Commentary

April 26, 2010 | APPEARED IN BUSINESS IN VANCOUVER

Task Force on Financial Literacy a waste of tax dollars

EST. READ TIME 4 MIN.
 In April, the federal government’s new Task Force on Financial Literacy began consulting with Canadians to develop a national strategy to better educate us on how to manage debt, save and invest, prevent financial fraud and plan for retirement. While there’s no question that financial literacy is an important life skill, there are already hundreds of options available for Canadians to learn about financial matters. Another “national strategy” will simply divert more money from the pockets and savings accounts of Canadians.

The main reason for the growing concern about how Canadians manage their budgets and save for retirement was the significant decline in stock market values in 2008. Although the stock market has rebounded strongly and retirement portfolios are recovering, the financial crisis and recession has been an arresting reminder to Canadian families about the importance of wise financial decision-making.

Fortunately, Canadians have generally shown they make wise financial decisions. As Jack Mintz, professor at the University of Calgary and research director of the government’s Research Working Group on Retirement Income Adequacy found, “claims that most Canadians are not saving enough are based on assertions or faulty studies. Recent evidence suggests most Canadians make pretty good decisions for themselves.” In addition, the Working Group found that “the Canadian retirement income system is performing well, providing Canadians with an adequate standard of living upon retirement.”

Despite these findings, Finance Minister Jim Flaherty launched the task force on financial literacy after it became clear to him that “a lot of people don’t understand the fundamentals of finance” and that a “cohesive national strategy” is needed.

However, many options already exist for Canadians who want to improve their financial literacy. For example, there are hundreds, if not thousands, of books available at local libraries and bookstores aimed at improving financial literacy and educating people about important financial decisions. Books like Rich Dad, Poor Dad, The Wealthy Barber and Richest Man in Babylon provide basic introductions to financial management and offer advice on how to manage a household budget, how much income to save, the power of compounding interest, how and when to finance large purchases like cars and houses and whether to choose a variable or flexible mortgage rate.

For those seeking more advanced advice, equally helpful titles are also available such as The Intelligent Investor, The Future for Investors, and Stocks for the Long Run. These can help guide decisions on where and how to invest savings and on how to create and structure financial portfolios.

In addition, every bank and credit union in the country offers free advice pamphlets on everything from household budgets to lease/buy decisions. Canadians can also seek professional advice from financial advisers at their local bank or financial institution. Furthermore, Canadians can attend formal seminars held by successful financial managers or even hire professionals who specialize in financial and portfolio management. Interestingly, research by University of Toronto professor Dilip Soman shows that people are more likely to follow financial advice when they actually pay for it.

If Canadian governments truly want to help us save more, then leaving more money in our pockets and improving incentives to save would be a much better way forward. Consider that the average Canadian family is now forced to hand over 42% of its income to government in taxes. Reducing the tax burden and improving the incentives to save (i.e., increasing RRSP and TFSA thresholds and lowering marginal tax rates on investment income) would be a good place to start.

Before calling into question the financial knowledge of Canadians, the federal government should take a hard look in the mirror. Ironically, its own track record of managing the country’s finances has been questionable. Government program spending has increased at an average rate of 7.4% since 2005/06, well beyond the rate of economic growth (3.2%) and inflation plus population growth (2.5%). The federal government also plans to pile $105 billion in federal debt over the next five years. Worse still, the federal government’s Old Age Security (OAS) program, the “cornerstone” of Canada’s retirement income system, has an unfunded liability of $356 billion. This is hardly a model of financial success that Canadians should emulate.

Canadians don’t need another task force or national strategy. We already have ample resources to enhance our financial knowledge. What Canadians really need is to be able to keep and save more of their hard-earned incomes.

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