1. 14 FORUM
FINANCIAL LITERACY

2. inancial decisions made early in
life play a significant role in deter-
mining future financial success.
Yet, there are few resources avail-
able to teach young adults intro-
ductory personal financial skills.
The Canadian education system
teaches little to nothing when it comes to practical,
personal financial management. “Go to school and
get a job!” seems to be the prevailing wisdom. Okay,
but then what? While our schools may teach us how
to earn money, they don’t really teach us anything
about how to manage it.
We’re constantly faced with real-life decisions
requiring at least some degree of financial know-how.
Sadly, the majority of Canadians lack the skills neces-
sary to make informed decisions when it comes to
their finances.
New Realities
Many experts agree that the lack of financial literacy
among Canadians is contributing to broader econom-
ic issues, such as the current household debt crisis in
Canada.
Historically, Canadians have demonstrated a fairly
prudent approach to personal finance. Our house-
hold debt levels have always been significantly lower
than those of our American neighbours. But not any-
more.By the third quarter of 2010,average household
FORUM 15
On February 9,2011,the Task Force on Financial
Literacy delivered its proposed strategy to Finance
Minister Jim Flaherty for improving Canadians’
financial IQ. Michael Callahan outlines several
key recommendations that tie into the role that
professional financial advice plays in helping
clients make sound financial decisions
101
Money
F
PHOTO:DAVEBRADLEY/GETTY

3. debt in Canada had reached a staggering 148 per cent of annual
income.Stated another way, for every $1 we make, we spend $1.48.
As a result, Canadian household debt has now exceeded that of
the United States.
While skyrocketing household debt is perhaps the most obvi-
ous example of imprudent financial decision making, it’s just one
indicator of a larger problem: Financial illiteracy threatens the
long-term health and well-being of our economy as a whole.
Without an understanding of general financial concepts, we tend
to make poor financial decisions with potentially disastrous con-
sequences.
Basic Skills
We’re all familiar with the basics of good physical health — regu-
lar exercise, eating a healthy, balanced diet, etc; yet, we seem to
have forgotten the basics of good financial health, such as saving
for a rainy day and living within your means. Of course, we’re not
suggesting that everyone should understand the complex nature
of hedge funds or the intricacies of fundamental and technical
analysis. Rather, a basis for making sound financial decisions stems
from an understanding of a few key essential concepts:
• Borrowing — good debt, bad debt. From high-limit credit
cards to“don’t pay a cent event”type marketing, it seems that tak-
ing on debt has become an acceptable and increasingly easy solu-
tion for funding today’s needs and wants. The focus has shifted
away from whether or not a purchase makes sense and towards
qualifying for maximum financing. Granted, there are times when
borrowing makes sense, such as to fund an education, or buy a
house or car.What’s truly important is that Canadians are able to
evaluate terms of borrowing in any situation and distinguish
between good and bad debt.
• Budgeting — personal finance. Unfortunately, most people
equate budgeting with“doing less.”And yet, living within a budg-
et doesn’t necessarily mean having less fun; it simply means mak-
ing the most of what you have. A well-defined budget can allow
for meeting future goals, day-to-day lifestyle expenses, saving and
investing, and the repayment of outstanding debt.
• Retirement — planning your own future. Today, many com-
panies have abandoned defined benefit (DB) pension plans in
favour of deferred profit sharing plans (DPSP), or simply offer no
savings or pension plan at all. The responsibility of constructing
an income in retirement has been passed from employer to employ-
ee. The message is clear: We must take charge of our own retire-
ment. We can no longer rely on government, union, or employers
to provide for us when our working days are done.
• Investing — risk vs. reward. Most real-life financial decisions
require an understanding of the relationship between risk and return.
However, many Canadians have only a vague idea, or perhaps no
idea at all,of the types of risk present within various financial instru-
ments.From establishing a fixed- or variable-term mortgage to build-
ing a portfolio for retirement income, it’s important that investors
understand the trade-offs that exist between risk and return.
While by no means exhaustive, the above points help identify
the core problem — namely, that Canadians do not possess the
skills necessary to make informed financial decisions.
So where do we turn for a solution?
