Although late to the party, Canada is considerably further ahead on the financial literacy continuum than the simple chronology of history suggests.
Financial literacy, therefore, could have a measurable impact on the economic output of Canada, said Donald Stewart, CEO, Sun Life Financial, speaking at the Distinguished Advisor Conference (DAC) 2010 in Orlando, Florida.
But that’s not going to happen overnight or even in the course of a year. “It’s going to take years, and a lot of hard work, but it can make a difference,” said Stewart who is also the chair of Canada’s Task Force on Financial Literacy, a 13-member team dedicated to providing advice and recommendations to the Minister of Finance on a national strategy to strengthen the financial literacy of Canadians.
Stewart urged financial advisors to make financial education “more engaging” to ensure “the country understands, pursues and is receptive to the financial literacy lessons.”
“Financial literacy is a very wide-ranging topic and improving it on a national level, particularly in a country as diverse and as large as Canada, will take time and a lot of hard work,” he said. “I hope I make it clear that advisors play a key role.”
While stressing that financial literacy has to start at “the school level from coast to coast,” he asked advisors to lead from the front. “Financial life is characterized by complexity and change and the role that you play in advising individuals is a very critical responsibility.” He admitted, though, that an advisor’s job is difficult and challenging, as it takes place in an environment of intensifying regulations and greater complexity.
Stewart particularly encouraged leveraging financial literacy in the family as a way to instill better financial skills in the next generation. Children imitate actions and behavior of their parents and “parents who demonstrate poor financial habits” are passing them on to their children, he said.
“Parents need to acquire the skills and knowledge that their children will acquire so that they can reinforce what should become a lifelong learning process,” said Stewart. “If you improve the financial life of a parent you’d be making a key difference to the children and so ultimately to all of our futures.”
Families with an advisor fare much better on many fronts than those without one, he added. “By and large, advised households are very much better off in lots of holistic dimensions than non-advised households and that speaks to the importance of advice.
“Professional financial advisors play a key role in providing input to Canadians. Approximately half of Canadians are seeking advice from professional financial advisors as their primary source of financial information.”
Financial literacy is a necessary condition, but it’s far from sufficient in most cases and advisors have the ability to change that.
One of the highlights of the assessment of the current state of financial literacy around the world is the importance of behavioral economics. “People behave in financial situations in a way that isn’t entirely economically rational,” said Stewart.
As elsewhere, Canadian financial landscape is changing and advisors need to keep up with it. “There is a big responsibility that goes with all this change, because if you don’t [participate] then you contribute to naysayers who don’t agree that financial advisors are making a huge difference to the lives of Canadians.”
Economies are increasingly becoming synchronized as globalization continues to shrink the world. Now more than ever, advisors need to keep an eye on the highly linked events of today’s world. Stewart drew attention to the economic development of India and China to illustrate how changes in one part of the world can reverberate far and wide. “Keep aware of what is going on in these two major emerging economies, because it’s not something that we are unconnected from.”
(11/16/2010)