Are we financially literate?

November. Financial literacy month in Canada. The time when we are officially reminded of information and strategies we can use to improve our financial health.

Financial literacy refers to the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources. It’s a term that was introduced fairly recently, when governments began to focus on the need for consumer education in this area.

A recent newsletter from the Financial Consumer Agency of Canada reports that Canada is near the top of the charts for financial literacy in a global survey published in spring 2017 by the Organisation for Economic Co-operation and Development (OECD).

Canada tied for second worldwide…in the financial literacy component of the Programme for International Student Assessment, a global survey of 15-year-olds.

This report was followed by… [one] on adult financial literacy… [in which] Canadian adults…tied for second with Norway.

As a Canadian, I was feeling proud… and perhaps even a bit smug. Then I remembered a Statistics Canada report, also from last spring, telling us that the debt-to-income ratio of Canadians was at an all-time high of 167%. This means we owed $1.67 for every $1 of disposable income. The fact that Canadians have a lot more debt than income seems at odds with the assertion that we have high levels of financial literacy. How can this be?

Reading on, I noticed that “The self-assessment portion of the survey showed that Canadians had a strong understanding of key financial concepts such as interest paid on loans, risk and return, and the definition of inflation.” Two things struck me…

  1. Self-assessment isn’t necessarily objective. Haven’t we all tried to present ourselves in the best light at one time or another? Perhaps this incongruence between the reports is a case of actions speaking louder than words, as my grandma used to say.
  2. We can understand concepts and be able to explain them without translating our knowledge into practice. There is often a big disconnect between head knowledge and what we actually do. Just think of how many people you’ve heard say, ” I know I shouldn’t eat this brownie, but oh well…

Head knowledge is not enough.

Translating understanding into action requires more than just what we know in our head. It requires us to be connected to our sense of inner knowing about what is our right action based on what’s important to us. Being in touch with our values is a crucial component of decision-making in a consumer culture because there are so many pretty things and shiny new objects to attract our attention and our money. Even more tricky is the fact that we can buy immediately because of our easy access to credit.

Overconsumption is built into the consumer culture.

The story of the culture is based on beliefs that “big is better” and “more is best.” Many people buy into the story with no discernment as to whether that viewpoint is in alignment with their values.

As a result, we see excess everywhere. Thrift stores in North America are full of items that were bought and never used. People put a lot of money into conspicuous consumption, buying flashy status symbols as evidence of their worthiness. The debt load is excruciatingly high as people fund their consumption with credit on which they are paying shocking amounts of interest.

Debt load

Not only does over-consumption put us in debt, the stress it causes is bad for our health. Beyond the mental and emotional stress of carrying a high debt load, there’s the effort it takes to maintain and manage all the stuff.

Befriending ourselves is our best defence.

We will fare best in the consumer culture if we learn to tap into our deep inner knowing. Not what we know in our head, but that felt sense of knowing it in your bones, or having a gut feeling. You may hear someone say, “It just doesn’t sit right with me.” This kind of awareness is an indispensable complement to our mental thoughts and understandings.

This inner knowing is what connects us to the bigger picture of the life we want to live. It’s what keeps us from being distracted by shiny baubles and smooth sales pitches. And this is what will ultimately lead to happy and satisfying lives.

Financial Literacy: Crucial for all of us

November is Financial Literacy Month in Canada. This annual event acknowledges the need to educate ourselves in a crucial area of life—how to navigate the consumer culture without being consumed by it.

This initiative came out of the work of a task force that travelled the country to assess the state of financial literacy in Canada.  My submission to that task force expressed the view that all post-secondary students should be required to complete a personal finance course in order to graduate.

I was pleased that the final report of the task force recommended that “…all provincial and territorial governments integrate financial literacy in the formal education system, including…post-secondary education and formalized adult learning activities.”

Realistically, this is unlikely to happen. But Continue reading