The Globe and Mail Report on Business by Brenda Spotton Visano 23 June 2015
If only it were enough. The federal government’s national financial literacy strategy – “Count Me In, Canada” – is an ambitious plan with the noble intention of empowering Canadians to meet their financial goals head-on, and banks are offering millions of dollars in support.
But the plan does nothing to dismantle the real barriers to financial success. Even if it helps everyone improve their grasp of basic finance, many Canadians will still find it difficult to manage their money well. Consider:
1. Indecipherable contracts. To comprehend easily a debit-card contract from one of our banks, for example, a reader needs to be in the sixth year of her PhD. Empowering Canadians to manage money wisely first requires financial institutions to provide contracts that users can actually understand.
2. Predatory loans. People who work low-wage jobs, sole-support parents who raise young children and seniors with little retirement income have no hope of establishing a financial cushion, regardless of how wisely they budget. The delay of even a day or two in an income payment can start a disastrous downward debt spiral. If borrowing from a payday lender at 400-per-cent interest is the only way to avoid eviction, you do it. If paying four times the cash price ensures that you have a clean bed to sleep in after bedbugs invade your apartment building, you sign that “rent to own” contract. Empowering Canadians to manage debt wisely requires banning usurious borrowing costs.
3. Inaccessible debt information. If there’s no record of you repaying fringe financial loans, a collections agency can place a lien on your bank account for as little as $8. The bank is under no legal obligation to notify you. Unless you hire a lawyer to investigate, you won’t know about the lien until your deposits have disappeared. As a result, people who’ve had previous problems avoid banks in favour of payday lenders – it’s less stressful, despite the exorbitant rates. Empowering Canadians requires consumer-protection legislation that sees financial institutions disclosing debt information to consumers as easily as they service collections agencies.
4. Student loan tangles. Low-income Canadians wanting to upgrade their education face an impenetrable web of income supports, vague rules and conflicting bureaucracies. For example, disability supports, public housing, social assistance or a Registered Education Savings Plan in your child’s name may reduce your student loan eligibility. Sorting out what’s allowed and what isn’t often requires dealing with multiple levels of government. And good luck if your private college closes its doors mid-term – you don’t earn your diploma, but you’re on the hook for the full amount of the student loan. Empowering Canadians requires we examine problems linked to student loan operations and private institutions.
5. Inappropriate financial advice. What’s good for the haves is often wholly inappropriate for the have-nots. A Tax Free Savings Account is a better option than a Registered Retirement Savings Plan for those expecting their retirement income to be more than a meagre income earned before turning 65. Empowering Canadians requires bankers listen to the lived experience of poverty and work to tailor appropriate financial advice and products.
6. Unreliable funding for advocates. Community agencies have no core funding to pay their experts, despite being recognized explicitly in the federal government’s strategy as vital partners in the delivery of financial-literacy training and advocacy. This means on-again, off-again services. Empowering Canadians requires sustainable core funding for experts in finance for low-income households.
A financial-literacy strategy will be successful only if and when we match it with an equally vigorous poverty-literacy campaign for Canadian bankers and policy-makers. It’s not enough to target individuals – financial institutions and governments must audit and remedy the major financial barriers still confronting Canadians. Bankers and regulators, can we count you in?
Brenda Spotton Visano is a professor of public policy and economics at York University and a member of the Black Creek Financial Action Network.