What is Financial Literacy? Part 1

Last year, the government created a task force of 13 people to address the issue of financial literacy in Canada.  According to this task force,

Financial literacy means having the knowledge, skills and confidence to make responsible financial decisions.

The mission of the task force is to develop a national strategy on financial literacy in hopes of finding ways for Canada to leverage the variety of programs and resources that currently exist, for the benefit of all Canadians.

A year later, they just released a paper hoping to seek input from Canadians asking a lot of tough questions.

Having worked in the financial services sector for more than 20 years, I love that this issue is being addressed.  I am so passionate about financial education and literacy because it forms the foundation for life success.  When people gain financial knowledge and skills, they in a better position to take control of their financial affairs and develop healthy financial habits that will help them weather the inevitability of tough times.

The task force has recently announced it will hold public hearings across the country seeking input from Canadians.  My hope is that the community of financial bloggers weighs in on this issue as they have become a key source of information in the world of personal finance.

Being someone who has worked hard to bring financial education to the public and especially the workplace, I plan to provide my thoughts and opinions on the matter.  I happen to believe we have an epidemic or a crisis on our hands and the root of the problem comes from the fact that there is very little formal educational programs for people.  Most financial knowledge comes from our experiences (good and bad) and the people in our social structure like our parents, friends and mentors.  For the most part, this is a real problem.

As I am hired by companies and governments to provide financial education in the workplace, I am constantly reminded that most people know very little about money and even the basics.  Over and over, people are telling me my courses and workshops should be mandatory for all employees, especially the younger people.  Unfortunately in most cases they are not mandatory.

I’ve always said that we all have a responsibility to become more financially literate if not for the simple reason that no one cares about your financial future more than you.  My message has always been one of empowerment – the need to care.  Although this seems to make sense, many people don’t care and don’t have a passion for the topic.  Thus I think some more formal venues for financial education is critically important.

In this blog, I would like to share my opinions on some of the questions presented in the paper in hopes that some of you give your opinions as well.  My plan is to post a series of blogs, each time addressing different questions from the 9 consultation topics in the paper.

1. What financial knowledge and skills are essential for all Canadians?

I believe you have to start somewhere and what better place than the basics.  I’ve often said, you can’t teach everyone everything but you can teach someone something.  That something should be the basics.  I happen to believe that 80% of what you need to know to be successful comes from the basics.  It’s called common sense but unfortunately common sense is not too common.  For me the basics is something I call the healthy financial habits like knowing your worth, knowing your spending, developing an automatic savings habit, controlling your debt and surrounding yourself with the right team of people.  It’s all about money management 101 – balancing the bank account so that you always have more money going in than going out.

2. What would you recommend to improve and/or build on existing financial literacy programs and initiatives in Canada?

I think there needs to be more formal financial education at all levels of learning and all facets of life.  I think financial education needs to start in the school system and I believe it needs to start at a young age.  I have four young children under the age of 7 and I have started talking to them about money.  Call me crazy but I think it is my responsibility as a parent because I think they will not learn this stuff from anywhere else.

I think financial literacy in the school system needs to be regular in the system from elementary to junior high to high school.

I am biased but I also would like to see more financial education offered in the workplace.  Not just education on the products or benefits offered by employers but just good financial education on personal financial planning, investing and retirement.

3. What initiatives could be put in place to encourage more collaboration among the public, private and non-profit sectors?

This is a tough one for me because I think most organizations have their own agendas and it is difficult (not impossible) to bring everyone to a common ground.  That being said, collaboration is key.  But how do you that in a country that is so diverse in thinking?

Anyhow, I hope that you all weigh in and provide your thoughts and comments on these questions.  We need more financial literacy in this country and this world.  Till next time!

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites Retire Happy Blog, Group Benefits Online and Advisor Think Box.

4 Responses to What is Financial Literacy? Part 1

  1. I have been writing about this as well over the past couple of weeks and I think it’s a great topic for financial bloggers and for all Canadians.

    I agree that the basics are the place to start. By that, I mean spending less than you earn, minimizing debt, etc. These aren’t complicated concepts and I think people would embrace them once they see how simple it is.

    Thanks so much for raising awareness of this topic!

  2. I think that PF matters should be taught to young kids at the high school level.

    I think you hit the nail on the head when you mention, that we have “a crisis on our hands and the root of the problem comes from the fact that there is very little formal educational programs for people”, but think that there is less of an issue with the lack of available information but more so of an issue with putting the correct systems in place so the ‘right’ information is being communicated.

    Hopefully the task force will yield a situation whereby young people are able to enroll in a Personal Finance course at the high school level from coast to coast. Sure, business-oriented courses such as management, accounting, and economics are important for students but the curriculum needs to have some changes in my view.

  3. Financial literacy is needed in the school system before people turn 18 and get their first credit card. Hopefully families contribute to financial literacy of the young, but the school system should be a back-up. Financial literacy has a lot to do with controlling how much money comes in and how much money goes out. A lot will come down to the self control of the individual and what they choose to spend their money on. Some people have difficulty controlling how much they spend clothes, alcohol, homes, cars, etc. Underlying many of our challenges in life are self control, self confidence, and other inner qualities. I hope these “inner aspects” get some attention from government task forces too.

  4. Financial literacy should be complete an essential set of modern Canadian. Financial subjects must be mandatory through all grades from elementary to high schools. Canada needs Canada needs financially literate young people who understands the life of money and have a better understanding their life options. As per feedback from most of high school student their financial classes are tedious; students not get exited about their real life opportunities in the financial world.I think that educational programs need to present a clear road maps to different opportunities in finance from basic management of family budget to stock trading. There many professional tools are available to make such education exiting and valuable. Take a look a professional free trading simulator VivaTrader.com – it perfectly fits the educational requirements.

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