The financial services industry takes a keen interest in promoting financial literacy as a do-good service for Canadians. November is Financial Literacy month, and the big banks and their PR machine are busy pushing out survey after survey explaining why Canadians are struggling to save.
The situation is dire, according to many economists and financial experts, who’ve sounded alarm bells over our increasing debt levels and declining savings rates.
The Government’s Role
Since 2001, Canada’s financial literacy programs have mainly run through its financial supervision and consumer protection body, the Financial Consumer Agency of Canada (FCAC). In April 2014, the federal government appointed its first and only Financial Literacy Leader, Jane Rooney, who led Canada’s financial literacy efforts under the FCAC until April 2019 (when the position was abolished).
Given just $2 million per year in government funding, Ms. Rooney was tasked with developing a national strategy on financial literacy for all Canadians, the results of which were to be measured by a nation-wide survey. Key performance indicators would include increased usage of TFSAs and RRSPs – outcomes that should make any bank executive salivate.
Banks Promoting Financial Literacy
Of course, that’s the real reason why banks want a say in promoting financial literacy – because they have the most to gain. It’s a sad reality, but the financial services industry has the money (and the incentive) to sponsor financial literacy programs in schools and in the community.
The default answer to fixing financial literacy is that we should teach it in school, either with a mandatory personal finance course in high school or by weaving in personal finance concepts throughout the curriculum each year.
That presents several challenges for our education system – including the fact that few teachers are equipped with the necessary skills to teach personal finance concepts. Not-for-profit groups and government agencies don’t have the money or the manpower to offer resources and support to our schools.
So that’s where the banks want to step in. They’ll sponsor the curriculum, put together the textbook, and send their employees to teach classes and seminars. But can bank-sponsored financial literacy programs actually give Canadians the outcome they’re looking for?
No, says Rob Carrick, personal finance columnist at the Globe and Mail. Carrick’s definition of financial literacy is, “knowing how to be a savvy customer of bank products.”
In this column, Mr. Carrick explains how the banks profit from bafflegab at their clients’ expense. Mortgages, credit cards, mortgage life insurance, mutual fund trailer fees, hidden advice fees, and index-linked GICs – these are all ways that the financial industry use products to exploit our ignorance instead of promoting responsible lending and good saving habits.
Should banks have a hand in promoting financial literacy? Sure, if you don’t mind a few foxes standing guard over the henhouse.
With bank-sponsored materials and programs in our classrooms, who will be there to explain that you can shop around for a better-than-posted mortgage rate, or why your bank advisor might sell you a high priced Canadian equity mutual fund instead of its low cost index fund equivalent?
The financial industry does have a role in promoting financial literacy. It can do this by offering simple, easy-to-understand products that aren’t designed to trick or trap consumers into paying outrageous fees. It can start by disclosing fees upfront, including any conflict of interest when it comes to advisor compensation.
Even better, it can separate advice from product sales to ensure that customers get service that is in their best interest.