Rising to the occasion

All this activity is in light of a new opinion survey, conducted by Ipsos-Reid Corp. on behalf of Toronto-based ABC Life Literacy Canada and sponsored by Toronto-Dominion Bank, the results of which were released in late October. The survey found gaps in Canadians’ general level of financial literacy.

Although many in – and outside – the financial services industry believe advisors share responsibility for teaching financial literacy to their clients, some say advisors lack the time and the tools to take on that role adequately.

“Financial literacy is important enough that advisors should be talking to their clients about it,” says Frank Wiginton, certified financial planner with Toronto-based TriDelta Financial Partners Inc. “But the reality is most advisors don’t have the time to do that.”

And while advisors, along with teachers and parents, often are cited as those who should be the key providers of financial education, many advisors may not have the skills to address this issue adequately.

“Many advisors themselves don’t have the education,” Wiginton says, “just as many parents and teachers don’t have the education and knowledge to convey financial literacy to children.”

Advisors may be skilled and knowledgeable when it comes to financial planning and products, says Gary Rabbior, president of the Canadian Foundation for Economic Education in Toronto, but client education is a completely different ball game.

That said, if you can take steps to improve your clients’ levels of financial literacy, the client/advisor relationship will improve, says Rabbior: “Providing someone with the knowledge and ability or capacity that enhances their personal confidence and skills helps to build trust. A knowledgeable and informed investor is going to be a better client and the relationship will be significantly strengthened.”

As well, Rabbior says, the entire financial services industry should be helping to support advisors by providing information, tools and strategies for client education. Neglecting to do so, he adds, would be “a big opportunity missed.”

There has been a push on to increase financial literacy in Canada for some time. In February 2011, a federal government task force on financial literacy called for the implementation of a national strategy to strengthen financial literacy in this country and recommended efforts to educate Canadians on the benefits of getting professional financial advice. However, since then, Ottawa has done little to move ahead. With the Canadian household debt/income ratio at an unhealthy 163% and with concerns that consumers are not saving enough, there is a renewed sense of urgency to solve the problem.

Margaret Eaton, president of ABC Life Literacy, believes the place to start in promoting financial literacy is with the young.

However, the Ipsos-Reid survey identified problems in young people’s experience with financial issues in the home. For example, only one-third of Canadian youth aged 10 to 17 said their parents regularly talk with them about money and finances. The survey also found that a similar percentage of youth felt there were secrets in their home dealing with money, and another third believed their family had money-related problems.

Talking about money can be difficult and is almost taboo in some homes, Eaton acknowledges. And, she adds, the survey results suggest that parents – the very people who are supposed to be teaching financial literacy to their children – may not be good money managers themselves.

“They are struggling with financial literacy [themselves],” Eaton says, “and it’s tough for them to pass [adequate knowledge] onto their children. That’s one of our concerns as an adult literacy organization – that people have the comfort and the confidence in financial literacy so that their own skills can be passed on to the next generation.”

“As much as we say that financial literacy begins at home,” Wiginton adds, “the likelihood is that the majority of parents don’t have the knowledge to educate their children.”

Therefore, advisors have a role to play in helping to educate parents, Eaton says. Many advisors craft financial plans for the family and set up registered education savings plans – but, she says, advisors need to go a step further when they have regular meetings with their clients.

Eaton suggests you talk to your clients about setting the stage for financial literacy for their children by making sure each child has a savings account, giving the child a regular allowance and explaining the basics of money management.

For advisors who don’t have time to impart financial literacy, the model of wealth-management teams may be a solution, says Hannah Reid, a financial advisor with National Bank Financial Ltd. in Ottawa. In such a situation, various team members could take on specific functions, with one team member taking over financial education responsibilities.

Overall, financial literacy is more than just understanding financial concepts. It also is about getting your clients to change their behaviour. That’s because today’s low interest rates and uncertain returns have left many Canadians with a shortfall in savings. That, says Reid, “is a big motivator in promoting financial literacy. It’s our job, as advisors, to set up financial plans for [clients] that include the right amount of savings that they need to do now to reach their short- and long-term goals.”

Reid wants her clients to call her with questions about all aspects of financial planning, including the difference between “good” debt and “bad” debt, whether leveraging a portfolio is the right idea for the client and how best to accumulate savings.

In fact, a client recently called Reid to say that many of the client’s neighbours were giving away money to their grandchildren, and she wanted to do the same. Reid explained to her client that she was not in the same financial position as her friends and couldn’t afford it. Says Reid: “I think that’s all part of financial literacy. You want to invite questions.”

No single group can hope to bring financial literacy to everyone. Some provinces have instituted financial literacy classes in schools, says Wiginton, but that’s only the first step. He notes that there are 16 million Canadians working today, many of whom are not financially literate. On top of that, about 250,000 newcomers arrive in Canada every year – many of whom arrive after their elementary-school years.IE

© 2012 Investment Executive. All rights reserved.