical to the prosperity of Canadians and the nation,” said Donald A. Stewart, chair of the task force and CEO of Sun Life Financial. “Increasing the knowledge, skills and confidence of Canadians to make responsible financial decisions will help them meet their personal goals, enhance their quality of life and make Canada more competitive.”
The report calls for a joint effort among individuals, families, governments, educators, financial services providers, employers, labour organizations, businesses and voluntary organizations to foster better financial literacy.
Over the past 18 months, the task force found there is no shortage of financial education available to Canadians, but the uptake of these offerings remains low. There is also a great deal of overlap between existing efforts to improve financial literacy.
“Practical mechanisms are still needed to facilitate collaboration across sectors in a way that maximizes the impact of these efforts,” the report says. “The duplication of existing initiatives and effective programs would waste scarce resources.”
To streamline the delivery of information to Canadians, the task force recommends the creation of a single source website, which would consolidate disseminate of financial literacy information and programs. The wesbite should include self-assessment tools and retirement calculators. Such a site would need to be written in “plain language” to avoid confusing the public further.
The report also called on the federal government to act as a leader in providing financial education, to ensure all Canadians had access to the skills development tools that will allow them to make informed decisions.
“It is clear that an undertaking of this scope, complexity and duration requires a focused and dedicated leader,” the reports says. “This leadership role will serve to maintain momentum in implementing the National Strategy, provide a home for continuing research and innovation, and ensure that a collaborative framework for financial literacy initiatives is sustained.”
The task force recommends the appointment of a “literacy czar” who would report to the federal Finance Minister, and who would oversee co-ordination with the provinces, as well as the private and volunteer sectors.
“One of our main recommendations is the establishment of a council of stakeholders, representative of relevant sectors, to provide ongoing guidance on the implementation of the National Strategy and to better leverage existing investments, by all sectors, for the advantage of Canadians,” the report says.
The cornerstone of financial literacy should be the formal education system, which would ensure exposure to financial concepts at an early age. But the task force also calls for financial education to be a life-long pursuit, as continuing education would allow Canadians to remain current on the financial decisions the face throughout their adult lives. These decisions include whether or not to join their corporate pension plan, engaging a financial advisor, considering a financial product, or determining eligibility for government benefits.
Besides, who remembers everything they learned in high school?
“Learners retain only some of what they are taught, particularly when the subject matter is outside their everyday experience,” the report says. “Thus, financial education needs to be reinforced through life.”
Perhaps the most interesting recommendations of the task force deal with behavioural finance. The report points out that psychology and the “architecture” of a decision can be hurdles to overcome, even for financially literate Canadians.
Many Canadians have joined workplace defined contribution pension plans, yet have no idea what choices to make within these plans. Too often, the default choice results in their assets being invested in money market funds. And that assumes the employee even bothers to join.
“As part of the National Strategy, we believe that ‘nudging’ interventions should be carefully considered by policy-makers as a complement to more traditional financial literacy tools and initiatives aimed at empowering Canadians in their financial decision-making processes,” the report says.
These measures could include auto-enrolment and auto-escalation features for workplace retirement savings plans.
“Taken together, formal education, just-in-time learning at key life events and insights gleaned from behavioural economics will provide Canadians with the foundation to make better financial choices throughout their lives.”