Do you speak the language of money?
If so, according to a new federal task force report, you are in the minority in Canada.
If not, that lack of knowledge represents what will be a critical gap in our life skills in coming years, unless you address it.
Baby boomers, in particular, will soon suffer if they are unprepared to juggle Old Age Security, Canada Pension Plan, private pension plans, mutual fund streams and other RRSP sources, come retirement.
And young people who remain fiscally uninformed run the risk of a serious personal financial crisis in the future. In a world where traditional pensions are disappearing, where mortgages have become more complex, and savings devices of all kinds are multi-layered and laden with regulation, keeping track of your money has never been more difficult. (Only 31 per cent of eligible Canadians actually contribute to RRSPS.)
If you have children, and hope that they will attend post-secondary schooling, you should be planning now. But just 40 per cent of eligible Canadian families have taken advantage of the federal government’s contributions to registered education savings plans (RESPs) and just 16 per cent of low-income families have sought the Canada Learning Bond that is a companion program to RESPs.
A task force struck by federal Finance Minister Jim Flaherty and led by key figures in the Canadian financial community reported last week that Canadians lack critical financial acumen. The report pointed to a number of areas of concern, and recommended a variety of measures be taken by the education system, workplaces and the finance industry, as well as government, to improve the financial literacy of Canadians.
Essentially, the message is that financial acumen is a life skill, and one best learned early. The task of improving financial knowledge must be broadly shared, and it must include initiatives that lead the financial industry demystify its products.
But a great deal of the responsibility rests with government, particularly on a couple of fronts:
l Government regulation related to financial programs, from RRSPs to RESPs to income tax forms to mortgage rules are arcane. The regulations need to be simplified, and then that message of simplicity must be repeatedly delivered to Canadians.
l Government programs designed to help Canadians don’t reach everyone. About 160,000 eligible seniors are not receiving about $1 billion owed to them in Old Age Security. About 150,000 eligible seniors don’t receive the Guaranteed Income Supplement. Another 55,000 eligible seniors aren’t receiving their Canada Pension Plan cheques. That is both astonishing and infuriating.
The financial stakes for the average Canadian have never been higher, recent reports show.
BMO Capital Markets reported last week that Canadian saving trends are diminishing. Over the last 20 years, Canadians on average have put away six per cent of their income. But in 2010, that level slipped to four per cent. BMO says Canadians need to save double that four per cent to be prepared for retirement. Granted, banks have a vested interest in reports such as this, but the slip in average savings is still alarming.
For Albertans, in particular, there has never been a better time to learn the language of finance.
A Toronto-Dominion Bank report last week said Alberta households are increasingly being squeezed by financial pressures, and are dangerously vulnerable in the event of an economic downturn.
Among Canadians, only the citizens of B.C. were considered at greater risk in the TD analysis, which measured debt-to-income and debt-to-assets, among other things.
Have we decided, in Alberta, to begin spending in preparation for the next boom?
Far better that we begin saving for the next bust, and for the years when — either forced or by choice — we no longer earn a wage.
And the sooner we learn the language of money, and start employing that literacy, the sooner we can get back on track.
John Stewart is the Advocate’s managing editor.