Industry Advice
Many Canadians look to financial institutions, such as their local
bank branches or credit unions, for financial advice.Although this
is often a good starting point, relying solely on financial institu-
tions for advice isn’t always the best approach.
“It’s important to keep in mind the potential conflicts of interest
that exist with respect to financial institutions acting as educators,”
saysEllenRoseman,authorandpersonalfinanceandconsumerissues
columnist with the The Toronto Star.“For example, a bank may
approve a couple for a $350,000 mortgage,but in no way should this
be taken as advice to actually go out and borrow that much money.”
Of course, we can only expect financial institutions to do so
much. For instance, most products and services are sold with an
accompanying disclosure document, but as Roseman points out,
there is a limit to how much disclosure actually helps people.
“Financial literacy is of the utmost importance, make no mis-
take about that,”Roseman adds.“However, financial literacy can-
not take over from regulation.”
Outside of the financial services industry, many Canadians rely
on the government for education and guidance on financial mat-
ters. In recognition of this, the federal government created a spe-
cial task force to address this growing concern.
The Task Force
on Financial Literacy
In the 2009 federal budget, Minister of Finance Jim Flaherty
announced the establishment of a national task force dedicated
solely to raising the country’s financial IQ. Comprising 13 mem-
bers from both business and education sectors, the goal of the Task
Force on Financial Literacy was to provide advice and recommen-
dations to the Minister on a national strategy to strengthen the
financial literacy of Canadians.
On February 9, 2011, the Task Force released its official report,
including a set of 30 recommendations, to the federal government.
The full report is available on the Task Force’s website at
www.financialliteracy.com.
Let’s focus on a few recommendations that are of particular
interest:
FINANCIAL LITERACY
16 FORUM MARCH 2011
Many experts agree that
the lack of financial literacy
among Canadians is
contributing to broader
economic issues, such as
the current household debt
crisis in Canada.

4. MARCH 2011 FORUM 17
• The Task Force recommends that the federal, provincial and
territorial governments require all financial services providers
within their respective jurisdictions to simplify their informa-
tional materials and disclosure documents.Given the importance
of clear communications, governments should lead this effort by
reviewing and improving their own public informational mate-
rials to ensure they meet clear communications principles.
• The Task Force recommends that financial services providers
put a strong emphasis on delivering educational information
and ensuring that it is fully understood by Canadians at“teach-
able moments,”so that Canadians can make sound financial deci-
sions.
• The Task Force recommends that the Government of
Canada, in partnership with stakeholders, provide tools to help
Canadians become better informed about the role and benefits
of professional financial advice, as well as how to choose a finan-
cial practitioner.
• The Task Force recommends that the Government of Canada
create, maintain, continuously upgrade and promote a single
source website for financial literacy in an effort to increase pub-
lic awareness about, and ease of access to, information.
• The Task Force recommends that all provincial and territo-
rial governments integrate financial literacy in the formal edu-
cation system, including elementary, high school, post-second-
ary education and formalized adult learning activities.
In preparing its list of recommendations, the Task Force
embarked on a 12-week consultation process, travelling in small
teams to communities in every province and territory. The Task
Force met face-to-face with 175 individuals and organizations
to gather their views, values and experiences.
“Although advisors may not be directly compensated for
helping their clients with [personal budgeting, cash flow and
borrowing], it’s one more way to differentiate yourself from
the pack while further strengthening client relationships.”
— Ellen Roseman, personal finance columnist, The Toronto Star
Additional Resources
for Financial Literacy
Turning your clients on to any of the following sites
for financial education will show them how much
you care about their financial future. Better yet,
cut and paste articles of interest and email them
directly to clients.
Advocis – Financial Advisors Association of Canada
www.advocis.ca
Canadian Centre for Financial Literacy (CCFL)
www.theccfl.ca
Investment Funds Institute of Canada (IFIC)
www.ific.ca
Financial Consumer Agency of Canada (FCAC)
www.fcac-acfc.gc.ca
Task Force on Financial Literacy
www.financialliteracyincanada.com
Practical Money Skills Canada
www.practicalmoneyskills.ca

5. “We’ve travelled across the country, from coast to coast, and
one thing that really stood out was the incredible commitment
from everyone involved,” says Donald Stewart, CEO of Sun Life
Financial Inc. and chair of the financial literacy Task Force.“From
advisors, various industry organizations, and from [provincial and
federal] governments, the level of commitment to increasing
Canadians’ financial literacy is outstanding. We’re very pleased
that the Honourable Jim Flaherty, Minister of Finance, has indi-
cated his intention to move forward with our recommendations.”
