Remarks by Jane Rooney, Financial Literacy Leader, at the C.D. Howe Institute Conference
The New Paradigm of Financial Advice: New Technologies, New Regulations, New Business Models
Panel: What is Financial Advice?
The Westin Harbour Castle, Toronto
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Good morning. Thank you Stan (Magidson).
I’m glad financial literacy is part of the discussion today.
We bring different perspectives to this panel, but I think we can all agree on the importance of both financial literacy and financial advice.
As Canada’s Financial Literacy Leader, my role is to help strengthen the financial wellbeing of Canadians and their families by empowering people to manage their money and debt wisely, plan and save for the future, and protect themselves against fraud and financial abuse.
Financial literacy and financial advice are complementary. It’s important that consumers have the knowledge, skills and confidence to make informed choices. Equally, it’s important they seek trusted advice.
Financial literacy has always been an essential skill, but it’s even more so today. There are a couple of reasons for this.
First, the financial services industry is evolving. Financial products and services are increasingly complex. And because of technology, people are making financial decisions at a faster pace and often without seeking advice.
In your industry, you’re seeing the impact of technology, including more people using robo-advisors and other online resources.
Second, our demographics are changing. Millennials are now the biggest generation in the workplace. But they may not have permanent jobs, or benefits like a pension plan.
So there’s been a shift in responsibility to consumers to make more decisions for themselves, including about retirement planning. And we have an aging population, with people living longer. Some Canadians could be funding their retirement for 20 years, or more.
At the Financial Consumer Agency of Canada (FCAC) where I work, we monitor key consumer trends. We know the vast majority of Canadians don’t feel prepared for retirement, and this is particularly true among vulnerable populations.
Many consumers don’t know how much they need to save to achieve the lifestyle they want after working.
We also know many Canadians lack access to basic emergency savings and have high debt. We’re seeing increasing levels of debt among retirees too. I was at a G20 conference in Germany earlier this year where the discussion focussed on the low-interest, high-debt environment in many countries.
In Canada, we’ve had record low interest rates and, at the same time, Canadian households are devoting less of their disposable income to savings than ever before. At 167 percent, our debt-to-disposable income ratio is at an all-time high.
Despite these challenges, Canadians don’t always get financial advice even when it’s necessary. We found this among higher risk consumers in particular. Given the level of debt in this country is a concern, we’ve researched the type of debt Canadians are taking on.
We found patterns, including a rise in payday loan use. The proportion of Canadians using payday loans is small, but it has more than doubled from 1.9 percent in 2009 to 4.3 percent in 2014.
And we found 20 percent of payday loan users are not who we might expect – they have household incomes of $80,000 plus (above the median income).
According to our Payday Loan: Market Trends report:
Only eight percent of payday loan users we surveyed reported “always” seeking financial advice, free or paid, when they felt it was needed. An additional 18 percent “usually” sought advice, 45 percent “sometimes” sought advice, and 27 percent “never” sought advice when they thought they should.
This highlights the need to better communicate with higher-risk consumers about their options.
Our data shows the benefits of using a financial advisor. Every five years, the government fields the Canadian Financial Capability Survey (CFCS). According to the latest survey from 2014:
Retirees who frequently sought financial advice (whether free or paid) reported a standard of living that met or exceeded their expectations at a higher rate than those retirees who did not seek advice.
Near-retirees (Canadians 55+ who are still working) who frequently sought advice on financial matters reported higher levels of RRSPs, TFSAs, and retirement planning.
Having access to advice is essential because many consumers are not experts in investing. But we believe consumers have a responsibility to learn more about the advice they get and the fees they pay. Financial literacy is integral to financial advice.
To determine the best approach to strengthening financial literacy, FCAC held consultations across the country and worked with the National Steering Committee on Financial Literacy that included members from the Ontario, New Brunswick and Quebec Securities Commissions, Financial Planning Standards Council and Canadian Bankers Association, as well as other organizations to develop our National Strategy for Financial Literacy—Count me in, Canada. Our strategy was nominated for an international award last year.
In February, we announced a new steering committee of 15 experts from across Canada. It includes representatives from Advocis, two provincial regulators (New Brunswick and Quebec), and some financial service sector associations.
One of the committee’s objectives is to increase financial literacy programs in the workplace, which allows us to reach large numbers of adults and has tremendous benefits for employees and their families, as well as employers, because it helps reduce financial stress.
We’ll also be working on ways to help Indigenous Peoples strengthen their financial literacy.
Going forward, FCAC has identified the following three priorities:
Budgeting (we want more Canadians to use a budget to help build confidence and manage money more effectively);
Savings (we want more people to build an emergency fund and longer-term savings); and
Understanding rights and responsibilities about financial products and services (we want more people to understand these rights and responsibilities).
How do we improve financial literacy? In a number of ways. We collaborate with stakeholders in financial services, as well as government, non-profit groups, community organizations, and educators.
We also develop educational programs and tools to help consumers develop a budget, save, and manage debt through all stages of life, whether it’s starting a family, funding post-secondary education, buying a home, or retiring.
We have tools to help consumers shop around for financial products and services that best suit their needs. We have information to help people better understand pensions, savings vehicles such as RESPs, RRSPs and TFSAs, and retirement planning.
And we have resources that help consumers choose a financial advisor, know what questions to ask, understand where to go if they have a complaint, and learn their rights and responsibilities as financial consumers
We encourage professionals who deal with Canadians’ finances, whether it’s advisors, benefit providers or HR staff within companies, to share FCAC’s resources. Because, while financial advice is tailored to individual needs, there are things that apply to everyone.
We know, for example, there are fairly basic things all consumers can do to manage their money. These include making a budget. This might seem obvious to those of us who work in the industry, but our research shows that less than half of Canadians have a household budget.
At FCAC’s research symposium last year, there was consensus that encouraging consumers to develop a budget is key because it’s a foundational piece of any financial plan that helps people prioritize their spending, save and invest.
We see financial literacy as a shared responsibility, so we want financial advisors, employers, policy makers and organizations across the country to help us empower more Canadians to budget, save, and understand their rights and responsibilities as financial consumers.
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