Financial literacy

The Ritcey Report

August 31, 2017

Until comparatively recently, financial literacy was not considered to be a necessary part of a high school education. Slowly but surely that shortcoming is beginning to be addressed.

Financial literacy is taking root – at last

A newly announced Ontario government program will soon make financial literacy a reality for high-school students. In B.C. financial literacy is now taught in every grade within a newly revised math curriculum. In Alberta teaching financial literacy is a priority in schools according to a new survey – involving 32,391 parents, teachers and students – conducted by Alberta Education. And here in Nova Scotia, financial literacy is embedded into mathematics, social studies and health education from primary to Grade 9 and then expanded on in selected high school courses. This is very encouraging news.

Financial literacy goes beyond high school

The news gets even better when you consider Canada’s college and university population. We came second among 15 countries (tied with Belgium) in the Program for International Student Assessment (PISA) on financial literacy, released in May 2017 from Paris. Approximately 3,400 students from seven Canadian provinces took part in the survey, which is administered by the Organization for Economic Cooperation and Development (OECD).

According to the results, 87% of Canadian students demonstrated at least a baseline level of financial literacy, defined by the OECD as allowing them ‘to participate fully in modern society.’ 22% of Canadian students demonstrated advanced levels of financial literacy, well above the OECD average.

It’s never too soon to start

My view is that school age kids should be introduced to the basics of banking early. As parents we should encourage them to open a bank account and help them do so. As part of that process we should explain the differences between a chequing and savings account. And we should be talking to them about reviewing their account statement each month and reminding them of the importance of saving a small amount of their monthly income – whether that comes from an allowance or, for example, a paper route.

Remind them of the importance of creating a budget at school, monitoring it, and sticking to it. Talk to them regularly about the costs of rent, books, tuition, food and school food plans, plus the costs of extracurricular activities. Don’t allow your children to take money for granted.

Some experts propose introducing our children to elementary money concepts even earlier than high school. ‘A good age to approach money with young kids is around age five,’ wrote Robin Tobin, author of A Parent’s Guide to Raising Money-Smart Kids. ‘That’s when they start to go to pre-school and they’re exposed to other kids and things that other children have and they may start to ask for things. So it’s a good time to explain to them that nothing comes for free.’

Financial literacy is an on-going process

And the educational process shouldn’t stop there. Your university aged kids will be tempted to sign up for credit cards while at college. Make sure they are aware of the long-term consequences of not paying off their credit card obligations on time because, once established, bad credit has the potential to shadow them for years.

We are fortunate in Nova Scotia to enjoy the support of provincially funded programs that enable eligible Income Assistance recipients to receive benefits while they attend university or a post-secondary education program. Go to [Link: novascotia.ca] for further details.

The implications of intergenerational wealth transfer

Financial literacy is becoming increasingly crucial. That is because we are living in a period when substantial amounts of intergenerational wealth are changing hands. As a result, it is vital that those generations receiving it know how to manage the money they stand to inherit. Let’s take a look at the numbers involved.

In a 2015 report, management consulting firm Accenture noted that while the ‘great transfer’ of wealth from those born in the 1920 and ’30s to their Baby Boom children was still taking place, the ‘greater’ transfer of wealth from Baby Boomers to their heirs — children born in the late 60s and later — is much larger.

Accenture estimated that amount to be $30 trillion in financial and non-financial assets in North America. At its peak between 2031 and 2045, 10% of wealth will be changing hands every five years, according to the report. In a 2012 report, Investors Group estimated the value of the inheritance boom at $1 trillion in Canada over the next 20 years.

A matter of urgency

This huge accumulation of intergenerational wealth means those into whose hands it falls need to have much more than an elementary understanding of money management to handle it properly.

Investment terms such as asset allocation (the balanced combination of investments in a portfolio), diversification (the mix of asset classes – fixed income, equities and cash – that reduce risk while potentially increasing returns) and risk/return ratio (the level of risk an investor is prepared to tolerate) are ones that these inheritors will need to be familiar with, since they are the fundamental building blocks of sustained wealth accumulation and sound financial management.

Dave Ritcey, The Ritcey Team, Scotia Wealth Management