519-646-2222Financial Literacy
February 21, 2023
Financial Literacy is a recent buzzword often bantered around by politicians and bureaucrats that quite simply translates, at least in the context of their usage, to “victim blaming”. The term financial literacy is used to explain why Canadian consumers are so in debt, and to excuse the foibles of policy makers who have created economic disaster upon economic disaster.
Rather than admit culpability, they blame the people who are exploited by feeble legislation and weak kneed policies. The reason you are in debt couldn’t possibly have anything to do with a lack of meaningful bank regulations, or with myopic (or much worse “deliberate”) government fiscal policies, it must be because you don’t understand how (to manage your money) you are being tricked into carrying too much debt.
The Financially Literate
The financially literate, let’s start there, who are they? Who really understands the complexity of finance, of budgeting, of using debt in a way that makes it easily manageable. The answer is more challenging than the phrasing of the question. Who are these Deans of the financially literate? Economists? If economists ever had the vaguest notion of how the economy works, we would surely never have had any economic problems – there are plenty of economists, modelling and making predilections favouring their client de jour.
It takes three days of education to get a license to sell mortgages, it used to take five weeks to become a Realtor (I understand the programme has become a little longer since I took it), it takes barely any time to be an insurance salesperson and so on. Hardly making these folks, working in financial services, experts or even financially literate. Banks promote their own sales forces by providing abbreviated, internal, training programmes leading to certification as financial advisers, mutual funds or RSP salespeople, yet precious few have any depth or breadth of financial literacy, certainly as envisioned by the government.
So, who exactly are the financially literate? Are they political appointees who head organizations like the Bank of Canada? How about finance ministers? Read the previous two paragraphs again. What about grass roots financial literacy, where does that start, how does it start and what are reasonable expectations? A good argument might reasonably be made that our education system is an abject failure when it comes to preparing students for real world experiences. Even school teachers have difficulty performing grade six maths – that was borne out by their protest to the suggestion that they be able to demonstrate their maths literacy as a condition of employment.
Instructors of Financial Literacy
Who then should we turn to help instruct financial literacy? Is it Licensed Insolvency Trustees, charged with the responsibility of providing two credit counselling to people who are already insolvent? Is that not too little too late? Shouldn’t people who are not insolvent have the opportunity to learn more about financial literacy in order to avoid insolvency?
Real Financial Literacy
What does financial literacy look like? How much must you understand about the complexities of our financial world to be deemed financially literate? Perhaps you should understand how and why there is only $113 billion of actual currency in Canada, yet Canadian banks have been able to lend 36 times more money than even exists. And be taught that there are only about 17 million people in the Canadian workforce (nearly 25% of whom work for the government) or 27 million who have any form of income, yet there are more than 80 million bank issued credit cards in circulation.
The financially literate ought to understand why banks are able to borrow money from the central bank at 0.25% interest, then relend that money to you for a mark up of 500% only to have another shot at gazundering you three years later and increasing their mark up to 3,600% above cost. Surely the financially literate know to review their bank issued credit card statements to appreciate that they have been allotted hundreds of years to make minimum payments on their credit cards. The financially literate must also know their bank is expecting them to pay a mere 0.01% of the outstanding balance on their credit cards. Of course, the financially literate can explain the differences between fractional reserve banking and a Ponzi scheme.
Alternatively, the financially illiterate might simply, and humbly, bow their heads to accept fault for being so far into debt that they must struggle, every day, to put food on the table for their families. If the financially illiterate became financially literate, they would surely demand their government take action to regulate the lending industry. Perhaps they would demand less taxation too. Canadians seem oblivious to the fact that more than 50% of the population earns less than $40,000 per year (note. Statistics Canada excluded the more than 10 million Canadians who do not have any income). That median income is pre-tax, and even after paying income taxes, other taxes continue to erode away at paycheques until close to 50% has been gobbled up by various government coffers. One of the great ironies in Canada is that almost 25% of the Canadian workforce, the highest paid members of the Canadian workforce, work for the government. Although all government workers are paid out of taxpayers’ coffers, they are still taxed on the money they are paid.
In England (1215) the peasants rose up against the government for excessive taxation – they forced the king to sign the Magna Carta, the document upon which the Constitution of the United States was based. Interestingly, the taxes that led to the revolt were far less than Canadians pay today. Is the reason for a lack of outrage due to a lack of financial literacy or a pervasive lack of education? Were English peasants of the 1200s more financially literate than Canadians are today? That would be a sad indictment on our society. But without a definition of what it means to be financially literate, it appears to be nothing burger, merely a label for the impoverished.
Conclusion
Although this blog is somewhat tongue in cheek, financial literacy is something that really does need to be taken seriously by people across stratifications, but it must also be properly contextualized. The government is an abysmal failure when it comes to its own financial literacy, to responsible money management. To truly be financially literate one must be a skeptic, a historian, and a philosopher and have a keen eye for basic maths. To suggest that people living at or below the poverty line need to learn something about budgeting and money management is an insult of the lowest order. The people who really need to learn about financial literacy and the impact of their financial decisions are the more affluent income earners and decision makers.