Weekend Reading: Financial Literacy Progress Edition

Financial literacy leader Jane Rooney released a two-year progress report on the advancements in financial literacy research in Canada. The National Strategy was created to mobilize and engage public, private and non-profit sectors to strengthen the financial literacy of Canadians and empower them to manage money and debt wisely; plan and save for the future; and prevent and protect themselves against fraud and financial abuse.

This research won’t “fix” financial literacy on its own but serves as a roadmap to inform the work of practitioners and researchers in fields related to financial literacy. Some key takeaways from the research concluded that:

• Financial knowledge is important, however, on its own is not enough to lead to financially desirable behaviours.
• Financial confidence is a better predictor than financial knowledge when it comes to outcomes associated with day-to-day money and debt management.
• More positive outcomes are found for longer-term planning and saving behaviours (e.g., investing, buying insurance), for individuals with high levels of both financial knowledge and financial confidence.
• High financial confidence does not “shield” those with low knowledge from relatively poor planning and saving outcomes. Those with low financial knowledge but high financial confidence also have a higher risk of experiencing negative financial outcomes related to long-term planning and saving behaviour. This is especially evident in retirees and near-retirees.

One of the sections I enjoyed was about how to apply behavioural insights to financial literacy interventions – the ‘nudge’ theory, if you will:

“In certain cases, the research has used choice architecture and “nudges” to enable consumers to take action, while other studies have focused on simplifying information, processes and using just-in-time information to influence behaviour.”

The Financial Consumer Agency of Canada (FCAC) has also been exploring opportunities to apply behavioural approaches to encourage Canadians to save money for unexpected expenses. They looked at a U.S.-based project called Return to Savings (R2S), which is built into free tax software and ‘nudges’ tax filers into saving related decisions.

Music to my ears.

What was not as clear is the strategy to help protect consumers from an ever-complicated world of financial products. As the research stated, knowledge is important but it only goes so far when sitting across the desk from a car salesperson or financial advisor whose interests don’t align with yours.

When the FCAC investigated bank sales practices it warned that banks are not there to look after customers’ interests, but stopped short of suggesting there is wide-spread mis-selling going on at the banks. That ‘stunned’ a CIBC financial advisor, who reached out to CBC Go Public and said she ‘is doing daily harm to customers because of her up-selling‘.

Meanwhile, Scotiabank is the latest financial institution to be fined for excessive spending in mutual fund sales practices. Tickets to concerts and sporting events, expensive electronics, and other goodies paid to advisors to influence or reward the selling of Scotia’s Dynamic Funds family of mutual funds.

Talk about a conflict of interest. Why would an advisor sell a low-cost index fund when he or she can sell a ‘suitable’ fund that earns them a higher commission AND Raptors tickets?!?

This Week’s Recap:

On Monday I shared my mortgage renewal strategy to help negotiate the best rate and terms.

On Wednesday Marie continued her series on cutting your grocery bill with a look at how to save on meat and produce.

And on Friday Marie explained the pros and cons of renting and buying for retirees who are considering downsizing their home.

Don’t forget to follow us on social media for more money insights. Join more than 6,500 Boomer & Echo fans on Facebook, 10,000+ followers on Twitter, and also check us out on Instagram for more Boomer & Echo updates.

And for the news junkies, one site on which I’m fairly active these days is Flipboard, where I save and share my favourite articles on personal finance, retirement, real estate, and investing. Many of those articles end up right here in your Weekend Reading every week. Go ahead and follow my Weekend Reading magazine on Flipboard.

Weekend Reading:

Retirees aren’t spending their money as fast as they should be, according to a study by the Employee Benefit Research Institute.

Longtime personal finance columnist Jonathan Chevreau turned 65 this month and explains why he’s throwing himself an OAS party.

Here’s the story of how one man in British Columbia lives happily on almost $0 a day.

Million Dollar Journey blogger Frugal Trader reached his net worth milestone several years ago but at this point is still working full time. Here’s how he imagines early retirement.

A growing cult of millennials is obsessed with early retirement and this 72-year-old is their unlikely inspiration.

Josh Brown shares a cautionary tale about the risks of putting all your retirement hopes into your employer’s stock.

Ben Felix, associate portfolio manager at PWL Capital, shares his latest Common Sense Investing video. This one explains how hedge funds work, and what we know about their performance as an asset class (hint: it’s not good):

In The Globe & Mail’s GenYMoney section, Ben Felix answers a reader question about the need for life insurance and critical illness insurance at a young age:

“One word of caution is that insurance agents receive commissions based on the products that they sell you, and products with higher premiums pay higher commissions. Keep this is mind when evaluating insurance advice.”

Since incorporating my online business I’ve used an accountant to prepare my taxes. Jamie Golombek says, “blind faith in your tax preparer is no excuse for a faulty return.”

Canada is bad at thinking big. Wealthsimple CEO Michael Katchen explains how we can change that.

Investor advocate Dan Solin dishes on the many maxims, platitudes, and just plain worthless bits of advice that pop up in the media.

There’s much written about the benefits of starting an RESP, and what to invest in once you’ve got the account set-up, but the withdrawal phase remains a bit of a mystery. Jason Heath explains how family RESPs work once the oldest children start to take money out of the plan while parents are still putting money into the plan for a younger child.

I haven’t heard much about investing in gold lately but in this post Dan Bortolotti explains why investing some of your portfolio in gold just isn’t worth it.

Should we take dad’s money now to avoid probate? Hold your horses! It’s not your money just yet…

When a spouse passes away with unpaid debts, whose responsibility is it to pay off the balance? Scott Terrio explains when your dead spouse’s debt becomes your debt.

In 1980, less than 5 percent of Americans were cremated. Now that figure stands at nearly 50 percent. A fascinating explanation of how cremation actually works, and the cultural revolution around how we memorialize the dead.

Finally, I loved this dose of reality from Ben Carlson at A Wealth of Common Sense: 50 ways the world is getting better.

Have a great weekend, everyone!