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Editorial – Financial literacy: important but not sufficient

Photo credit: Fabian Blank

Financial literacy is defined as having the knowledge, skills and confidence to make responsible financial decisions. Accordingly, a financially literate person is someone who has financial knowledge that can be used in everyday life. He or she will also be able to make good decisions in a wide range of situations and do so with confidence.

Being financially literate is important at every stage of one’s life. As a teenager, it allows you to put some money aside and invest it in preparation for the future. As an adult, you can use it to make good choices, not only on a day-to-day basis, but also when it comes time to sign an important contract or to invest. In retirement, it helps you manage your money effectively and utilize a range of financial tools to protect your assets and get the most out of them.

Yet financial literacy has its critics, who see it as ineffective. They point to the high level of consumer indebtedness—which was close to 180%  at the start of the pandemic—and to the fact that even people with a very high level of financial literacy don’t always make good financial decisions. Such analysts seem to forget that, even among the most “knowledgeable,” emotions sometimes take precedence over reason. And that beliefs acquired in childhood do not always withstand the test of time.

In addition, a few studies have found that possessing financial literacy does not always lead to long-term results. It is by asking questions related to specific situations that people are most likely to learn, which suggests that ongoing education is more useful than the training you receive in school.

In this Financial Literacy Month, we would like to salute the publications and the tools that federal and provincial agencies such as the Financial Consumer Agency of Canada and Québec’s Autorité des marchés financiers are featuring on their websites and which consumers can consult at their leisure. We also commend the adult training offered  by educational institutions and organizations, particularly on the management of investment portfolios, taxation or retirement planning. Finally, we should mention the money that governments devote to this cause. In these times of great uncertainty, we certainly need to promote financial literacy.

But much more needs to be done…

Because it is not only financial literacy that counts, it is also the clarity of the information provided. We bet that you’ve already contacted your credit card issuer or insurer to request information about your contract. Or that you’ve pored over your investment statements with a good deal of confusion. For consumers to be able to act effectively, they need to be provided with information they understand, not allowed to get lost in a mist of abstract, nebulous jargon..

They must also be given all the information. In recent years, Option consommateurs has denounced the umbrella mortgage clauses hidden in mortgage contracts that the lenders never talk about. It has uncovered the fact that some FinTech companies were embellishing their websites with enticing comments without ever letting future clients know about the restrictions in their contract that would bind them to the company. Even the most financially literate among us is unable to guess what information is being left out.

In short, consumers need to be better protected. Today, it is possible to purchase a large number of financial products on the Internet including insurance, loans, and investments. Pretty soon, this will be the norm. This new way of doing things brings along its share of challenges that are not always taken into account by current laws. Consequently, additional protections have to be set in place, particularly when it comes to representations, distance contracts and privacy protection. Only then will consumers be truly well protected.