A new approach to financial literacy

Susan Deller | January 25, 2011

Few Canadians will voluntarily educate themselves about financial matters—especially when it comes to retirement planning. Just ask the many plan sponsors and providers that have spent big money on member education materials and financial planning tools that sit largely ignored and unused. Thanks to the Capital Accumulation Plans Guidelines (CAP Guidelines), there’s not a well-governed CAP in the country that doesn’t offer its members financial planning help in the form of worksheets and/or calculators. But, as parents and teachers know all too well, it’s never quite as simple as handing out instructions and leaving the room.

Your members need an incentive to take that first step, and they need a consequence—other than an inadequate retirement income—for failing to act. Unfortunately, the concept of a comfortable retirement is too nebulous and distant to motivate most members, except those on the brink who’ve already left it too late. If subsisting on a meagre public pension is the consequence, it pales next to your members’ more immediate needs and wants—like mortgage payments and big screen TVs.

Accepting this, savvy plan sponsors are taking a step back and revisiting their member education strategy. If you want your members to make smart choices about retirement, why not start by giving them a good grasp of financial basics? If you can’t get them to go online to use your retirement income calculator, why not give them something that hits closer to home, such as some quick tips on buying a car or choosing a credit card?

A foot in the door
Just-in-time financial information offers lots of opportunity for learning. Give your members some quick facts about buying versus leasing a car and you can probably throw in a few words about compound interest without them even noticing. Add a simple calculator to compare monthly payments and before they know it, your members have taken the first step toward real financial know-how.

Thinking beyond pension and benefits literacy to broader financial wellness allows your members to start building knowledge on their own terms. This knowledge will not only make them better benefit consumers, it will also make them better all-round employees. The key is to keep your program simple, current, accurate and unbiased. Your members don’t want to be sold anything and will quickly disengage at the slightest hint of a pitch or otherwise untrustworthy source.

With rising debt levels and decreasing savings rates, there’s growing evidence of a financial literacy crisis in Canada, particularly among younger Canadians. So it’s not surprising that there is now a push at both the provincial and national levels to fix the problem. With financial literacy making its way into the school curriculum, there’s hope that the next generation of plan members will show up with the knowledge, skill and confidence they need to make responsible financial decisions. In the meantime, plan sponsors would do well to refocus their member education efforts to help improve the financial outcomes of existing members.