The Financial Literacy Rant
Posted by Gail | Filed under In the News
There’s a huge push for “financial literacy” these days. In Canada, groups of people have been touring the country to gather information on what will help Canadians become more financially literate. And the push to put more financial education into schools is huge. In the U.S., there’s a new financial-overhaul bill before Congress that is looking at the question of how to help consumers learn more about saving, debt and the ever-present quest for the perfect credit score.
If you watched me on the Today Show a while back (if you didn’t see it look under Gail in the Media) you saw me want to get into the discussion about credit scores, which came to an abrupt close because there was no time. But the discussion needs to be had.
The credit scoring system was never meant to be a credit adjudication process; in other words, it was never meant as a tool for granting credit. It was developed as a MARKETING TOOL to help credit granters identify their most PROFITABLE clients. Yup, it was meant to highlight the clients who turned the biggest profit – read “didn’t pay their balances off in full” – so that more offers could be sent out to these suckers.
But the credit score has taken on a life of it’s own. Now it speaks to people’s worthiness: worthiness to rent, worthiness to get a job, and in some places worthiness to qualify for insurance. Are you frickin’ kidding me! Because some credit card company decides to report that I’m late with my payment, and my credit score plummets, I’m not worthy of health insurance or a better job? What the hell is up with that?
I’m going to be talking more about this over the coming months because I think it is a travesty that consumers are being held ransom to the credit score system. And I think it is ridiculous that Congress in the U.S. is actually not smart enough to see that the credit scoring misappliclation is actually at the very heart of their broken financial system. Com’on President Obama, if you think things need to change, start by looking at how this marketing tool is being misused to enslave people to credit.
As for the fools in Canada who think that throwing more information at us will help us make good decisions about our money: Wake up and smell the coffee! There is a huge gap between KNOWING and DOING. The question isn’t why don’t people know they should save. Of course they know. They’re not idiots. The question is why don’t they act, save, DO?
And as for pushing financial literacy into the school system, I’m going to state categorically that it will not work if there’s not support for financial literacy within the home. For kids to understand how money works – not know, but actually do – they need to have some money to work with. Not just pretend money like in a Monopoly game. If that were so we’d all be real estate moguls since virtually all of us have played the game at some point. For this to actually work, parents have to put some money into their kids’ hands and deliver the sound financial messages at home.
If a kid learns about the food guide and the importance of eating five to seven servings of fruits and veggies at school, and goes home to a dinner of a hotdog, chips and pop, the food-guide lesson goes out the window.
If you want your children to be smart about money, you have to give them an allowance, set some expectations for how that money will be handled, and talk, talk, talk, talk, talk about everything to do with money.
If you want a society that saves, you have to do more than say, “Savings is important.” You have to demonstrate how easy it is to save; as easy as it is to use a credit card, and twice as beneficial in the long run. You have to stop confusing them with investment baffle-gab and speak in English. And you have to break it down into very small, very manageable bites that can be easily digested.
Remember what a big hit The Wealthy Barber was? Millions of copies were sold. And the book was loved by children, young adults and the long-in-the-tooth alike. The messages David Chilton delivered in that book were clear and straight-forward. There was no mystery.
I’m hoping to do the same thing with Never Too Late when it arrives in 2011. Like Debt-Free Forever, it’ll be an action plan to move from where you are now to where you want to be. It’ll be easy to understand. And it’ll reinforce that everyone can have what they want, if they just KNOW what they want.
If David can do it and I can do it, how come everyone else is still blathering on in financial gooblydegook? Could it be that there is some percentage in keeping people confused? That’s how the credit score rose to such power. Hey, that’s how everyone who has crap to sell succeeds at selling their crap.
If North America is really interested in making sure people are financially literate, maybe we should start by speaking in plain English and making it a shunning offense to mislead and misrepresent. And maybe we should acknowledge the gap between knowing and doing and find a way to close that Great Divide. And for heaven’s sake, let’s get back to the practise of granting credit responsibly, not just looking at a credit score to determine how worthy a body is.
July 1, 2010 at 7:49 am
First off – Happy Canada Day to all those Canadians out there! Have a terrific day!
I watched the Today Show with you on it, and I would have hoped the segment was longer so you could have had finished your thoughts. Obviously, if people are listening to the so called experts like the woman on the show with you, then they won’t be getting the proper messages that they need. You were bang on – but media doesn’t like to portray the right stuff.
My two girls (6 and 9) get an allowance of their age per week ($6 and $9). They have three main jars they put their money into – spending, long term savings (10% min), and charity (5%). If they are saving for something special, they have another jar which they distribute money from their spending into. Currently, they are saving for our fall trip to Disney World, and each of them are putting at least 20% of their spending money into it. I help them figure out the percentages, but they make sure the money goes in the right spots. When I pay our bills, I show the girls how much things cost – they shop with me and understand why I buy the things I do because of the pricing. I want them fully aware of what money is, because as everyone here knows, if you don’t understand it, it can cause lots of problems later in life.
