Flaherty pushes better financial education

Jim Flaherty's financial literacy challengeCanadian Finance Minister Jim Flaherty's frugal upbringing kept his family clothed and fed; now he wants to teach Canadians a thing or two about finances, according an article in the The Globe and Mail. He is taking aim at teens and twentysomethings, a group that is sadly lacking in financial acumen, he says. Flaherty wishes to cure the poor financial literacy that has swept the nation over the past several years.

The finance minister has implemented a plan designed to increase the financial knowledge of many Canadians. Findings will be used from psychology and behavioural economics, as well as ideas that have worked from the government's stop-smoking campaign, to craft the initiative. The government has created a 13-member task force headed by Sun Life Financial CEO Don Stewart and BMO Nesbitt Burns Chairman Jacques Menard.

Flaherty undertook these new steps after he realized that many Canadians do not understand the basics of finance. Today, Canadians are further in debt than they were during the last decade; the average household debt-to-income ratio reached a record high last December.

Canadians are increasingly using credit to finance everyday expenditures while the bills keep piling up. The new education push will start with financial institutions, provincial governments and employers.

One of the biggest challenges faced by the task force is nudging Canadian citizens in the right direction financially without intruding on personal privacy. For example, when employees are automatically made a part of a company pension plan, they are less likely to opt out of it, whereas if it is optional, fewer would sign up.

Last year, a Statistics Canada survey questioned 15,000 people about their financial literacy skills. Nearly half of respondents wanted to buy a home but were not saving what they should for a down payment. Canadians seem to think they'll have enough money for retirement income, yet they are not contributing to their nest egg. Most have no idea how much they should even be contributing to RRSPs now, and aren't even bothering to plan for that contingency. One-third of people were struggling to keep up with their bills, and nearly half didn't even have a budget.

Written by Melanie Dixon.
Published April 21, 2010

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