More than just funny books: Comics and prose literacy for boys
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Canadians are faced with a complex array of financial decisions to make in
their everyday lives, from choosing a mortgage and retirement planning to
managing consumer debt and funding for post-secondary education.
many Canadians lack the skills necessary to make informed decisions related to
money and investment. This set of skills is often referred to as “financial
literacy,” a broad concept that is also known as financial capability, economic
capability and economic literacy.
Established in June
2009, the Task
Force on Financial Literacy was mandated to provide advice and
recommendations to the federal Minister of Finance on a national strategy
aimed at strengthening the financial literacy of Canadians.
The Task Force defines financial
literacy as “the knowledge, skills and confidence to make responsible
Knowledge as the ability to understand “personal and broader
Skills as “the ability to apply that knowledge in
Confidence as being “self-assured enough to make important
This set of skills is applicable to a
range of decisions—from the major to the mundane—that most Canadians make on
a daily basis, whether it’s comparing prices at the grocery store or
negotiating a mortgage.
PowerPoint presentation: The Changing Face of Literacy: The Financial Literacy Imperative
The well-being of
Canadians depends partially on their ability to understand, analyze and use
financial information that will help them to make good decisions in their
day-to-day lives and to plan for the future.
literacy, however, is intertwined with other forms of literacy and involves the use of multiple literacies—prose, document, numeracy—often simultaneously.
Research has demonstrated that literacy and numeracy skills are one of the key
determinants of economic inequality.
As well, a number
of social and economic factors are contributing to the need for advanced
financial literacy skills, such as increased participation in post-secondary
education and changes in consumer spending and saving patterns.
indicates that the Canadian population is aging. In 1981, 9.6% of the general
population was 65 or older but by 2007, that proportion had reached 13.4%. The
average life expectancy of Canadians has also increased, from 76-years-old in
1981 to 81-years-old in 2007.
suggest that more Canadians will need to rely on pensions and retirement
savings in the coming years. As a result, planning and saving for retirement is
becoming increasingly critical and Canadians will need strong financial
literacy skills to make informed and effective decisions. .
the variety of retirement plans available can be a daunting task.
are switching their retirement plans from defined benefit schemes to defined
contribution plans to lessen potential costs and risks to the employer. In a defined
benefit plan, the employer guarantees a certain benefit level at retirement
based on the employee’s years of service and history of earnings. In a defined
contribution plan, both the employer and the employee make contributions to
the plan, which are then invested with the employee receiving the full value of
the investment upon retirement.
between the two plans is that the employee absorbs 100% of the investment risk
in a defined contribution plan; if the investments do not perform well,
retirement benefits are directly affected, potentially affecting the retirement
plans of millions of retirees.
The change from
defined benefit to defined contribution plans has been slower to take hold in Canada than in other countries, but a transition is definitely occurring. Between 1991 and
2006, the proportion of Canadians contributing to a defined benefit plan fell
from 41% to 30% while the proportion covered by a defined contribution plan
increased from 4% to 6%. As
pension plans shift toward the defined contribution model, it is increasingly
important for plan members to have strong financial-literacy skills. Without
these skills, they will be less prepared to make sound decisions regarding
their retirement investments.
post-secondary education (colleges, universities or apprenticeship programs)
has increased significantly over the last two decades. In the 1990–1991 school
year 15% of 17- to 29-year-olds were enrolled in full-time PSE studies. By
2005–2006, that number had grown to 23%.[
participation rates have increased, tuition fees have followed. For example, in
1990–1991 the average tuition for a university undergraduate in Canada was $1,464. By 2009–2010, the average tuition was $4,917—more than triple the
amount., 5] This means that tuition fees
increased at an annualized rate of 6.6%, triple the rate of average inflation
As a result of
this increase in tuition, PSE graduates are incurring higher levels of debt. For
example, undergraduates who completed their programs in 2000 owed 68% more (in
constant 2002 dollars) than graduates in 1990; while college students owed 63%
more. Meanwhile, the median debt-to-earnings ratio—the percentage of a
consumer's monthly gross income that goes toward paying debt—increased from .28
in 1990 to .44 in 2000 for university graduates, and .21 to .33 for college
graduates (over the same period).