July 1, 2010 at 8:06 am
Happy Canada Day!
Interesting info about original use of credit scores but it makes sense – just another way to make more money off people who can’t afford it.
I agree that credit scores should not be misused but I think they’re a good way to avoid giving credit to irresponsible people. One concern I have is how many people allow others to ruin their credit score by co-signing on loans, sharing phone plans, signing leases together,etc. Someone with an excellent credit score can have it destroyed by a second party. If someone’s credit history is so bad they can’t sign up for something on their own it is important not to get into any financial
transactions with them.
Gail is so right about Financial Literacy in the schools and the comparison to teaching nutrition is perfect. If the example isn’t there to follow at home only a small percentage of young people will break away from the poor model their parents exhibit. That being said, the skills needed for financial planning and management still need to be taught. Maybe that small percentage can be increased.
July 1, 2010 at 9:44 am
Happy Canada Day!
Gail I think you are right ont he money about financial literacy in Canada. I’m a huge fan of putting personal responsibility back into the hands of Parents. Of course the down side to this is those children that don’t have financially literate parents won’t have the solid teachings they need. Some financial literacy is needed in schools, however I think most of the teaching begins at home and it is at parents that we need to teach.
To have a better more financially responsible population we need to teach at all levels of age. from Grandparents to parents to children. Everyone needs a Financial education. I know it would cost a lot of money to do, but I think the benefits of a financially responsible population (and in turn Government) would make it worth it.
regards,
Jason
July 1, 2010 at 9:58 am
There are alot of forums out there for folks to learn about money management already…books, blogs such as this one, classes, etc…but if one doesn’t realize there is a problem they won’t go looking for a solution…however, we can start teaching the next generation in the school system..and this generation will start the wheels of change in motion…it’s worked in the past…I was born in the 60’s when having a smoke and a drink during your pregnancy was a way to relax…look how THAT has changed!…when I went to school we started to learn more and more about the negative effects of smoking, alcohol, uv rays, drinking and driving, seatbelts etc…and I see it in my own family…if I want to learn to do something new on my computer I can sign up for a class OR I can just ask my 15 year old son!…because he’s already learned about it in school…we can’t do much about the past but moving forward we can make a difference, and if the example at home is not the same as what is being taught it doesn’t mean the lesson won’t make a difference…maybe it will take the child to teach the parent, or at the very least it may make the child make the decision to do things differently than their parent…
July 1, 2010 at 10:44 am
Happy Canada Day!
Good message Gail!
Having grown up in a 50’s home where my parents money was not discussed – but I got an allowance – I have hope for future generations. Since finding Gail I talk about money more. You have to be selective about who you talk too as it makes people very uncomfortable I’ve found. My son and daughter-in-law are receptive and a friend at work. And of course this blog. It’s like being someone who has given up cigarettes – you want to get the message out there and shake them to wake up.
Your interaction with your two daughters and teaching them about your money has impressed me Brenda!
July 1, 2010 at 11:07 am
While teaching stuff in school that isn’t followed up on at home isn’t effective, it IS a beginning. In my area, a lot of kids don’t finish school, they stop at grade 8. But these are kids whose parents have the equivalent of maybe a grade 4 education. So we do our best to give those kids a great experience, one that they will later feel was valuable, so that they in turn will allow their children to finish high school. It means that we have to put in a whole lot of time, effort, and money into these kids, for a result that we (as teachers) will likely not be around to see, but it works.
If kids learn financial responsibility in school, even though it’s entirely theoretical, they’ll know what to do when they start needing help. It gets the wheel rolling, so to speak.
July 1, 2010 at 12:08 pm
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July 1, 2010 at 12:20 pm
Kids can be very persuasive if they are taught something and encouraged to live what they’ve been taught.
Environmentalism was taught at my elementary school, and it was the kids who would encourage the changes at homes (with reuseable containers for lunches, better understanding of recycling, etc). Once composting became available, I was the only one in my house who wanted to do it, so I did and encouraged (forced?) others in the house to participate.
Money is a little more difficult to encourage though – I’ve been trying to get my one brother and parents on the right track, but they like their excuses. So, I try to lead by example, but others do need to be willing to be more receptive as well for the financial literacy to work, I think.
Knowing and acting upon knowledge are two very different things!
