No one could object to efforts to improve literacy; a better-educated public is unquestionably a good thing. However, when the subject is financial literacy, critical public policy issues emerge, powerful commercial interests are affected — and even a whiff of class warfare arises. Suddenly, a simple initiative doesn’t seem so straightforward.

Earlier this year, the federal Task Force on Financial Literacy conducted weeks of public consultations throughout the country and received hundreds of submissions on what should be done to improve financial literacy. The task force is scheduled to make its recommendations to the federal minister of finance by the end of the year.

In the meantime, the task force recently posted all the submissions it received during the consultation period online. Along with routine calls for more instruction in financial matters in the educational system, greater attention to the issue from governments and a few novel proposals — such as rewarding financial education with tax credits or additional RRSP contribution room — the submissions reveal some fiercely held views on the seemingly innocuous subject.

From the financial services industry’s side, there’s generally support for improving literacy and promoting financial advisors as a primary source of higher financial education. In some submissions, there were calls for reducing regulation as a way of making the industry more affordable and accessible to a broader swath of consumers.

Others are skeptical of these approaches. Says the Canadian Labour Congress’s submission: “For the financial [services] industry, we understand that a government-sponsored financial literacy action plan is a smart way to get free advertising using government resources and capacity, but it is certainly not the solution we need.”

The CLC argues that the real problem is many low- and middle-income households simply can’t afford to save: “Improving financial literacy may help the well-to-do, but for 80% of our population, it simply is not an answer.”

Indeed, a number of submissions suggest that the improvements to financial literacy will do little to alter the underlying financial problems afflicting many Canadian households — too much debt and insufficient savings. This isn’t a fear that is divided along industry or consumer lines; on both sides, concerns about the state of household finances underpin the perception that financial literacy needs to improve.

Toronto-Dominion Bank reports in its submission that savings rates have dropped significantly over the past 30 years; at the same time, the way households are saving has changed, too. Instead of saving out of income, the bulk of savings comes from asset returns — and those assets are increasingly financed with debt. All of this makes financial literacy more critical than ever, TD says, as it leaves households more exposed to market conditions and interest rates — and may make saving even harder in the future if assets don’t appreciate as much as expected and financing costs rise.

“In absence of a firm grasp of financial principles, households could be at risk,” TD’s submission says. “The increased exposure and vulnerability to financial conditions increases the need for strong financial literacy skills.”

Although there may be unanimity on that point, there’s certainly plenty of disagreement over the proper role of the financial services industry in boosting literacy. For some industry-watchers, as long as the prevailing ethos of investor protection remains “caveat emptor,” the industry cannot be trusted to educate the same households it is also trying to mine for sales.

“The task force should recognize that the financial [services] industry cannot regulate itself and provide the financial literacy needed by Canadians to make the right choice,” the CLC submission says. “Self-regulation, publicly sponsored advertisement campaigns and websites are not the solution. They may make it appear that the government, the industry and financiers are doing something to help people make better decisions. But, it is simply window dressing and will make no appreciable difference in the financial well-being or the assurance of retirement income security for most of the population.”
@page_break@The Canadian Foundation for Advancement of Investor Rights’ submission suggests a national strategy that should aim for concrete goals, such as lower levels of consumer debt, an improved debt/income ratio, more savings, a greater incidence of financial planning and reduced spending on fees.

“Such a strategic goal may be, and often will be, diametrically opposed to the short-term interests of the financial [services] industry,” the FAIR Canada submission says, noting that actions such as cutting consumer debt and shifting to lower-fee investment products will harm industry profits.

Therefore, it adds, efforts to improve financial literacy and decision-making can’t simply rely on altruism from the financial services industry: “In the short term, the industry’s hands are tied by its responsibility to maximize shareholder profits — profits that can only be wrung from the pockets of its customers.”

Rather, FAIR Canada proposes that governments and regulators should be trying to push the interests of the industry and households into greater alignment. For example, it suggests that regulation to restrain credit card debt and curb the interest rates card companies charge could lead to more sustainable household debt burdens.

Similarly, the FAIR Canada submission says, regulation could be used to bring down mutual fund fees: “Sensible regulation to tighten fee structures, foster low-fee alternatives and encourage fees to track performance (aligning, again, the interests of the industry and its clients) would not only provide real alternatives, it would encourage the industry to train its clients in financial literacy, including about the importance of saving and investing in lower-fee products — on the basis of principles rather than products.”

Indeed, numerous submissions argue that fundamental changes to the current system are essential to improving both the literacy and financial behaviour of households.

Among other things, FAIR Canada recommends opening the Canada Pension Plan and other large pension plans to managing additional private contributions and creating a permanent institution to implement a national literacy strategy, which could possibly provide low-cost, non-profit financial planning.

The CLC submission calls for improvements to the public retirement savings system (CPP, etc.), so that households aren’t as dependent on private savings. And for those that save and invest privately, it recommends that advisors be held to a fiduciary standard to ensure that they are acting in the best interests of clients.

Says the submission from Weigh House Investor Services Inc. : “The unfortunate reality is that there would be no need for greater financial literacy if financial advi-sors could be trusted to act in the best interests of their clients.”

Several submissions, including those from investor advocates such as FAIR Canada and the Small Investor Protection Association Inc. , echo the call to hold advisors to higher standards of proficiency and accountability. The Financial Planning Standards Council says that planning should be recognized as a genuine profession, including adherence to a code of ethics that requires planners to put their clients’ interests before their own.

Others suggest that improving literacy can hardly be accomplished without first improving industry disclosure. And these ideas aren’t coming only from critics; in fact, there are a few brave voices within the industry itself calling for meaningful reforms to accompany basic financial education.

Vancouver-based Steadyhand Investment Funds Inc. , for example, proposes two common-sense regulatory changes that, it says, would help people make better financial decisions: better investment cost disclosure and better performance reporting.

Says the Steadyhand submission: “The investment industry has become excessively complicated, forcing investors into the hands of advisors, many of whom are simply salespeople nudging them into the products that pay the greatest sales commission or are the easiest to sell because of past performance. The lack of transparency on investment costs and portfolio performance exacerbates the challenges for investors when it comes to understanding these two crucial aspects of investing. Improving standard client reporting requirements would be an important step in enhancing financial literacy.” IE