students and parents, strong financial literacy skills are critical to help
make informed decisions related to the pursuit and completion of post-secondary
This includes navigating through the complexity of
student financing options and associated costs of attending; understanding
economic returns on career choices; and day-to-day management of living
expenses on housing, car loans and credit cards. It also requires that
Canadians comprehend and comply with repayment of student loans; and make
financially responsible saving choices for the future such as saving toward
further education, a home purchase, contributions to savings and pension plans
and savings to alleviate periods of unemployment.
have suggested that parental expectations are also not realistic for post-secondary
financing resulting in inaccurate financial planning:
Over the last
three decades the use of credit cards to finance consumer spending has
increased substantially among Canadians. On a per capita basis growth in
consumer spending has outpaced growth in disposable income. In 1980, Canadians
spent 82% of their disposable incomes; by 2005, they were spending 96%. As
spending has increased relative to incomes, personal savings rates have fallen
from 20.2% in 1982, to 1.2% in 2005.
leave many Canadians in more perilous financial circumstances and increase the
importance of financial literacy skills. As Canadians balance larger debt
loads, it becomes ever more important for individuals to understand the
implications of using different kinds of credit, such as payday loans, credit
cards and lines of credit.
Statistics Canada conducted the first survey designed to directly measure the
financial literacy of Canadians. The survey examined Canadians’ ability to make
ends meet and balance their home budgets, to keep track of their finances, to
choose financial products, to plan ahead (i.e., for retirement or future
purchases), and to stay informed about matters of personal finance. The survey
also included a factual quiz to measure respondents’ knowledge of topics like
stock markets, credit reports, and the effects of inflation.
Canada has not yet published its final report on their findings, the Task Force
on Financial Literacy reported select key findings in August 2010.8]Findings suggest that:
results strongly suggest that Canadians are not sufficiently financially
literate. Other evidence supports this conclusion. For example, the Canadian Centre for Financial Literacy reports that only 10% of respondents to a survey on financial literacy were
“very knowledgeable” about basic financial issues. While Sun Life Financial reports that 43%
of Canadians were unsure how much they needed to save for retirement.10]
government programs suggest that many Canadians are not aware of, or do not
understand, the government benefits that are available. For example, Statistics
Canada estimates that 150,000 seniors in Canada are eligible for the Guaranteed
Income Supplement, yet do not receive it—largely because they do not properly
file their annual income tax returns.
estimates that only one-third of families making less than $38,000 have heard
of the Canada Education Savings Grant; and only one-quarter correctly
understand those grants. While only 10% have heard of the Canada Learning Bond
and fewer than half understand the program.[
education has been shown to be a useful tool for helping Canadians improve
their financial literacy skills. There are two general approaches to financial
education: informational and behavioural.
When the target
audience simply requires information to make appropriate and informed
decisions, the informational approach is appropriate. For example, first-time
home buyers require information on; how to shop for the lowest mortgage
interest rate, how much to save for closing costs, and how to assess the
affordability of housing options. The success of informational programs depends
on the clarity of accessibility of the information presented.
A number of
informational programs are currently available to Canadians. For example, the Financial Consumer Agency of Canada was
created by the federal government to strengthen consumer protection measures
and expand consumer education activities across Canada. Their website provides
information and interactive tools to help consumers learn about credit cards,
mortgages, loans, credit scores, banking, insurance, rights and
responsibilities when dealing with federally regulated financial institutions.
The Canadian Bankers Association provides resources
for students, teachers and parents that are designed to help young Canadians
learn about financial literacy. Through the organization’s Your Money website, young Canadians can
learn about budgeting, saving, investing, borrowing and credit profiles by
watching videos and using interactive tools. As well, teachers can register for
in-class seminars presented by volunteers from within the banking community.
But for some
audiences, clear and accessible information is not sufficient. The behavioural
approach to financial education is designed for audience who need more than
just information, but rather need to change their financial behaviours.
debt-reduction education programs focus on helping participants learn to
distinguish between needs and wants with he goal of reducing
their unnecessary expenditures and avoiding compulsive or emotional spending.
to change financial behaviours often rely on incentives. For example, learn$ave is a federally-funded program
currently being evaluated by the Social Research and Demonstration Corporation.