July 1, 2010 at 12:57 pm
It’s important to stay patient on this path as well. If you think about all the things mentioned so far that brought about change in people’s beliefs AND behaviors, these were things that took decades to come to fruition. I do think it has become easier in the last 5 years to talk openly about finances, frugality and saving than it was before the recession. But it will still be a while before the majority of our culture has changed their lifestyles to match a new belief system. I’m sure we all know people who still don’t bother to recycle, but huge change has still taken place since the 70s and it takes one person at a time leading by example and talking openly.
I agree that things that are taught in schools must be reinforced at home to be most effective, but there are also many things taught in schools that children benefit from even if they are not reinforced at home. Children will learn things, even if they can’t implement them immediately in their lives. Education opens their eyes to possibilities and can inspire children to bring about change if THEY believe it is important.
July 1, 2010 at 1:11 pm
There was a BIG gap between knowing and doing for me, but I’m very happy to say that Gail’s message was a big push to help close the gap. We’re living within our means. Paying down our debt. Saving something. Having a bit of fun. Even planning for the what ifs. It hasn’t been all smooth sailing even just in the early months, but we’re on track, and we’re headed in the right direction.
Happy Canada Day to everyone.
July 1, 2010 at 2:00 pm
Financial literacy IS taught in schools in Canada. I’ve taught it as a major part of a high school course and found it extremely ineffective. As Gail mentions, what goes on in the home trumps whatever is taught in school when it comes to this topic.
July 1, 2010 at 2:17 pm
happy canada day to all you canadians!!!
the only “financial message” i remember receiving in high school was in my driver’s education class. the teacher had the sense to talk to us about purchasing a car, how a loan works, how much a person can afford to pay per month if s/he makes x-amount of wages. at home the message was clear; i had an allowance, i was expected to save for my spending and if i “forgot” to save too bad. i missed out on more than 1 event because i hadn’t the forethought to save up. lesson learned. though the car lesson has stayed with me, the savings lesson has stayed much longer. my mother saved like a demon & now has a wonderful retirement because both she & my father knew how to put those nickels and dimes away and NOT TOUCH THEM.
at this point in my life i can say lesson learned, lesson in play. i am doing much better with the help of gail’s blogs and the people here who are willing to chime in with their own experiences. i am grateful to you all! and yes gail, a fico score is now being requested in many cases with a job interview (can you believe it????). i don’t believe my ability to do my work well is related to my credit score; however, i realize that the propaganda machine has done its job well. my credit cards are well stored, my debt is being paid quickly, and i refuse to become enslaved to the judgement of my worthiness as a human based on a number. yes prez obama, let’s talk change!!!!
okay, off my soapbox. good luck germany & netherlands…thrilling games upcoming!
July 1, 2010 at 2:58 pm
My mother also taught us strict lessons on saving…thanks goodness, because if I got a nickel I wanted to spend a dime..lol..so, when I got married I had a few bucks to my name…there were a few years in my adulthood though when things got difficult and I used “cash therapy” to get through it all…(handicapped child, ill hubby etc…)…but even through all of that my mother’s words stayed with me and we still had a bit of money tucked away, and although we were spending too much on crap, we still paid all the bills on time…soooo…my point is, that even if children are only taught financial sense in school and home is different, somewhere somehow things will stick and they will make a difference…we have to believe the next generation will make the changes…look at all of us on this blog…we have changed our financial ways and are already teaching our children better…these practices need to become the norm and folks will follow…in my job as a lender I look at every deal differently and advise according to the situation in front of me…from a business perspective AND from the client’s perspective…both have to make sense for it to be right…and I am not the only one in this business doing that..ways are changing….
GOOD LUCK NEDERLAND!!!!!…HUP Holland HUP!!!!!!!!!!
July 1, 2010 at 4:12 pm
Could you do a blog post on how Canadians should be monitoring their credit score? I got my free equifax report but it just has the info, I don’t know what my ’score’ is. (Does it matter?) Also, my report has my very first job on it – not my current employer. I was told not to bother changing it as it will get out of date again anyways. Thoughts?
Thanks for the blog, love it.
July 1, 2010 at 5:50 pm
Erin:
The credit reports are only the report about your credit history. To see your credit SCORE, they make you pay money.
It’s 23.95 to see it with your Equifax report (https://www.econsumer.equifax.ca/ca/main?forward=/view/common/template.jsp&body=/view/product_info/sp_detail.jsp&lang=en) and then gives you info on how to improve the score, shows you where you rank with everyone else.
I can’t find the transunion score – I can only find a “30 day trial” option that lets you see all the reports (after 30 days, it’s $15/month, which is probably a bit excessive if you aren’t looking to get a mortgage and keep tabs on an improving score…)
July 2, 2010 at 1:01 am
Happy Canada Day!
Loved the TDDUP Marathon on Slice today! Told my hubby it was like MY Stanley Cup Finals!
Love Susan
July 2, 2010 at 2:15 am
[...] V-O has a Financial Literacy Rant, which asks some very pointed questions about this push to be Money Savvy. Bazinga [...]