Education Initiatives
The Task Force’s recommendation to introduce financial educa-
tion into our schools is no doubt a breath of fresh air for those
who believe the financial literacy of Canadians is the responsibil-
ity of our education system.
“It is absolutely critical that we integrate financial management
skills into the curriculum at all levels of the public education sys-
tem,” says Greg Pollock, CFP, president and CEO of Advocis and
member of the Task Force.“It’s important that we introduce finan-
cial literacy at an early point in our education system. By doing
so, we can better equip Canadians to make the real-life financial
decisions we all face.”
It appears that many feel educating young Canadians should
be the responsibility of parents and schools.In fact,a recent nation-
al survey conducted for the Canadian Institute of Chartered
Accountants (CICA) found a whopping 98 percent of respondents
believe that parents should play a role in the financial education
of children. The survey, conducted by Harris Decima, also indi-
cated that 85 percent of Canadians believe financial management
skills should be taught in schools.
“I am aware of the challenges our educators face with intro-
ducing new material into the curriculum,”adds Pollock.“However,
I know they can rise to meet this challenge and help make finan-
cial literacy a core component of our education system.”
Exactly when or how the new material will find its way into the
classroom is yet to be determined. In Canada, education is a
provincial responsibility and therefore, Pollock says, the Task Force
decided it’s best left up to each province and territory to deter-
mine the most effective way to integrate financial education into
their curriculum.
Role for Financial Advisors
So what does this all mean for advisors?
“As financial products become more and more complex, advi-
sors will no doubt play an increasingly important role in provid-
ing clarity around various industry products and services for their
clients,” explains Pollock. “For example, prospectus documents
for investment products are often difficult for consumers to under-
stand. Too often, Canadians don’t have the help of a financial advi-
sor to clarify and distil this complex information.”
“In addition to investment advice, we’re finding out that clients
also need guidance on matters such as personal budgeting, cash
flow and borrowing,” adds Ellen Roseman. “Although advisors
may not be directly compensated for helping their clients with
some of those initiatives, it’s one more way to differentiate your-
self from the pack while further strengthening client relationships.”
Since advisors work in many different capacities with their
clients, a needs assessment is one more reason to determine an
appropriate advisor-client fit. For example, while some clients may
want help with personal budgeting challenges, and others may
require help planning for retirement, others may be looking for
purely transactional stock trading advice.
Of course, advisors cannot be all things to all people. But as
Roseman suggests, “Advisors can maintain client relationships
while referring to other professionals or other resources for mat-
ters outside their service offering.”That is, an advisor doesn’t nec-
essarily need to possess a massive amount of educational materi-
als to help educate their clients on financial matters. Rather, an
advisor can refer clients to other resources (see sidebar“Additional
Resources for Financial Literacy”) or pass along information from
third-party sources.
One potential future resource may very well come from the
Task Force. Says Donald Stewart: “One of our recommendations,
[which is] the idea of a single source website for financial litera-
cy, should prove a great resource — not only for the general pub-
lic, but also for financial advisors.”
Bottom Line
We face financial decisions every day of our lives. Everything from
choosing the right credit card, to buying a house or car, to simply
evaluating a cell phone plan requires at least a basic level of finan-
cial knowledge. Financial literacy must be viewed an essential
skill — a “need to have” as opposed to a “nice to have.”
Indeed, when it comes to financial know-how, ignorance is not
bliss.As Greg Pollock puts it,“At the end of the day,we have a respon-
sibility to educate Canadians and provide them with the tools
necessary to make informed decisions on financial matters.”
MICHAEL CALLAHAN can be reached at callahan_michael@yahoo.com.
FINANCIAL LITERACY
18 FORUM MARCH 2011
“One of our recommendations,
[which is] the idea of
a single source website for
financial literacy, should prove
a great resource — not only
for the general public, but also
for financial advisors.”
— Donald Stewart, CEO, Sun Life Financial Inc.