The program is designed to encourage low-income adults to save for education or
training or to start a small business. When program participants make deposits
in a special accounts, their savings are matched. For example, participants
receive $3.00 in matched saving credits for every $1.00 they deposit in their
accounts. Participants also receive financial management training; however, the
financial incentives appear to be far more effective than the informational
component of the program.
from the study of behavioural economics can also contribute to the success of
financial education programs. Classical economics assumes that people make
rational decisions to optimize their financial well-being, while behavioural
economics assumes that people often use less-than-optimal heuristics (or
“trial-and-error”) approaches when making financial decisions.
insight is that people find it less difficult to forego future income increases
than foregoing corresponding proportions of their current incomes.14] This is the basis for the Save More
Tomorrow retirement plan which encourages participants to commit in advance to
allocate a portion of their future salary increases toward retirement savings.
This approach has been shown to be very successful. In one assessment, 78% of
those offered the plan accepted it. Of those who joined the plan, 98% stayed
with it through at least two pay raises, increasing their savings rate from
3.5% to 11.6% in a two-year period.
anticipate an increase in the availability of opportunities to learn about
financial issues in the near future. In 2009, the federal government appointed
a National Task Force on Financial Literacy to provide advice on a national
strategy to strengthen the financial literacy of Canadians. In September 2010,
the Task Force released a report called What
We Heard which summarized their public consultations which were held
across Canada and online between February 2009 and May 2010. This will be
followed up by a final report scheduled for the end of 2010 that will include
recommendations for a national financial literacy strategy.
 Task Force on Financial Literacy, About Financial Literacy. Accessed March 29, 2010.
 P. Gougeon, "Shifting pensions", Perspectives on
Labour and Income (Ottawa: May 2009). Statistics Canada Catalogue no. 75-001-X.
(accessed March 29, 2010).
 D. Hango, & P. de Broucker, "Postsecondary enrolment
trends to 2031: Three scenarios", Culture, Tourism and the Centre for
Education Statistics Research Papers (Ottawa: 2007). Statistics Canada Catalogue no. 81-595-MIE2007058.
(accessed March 31, 2010).
 Statistics Canada, Average Undergraduate Tuition Fees, (Ottawa: 2006). (accessed March 31, 2010).
 Statistics Canada, Average Undergraduate Tuition Fees for
Canadian Full-Time Students, by Province.
 Statistics Canada,Consumer Price Index, Historical Summary(Ottawa: 2010).
(accessed March 31, 2010).
 J. Dubois, Trends in Student Borrowing and Pathways: Evidences from the 1990, 1995 and 2000 Classes, (Ottawa: Learning Policy Directorate,
Strategic Policy and Planning, Human Resources and Skills Development Canada, 2006). (accessed March 31, 2010).
 Task Force on Financial Literacy, Leveraging Excellence: Charting a Course of Action to Strengthen Financial Literacy in Canada. (accessed August 25, 2010).
 Canadian Centre for Financial Literacy, E-Newsletter,
Issue No. 1http://www.theccfl.ca/archiveNewsletters/Newsletter%20Jan%2009.html (2009). (accessed
August 25, 2010).
 Sun Life Financial,Insights: Retirement Your Way(2008).
(accessed August 25, 2010).
 M. Luong, "GIS Update", Perspective on Labour and Income, (Ottawa: 2009). Statistics Canada Catalogue no. 75-001-X.
(accessed August 25, 2010).
 K. Girdharry, E. Simonova & R. Lefebvre,Registered Education Savings Plans – Valuable Opportunities for the Students of Tomorrow(2010).
(accessed August 25, 2010).
 N. Leckie, T.S.-W. Hui, D. Tattrie & H. Cao,Learning to Save, Saving to Learn: Intermediate Impacts of the learn$ave Individual Development Accounts Project,(2009).
(accessed August 25, 2010).
 O. Mitchell & S. Utkus, "Lessons from behavioral finance for retirement plan design", Pension Research Council Working
Paper 2003-6 (2003). (accessed August 25, 2010).
 R.H. Thaler & S. Benartzi, "Save more tomorrow
(TM): Using behavioral economics to increase employee saving", Journal
of Political Economy, 112(S1), S164-S187 (2004)..
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