Are We Financially Illiterate?

Earlier this week, the Ontario Government announced that financial literacy would be incorporated into the 2011-12 curriculum, for grades four through twelve. Partnering with both the Ontario Securities Commission and the Investor Education Fund, the province wants to develop materials that will teach students the basics about money and will later help them make informed financial decisions.

The government sees the new curriculum not only as a way to help students achieve their financial goals but also as an opportunity to strengthen our future economy. After first reading that personal finance was going to be a new topic of classroom discussion, my first thought was why now?

When Mark Carney, Governor of the Bank of Canada, announced that Canadian’s debt-to-income ratio was at 146 per cent, it became apparent that we, as a nation, have not been taking our finances seriously. Since then, we have extended that number to a record-breaking 150 per cent, and countless stories have been written as to why we are in debt and who is to blame for our seemed financial illiteracy.

Many are quick to blame the government, while others blame financial advisors for maintaining a stronger focus on hitting sales targets versus educating consumers. But can we blame anyone but ourselves for Canadian household debt? Now at $1.5 trillion – three times the nation’s debt – the Globe and Mail warns that we may push ourselves into a ‘made in Canada’ recession. How did we get here? Where did our debt come from? Is any one person, circumstance, or event, to blame?

Consumerism, and our need to always have the newest and best, are often my go-to answers. Celebrities and models don’t make it any easier. Our youngest generation has been bombarded with advertising campaigns since day one, and those campaigns keep us all wanting to look like celebrities, and live like celebrities, no matter what the diet pill costs.

But we cannot solely blame advertisers and celebrities. We have to admit that we have been financially irresponsible from time to time. Have we taught our youth to go shopping on weekends, by going even if we didn’t have the money? Maybe. Do we eat out more than we can afford to? Definitely. And who isn’t tempted to purchase a slightly larger than needed home or a new vehicle with more add-ons than we know what to do with?

Being inundated with offers of reward credit cards, loans, and enormously large lines of credit doesn’t help either. Financial institutions are constantly sending out offers for increased credit limits, loans, and lower interest rates. If the bank says we can have it, we want it. But just because we might get pre-approved for a $10,000 line of credit at an incredibly low rate, doesn’t mean we can afford the $10,000 debt.

It is true that a financial advisor’s job is to inform customers of all financial options, however, in seeking financial advice, it is our personal responsibility to understand the information provided. – and this is no small feat. The acronyms RRSP, RESP, TFSA, and GIC, may be common for some, but memorizing the information and rules associated with each and then trying to figure out which mix of these products is optimal for your personal situation, well, that’s near impossible for the common person. Say all four acronyms to someone who has never looked into any one of them before and witness eyes crossing from information overload.

How can anyone fully understand what an RRSP is for? First introduced in 1957, it’s contibution limits now change annually so, on top of putting money into the account each year, we have to stay informed about the account’s altering terms. And what is the difference between GIC, Mutual Fund, and Self-Directed RRSPs? Add-on the RRSP Loan and prepare to feel even more confused.

RESPs may be a proven tool to help parents save for their child’s education, but asking Canadians to understand everything about TFSAs is equivalent to asking us to trust pharmaceutical companies’ new drugs. First made available January 1st, 2009, the TFSA is the newest among the popular financial acronyms, so while the tax-free side effect is obvious, we have yet to see all of the benefits the investment may offer in the future.

With these acronyms, plus the ever-changing bank accounts, credit cards, loans and interest rates, it is no wonder why Canadians are financially illiterate.

It is human nature to feel slightly dim-witted when we are unsure about something; this may be what deters some of us from trying to better understand personal finance. There is certainly no shortage of awareness materials and online resources, so why are we choosing to continually make uninformed financial decisions?

Fear may also be the reason we are ignoring our consumer debt and seeing the nation’s household debt-to-income ratio climb. Are we ignoring the numbers, in hopes that the government will create mandatory debt regulations or yet another new savings vehicle to help us? Or will the threat of a ‘made in Canada’ recession come true?

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