TEACH YOUR CLIENTS TO FISH
Update from FCAC Commissioner on Financial Literacy at IFB Summit By: Rasheed Clarke
Lucie Tedesco may not have used that cliché about giving a man a fish and feeding him for a day in a recent speech to financial brokers, but the underlying message in her address was that Canadian consumers need more than advice when it comes to their finances; they need knowledge. The Commissioner of the Financial Consumer Agency of Canada (FCAC) made her remarks on November 4 in an opening keynote speech at the Independent Financial Brokers of Canada’s Toronto Fall Summit.
The FCAC is in the midst of a push to improve the financial literacy of consumers across the country, and the agency marked November as Financial Literacy Month. In the run-up to November, the FCAC released a national strategy on strengthening seniors’ financial literacy, while similar strategies geared towards youth, adults, low-income Canadians, Aboriginal peoples, and newcomers are in the consultation phase.
The Poor State of Financial Literacy in Canada
Why all the effort to bolster the financial literacy of Canadians through consultations, surveys, and an awareness month?
According to Tedesco, “financially literate consumers contribute to a strong and stable economy.” However, consumers are sorely lacking in their financial understanding.
“Far too many Canadians lack even the most basic financial knowledge necessary to make good decisions about their money,” said Tedesco. “Only a little more than half of Canadians are working with a budget.”
The Canadian Financial Capability Survey, a government undertaking, revealed some other discouraging results which Tedesco highlighted:
- Nearly half of all Canadians carry credit card balances from month to month.
- Less than half of Canadians are saving enough money from their paycheques to support their retirement.
- Nearly half of all Canadians would find it hard to make the monthly payments on their mortgages and other debts if interest rates were to rise significantly.
Tedesco also noted the results of a survey conducted by the Canadian Institute of Chartered Accountants, which uncovered similar findings about the state of financial literacy among Canadian consumers:
- Nearly a third of Canadians were struggling to keep up with bills and financial commitments.
- Of Canadians planning to purchase a home, 48 percent had saved less than 5 percent of the cost.
- 52 percent of Canadians planning to purchase a home were not expecting to incur any costs other than the down payment.
- 60 percent of Canadians did not have a good idea of how much money they need to save to maintain their desired standard of living in retirement.
Another weakness among Canadian consumers is their record-high debt load, which has been amassed through lines of credit, credit cards, and car loans. “The personal savings rate in Canada has been falling since 1982,” said Tedesco, “and between April and June of this year, the average level of household debt compared to disposable income sat at 163.6 percent. That means Canadians owe $1.64 for every dollar they make.”
Teachable Moments to Strengthen Financial Literacy
The FCAC’s plan to improve the financial knowledge of Canadians is based on the idea that financial literacy is an essential skill; one that can and should be developed through lifelong learning and teachable moments. “People need to master and use different financial literacy skills at different points in their lives,” said Tedesco. “Teachable moments are the events and situations that include a financial component and which crop up in the lives of most consumers. A teachable moment can occur when someone takes a first job, attends university, starts a family, buys a home, or begins to plan for retirement.”
To conclude her speech, Tedesco outlined five conversations that brokers and financial advisors can have with their clients to help them gain a better understanding of their personal finances.
Those teachable moments provide financial brokers with an opportunity to speak with their clients and share their financial knowledge. For example, if one of your clients is interested in saving for retirement, it is a good opportunity to talk with him or her not just about RRSPs, and pension plans and tax-free savings plans, but how they work and how they can be monitored.
- Live within your means: Make money-saving suggestions on how clients can spend less than they earn, and reiterate the importance of paying down debt each month.
- Budget wisely: Explain how setting and adhering to a budget can grow savings.
- Plan ahead: Help clients understand their pension plans and how to make the most out of RRSPs and other long-term saving channels.
- Choose products carefully: Ensure that the costs and benefits of a product fit the lifestyle and income of each unique client.
- Stay informed: Direct your clients to additional resources, such as the Canadian Financial Literacy Database and the financial literacy self-assessment quiz, both of which are available on the FCAC’s website, www.fcac-acfc.gc.ca.