July 2, 2010 at 9:00 am
Our kids are too young to learn about money, though we do tell them about it. We teach them a lifestyle that is low-waste (i.e. eat all your food), non-consumerist, is content with what we have, and gives.
You apply the same to money, and saving comes naturally.
I know a lot about money management, the financial system, and ways to navigate it – I’ve taken a financial planning course in university and love learning about economics and how our world is impacted now. I’m glad for that, and I’m going to teach it to our kids so that they can protect themselves.
After all is said and done, you can’t take it when you leave, but you steward it when you are here.
July 2, 2010 at 9:30 am
I disagree with you Gail re: schools. I think that the number of successes will be reduced if it’s not introduced in the home — but if they can teach math from grade 1 up, they can do the same with fiannces. While actions at home may help create bad habits, there are many pitfalls that are probably avoided.
re: Credit reporting – agree, people are too obsessed with numbers. Although it’s not only when you share a loan with people that you have problems. My brother and his wife lived in our family home while I was still young – her first name was very similar to mine (her’s was Kathleen, mine was Katharine) — we both went by Kathy (she spelt her with an i – Kathi) Anyhooooo, long story short, when I was 25 and had moved out of the family home 5 years previously, I found out that they thought we were the same person, my brother and her had divorced (luckily amicably) and she wasn’t paying her bills on time (she was juvenile diabetic and in and out of hospital frequently). Most difficult thing in my life was going to visit her when she’s not well, and ask her to sign off on financial matters.
In addition, I had put my sister on my credit card as a second card holder when I was 17 so that she could have access to money in an emergency (she had just moved out on her own from the family home) — so when I was 25 and found out about my sister-in-law, I also found out that I was married to my sister.
I had no idead I was so twisted— LOL
July 2, 2010 at 10:53 am
I have a mixed point of view on credit scores. I try and space getting my free credit reports through out the year just to make sure the information is correct. The free ones don’t come with the score but that is fine with me. The only time I have pulled my credit score was just before I started house hunting since I both wanted to verify information and see where I stand financially in terms of what mortgage rates I would be looking at. I don’t think that scores are the end all but if you are carrying a lot of debt especially in variable rates your score is important to keeping your monthly cost down. In terms of teaching financial literacy in the schools I don’t know that it will work for the kids without reinforcement at home but it can’t hurt.
July 2, 2010 at 12:15 pm
I am trying hard to teach my son about money. At this point, he does not have an allowance, but he does receive money from time to time. If we are out shopping I make a point to inform him ahead of time if I have no intentions of buying him a new toy so that he doesn’t expect it. I also have him save for special toys he wants. I do buy for him, but I’m trying to raise him to not expect something just because he thinks he wants it.
I am planning to give him an allowance, but I think I’m going to wait until he begins school this year.
I have to say I would have liked to have had some financial education in school. We learned how to properly write a cheque in Home Economics, and how to plan a meal on a budget, but that was it. Surely, it wouldn’t have helped everyone, but it would have helped a lot of us.
Brenda, it sounds like you are a good parent! Keep up the good work! I hope to take my son on a vacation in the next few years. I encourage him to save a little of his money for his trip so that he will have his own spending money.
Kat – Are you sure you are who you say you are? lol! Sounds like that was a headache to sort out.
July 2, 2010 at 12:44 pm
I think I am. But then, I was married to my sister, so I’m definately not your “normal gal”.
At the time, I didn’t know anything about equifax or credit reports, but a nice loan officer told me why I was being turned down for a consolidation loan. I was pretty shocked at the time.
July 2, 2010 at 9:57 pm
Great post Gail. Credit scores would be far more fair if there were serious penalties for incorrect information in the files, if they had to send the report to every person they have a file for every year (automatic, not just on request), if there was a simple way to lock your own file so that no inquiries can be made against it without you being notified and giving permission beyond just filling out the form. Perhaps then the cost of doing the credit check would go up and people who don’t need it would be more reluctant to try to get it.
On the side of finance education, anyone who went through the old 13-grade Ontario system and took grade 12 math studied compound and simple interest, which are probably the things that cause people the greatest problems. Does anyone remember? Of course not. They remember until they pass the test, then they forget. Unless schoolwork is immediately applicable the students will not remember it after the test.
I’m afraid that the way to fix the problem may require a major social change. People need to stop being afraid to talk about their financial situation. How much money they make, how much debt they have, if they could actually afford that next vacation. As a pleasant side effect companies would have a harder time underpaying employees if people talked about their salaries with their friends. Right now my friends finish university and figure we can have the same lifestyle as our parents, because we have no idea how much money our parents make compared to us. Without that knowledge how would we know what lifestyle we can afford when we first start working?