CLHIA Supports the Government’s Efforts to Make Financial Literacy a Priority for Canadians

by: Leah Littlepage, CLHIA
CLHIA

There is a growing awareness of the importance of collaboration to strengthen the financial literacy of all Canadians. The federal government through the Financial Literacy Leader, Jane Rooney is continuing its implementation of the National Strategy on Financial Literacy – Count me in Canada. As part of a collaborative approach, the Financial Literacy Leader has appointed the second National Steering Committee for Financial Literacy. This committee, whose membership is composed of both public and private sector representative, serves to support the work of Canada’s Financial Literacy Leader. Committee members help to identify ways to equip Canadians with the tools needed to successfully manage their money, control debt, plan for their future and guard against fraud or financial abuse.

As a member of the National Steering Committee, the CLHIA is responsible for developing a financial literacy plan for the insurance sector and for ensuring that Canadians understand the myriad financial resources available to them, including insurance.

There is a growing body of research that suggests that smarter, more targeted financial literacy interventions will be of the most benefit to Canadians. These interventions should focus less on just imparting knowledge and more on driving sustainable behavioral change.

It is generally low-income Canadians that are the most vulnerable to financial instability so having a better understanding of the challenges they face and the factors that affect their financial decisions is vital not only to better tailor financial literacy programs, but also to grow Canada’s middle class. Other groups that could benefit from specific programs include newcomers to Canada, seniors and youth. Studying which interventions have proven to be the most effective, for who and why can help ensure that financial literacy programs have the desired effect.

Developing and implementing tailored programs are only part of the challenge. There is also the need to ensure that these programs are effective and that the results of the financial interventions are sustainable over the long-term.

The National Steering Committee will be focusing on ways to address the specific needs of Canadians by developing and promoting financial literacy programs that are specifically designed for various social/economic positions. The Committee will promote research that examines the factors that contribute to financial decision making as well as the best timing to make financial literacy interventions. This includes a focus on behavioral science and the role that peer support can have on the financial decisions that people make.

The CLHIA will be working with other members of the National Steering Committee to deliver on this program of work. As part of this process, the Clear Communicator Newsletter will contain articles relevant to the four priorities areas identified under the National Research Plan of the Committee. The articles will examine ways to promote sound financial practices relating to the following four themes:

1. Budgeting: One third of Canadians struggle to make ends meet, but between the ages of 35 and 44, this number rises to 42 percent. That is a significant portion of the Canadian population that is financially constrained. When times are difficult, many Canadian rely on credit rather than their savings to make ends meet. Proper budgeting skills can help Canadians prepare for their future, and protect themselves during times of financial uncertainly. Unfortunately, less than half of Canadians maintain a household budget, despite the benefits of budgeting. Many consumers have indicated that one of the biggest barriers to budgeting is knowing where to start.

2. Paying Down Debt: Canada’s debt-to-disposable income ratio is one of the highest in the world and is only increasing as time goes by. Within Canada, individuals with the highest levels of debt tend to be under the age of 45, are in lower income brackets, and are less likely to have post-secondary education. Unfortunately, the number of Canadian seniors with debt is also increasing with 19 percent of retirees continuing to pay into their mortgage and 15 percent of retirees carrying a balance on their credit cards.

3. Building Savings: The rise of household debt in Canada has coincided with a decline in personal savings. In 1982, the personal savings rate was almost 20 percent, but in 2016 this had dropped steeply to under 5 percent of disposable income. According to recent studies, 56 percent of Canadians have less than $10,000 in liquid savings for emergencies, with 44 percent having under $5,000 and 21 percent with less than $1000. Unexpected expenses are common and the growing trend of decreased savings in Canada leaves a significant portion of the population vulnerable during times of financial disruption and ill prepared for unexpected costs.

4. Increasing Complexity and Availability of Financial Products and Services: There has been significant innovation in the financial services sector in recent years leading to an increase in the complexity and diversity of available financial products. Disruptive technologies in the financial sector can be confusing for consumers who are trying to identify the best products to suit their individual needs. Many consumers also do not know where to turn for a trusted source of advice when looking to purchase financial products in an increasingly complex market.

Over the upcoming year, the CLHIA will work with the National Steering Committee on Financial Literacy to identify ways to help consumers better plan for their futures and make more informed decisions on their financial needs.