Financial institutions take a keen interest in promoting financial literacy as a feel-good service for Canadians. The reason why, as the banks and their PR firms claim, is that Canadians are borrowing at a record pace while struggling to save for retirement.
Last year, the federal government appointed Jane Rooney to head up a financial literacy program and gave her the formidable task of trying to reverse this trend. With just $2 million in annual government funding, her program is tasked with developing a national strategy on financial literacy for all Canadians, the results of which will be measured by a nationwide survey.
They’ll look at increased usage of TFSAs and RRSPs as some of the ways to measure success – outcomes over which the banks will be salivating.
And isn’t that the real reason why banks want a say in promoting financial literacy – because they have the most to gain? The reality is that the financial services industry has the money (and the incentive) to sponsor financial literacy programs in schools and in the community.
When asked how to fix our financial literacy problem, the default answer is that we ought to teach it in school, either through a mandatory personal finance course in high school, or by interlacing personal finance concepts throughout the curriculum each year.
That presents several challenges for our education system – one being that there are few teachers with the skills to teach personal finance concepts. Non-profit groups and government agencies don’t have the money or the manpower to offer resources and support to our schools.
So that’s where the banks want to step in. They’ll sponsor the curriculum, put together the textbook, and send their employees to teach classes and seminars. But can bank-sponsored financial literacy programs actually give Canadians the outcome they’re looking for?
No, says Rob Carrick, personal finance columnist at The Globe and Mail. His definition of financial literacy is, “knowing how to be a savvy customer of bank products.”
A column of his that ran last year during Financial Literacy Month explains how the banks profit from bafflegab at their clients’ expense. Mortgages, credit cards, mortgage life insurance, mutual fund trailer fees, hidden advice fees, and market-linked GICs – these are all ways that the financial industry use products to exploit our ignorance instead of promoting responsible lending and good saving habits.
Should banks play the lead role in promoting financial literacy? Sure, if you don’t mind a few foxes standing guard over the henhouse.
With bank-sponsored materials and programs in our classrooms, who will be there to explain that homeowners can shop around for a better-than-posted mortgage rate, or why your bank advisor might sell you a high-priced Canadian equity mutual fund instead of its low-cost index fund equivalent?
The financial industry does have a role in promoting financial literacy. It can do this by offering simple, easy-to-understand products that aren’t designed to trick or trap consumers into paying outrageous fees. It can start by disclosing fees upfront, including any conflict of interest when it comes to advisor compensation. Even better, it can separate advice from product sales to ensure that customers get service that’s in their best interest.