When Should Young People Learn Financial Literacy?

An interview with Evelyn Jacks, President, Knowledge Bureau, by Robert Martellacci, M.A. EdTech, President & Publisher, Mindshare Learning

1. When it comes to 21st Century learning skills that today’s youth need to learn financial literacy seems to be rarely mentioned. How critical is financial literacy as part of 21st century learning skills set?

EJ.  Robert, it is an essential life skill. In a much more complex financial world, young people need to understand basic financial math, and the difference between wants and needs Financial literacy requires lifelong learning, because it is used to make decisions every time there is a life event, a financial event or an economic event. Financial literacy is about knowledge and skills, but it is also very much about behavior – making responsible decisions about money. Money itself has no emotion, but people attach emotion to it. We need to know how to manage those behaviors to get the financial results we want, and that begins with small children in the home and carries on into the school years.

2. Do you think there is a skills gap, in terms of what students are learning in schools and what they actually need to know to be prepared to enter the workforce of the future? If so, what are the gaps? How do we fill them?

EJ. Yes, there are several gaps. It was my pleasure to serve on the Federal Task Force on Financial Literacy, and we were surprised to find that in Canada over 40% of Canadians lack the literacy required to read a financial document and close to 50% lack the numeracy skills. Financial literacy is a subset of literacy and numeracy. So mastering it begins with reading, writing and arithmetic. You do need to know basic math to figure out percents and prorations and how to read financial terms...especially if you’re going to have a cell phone contract or pay to download music for your iphone, or take money out of your electronic bank account. 

Thinking further ahead, everyone wants to have peace of mind – that’s the definition of wealth or affluence here at Knowledge Bureau – and that means controlling your spending urges and being deliberate about how you save.

3. Has the Minister’s Task Force on Financial Literacy made a difference? 

EJ. Yes it has. It has released 30 Guidelines for the improvement of Financial Literacy, which is available to the public. Bill C-28 is just before the Senate and assuming it passes there we will soon have the legislation to appoint a Financial Literacy Leader. That person’s job will be to collaborate with multiple stakeholders to improve financial literacy for all Canadians. 

4.  What is a common misconception in Canada about saving money? Are young people getting better at it?

EJ.  We are all exposed to a myriad ways to consume and spend. The big secret to saving is to move your thinking beyond the self-satisfaction that spending gives you in the present and become more future oriented. It’s always about spending now, versus spending later. When you methodically save a percentage of your income, saving becomes a habit and your frugality brings you the big reward of choice. Kids who learn that will become good at saving.

5. How young should we be teaching our students about money? About taxes?

EJ.  Teaching students about money involves using money as a tool to get the things you want now and in the future begins in the home with a philosophy around spending and saving. You need to cover basic needs and save the rest to build a pool of money we call capital – money that will work for you. When that pool of money starts working for you – by earning interest, dividends or capital gains, you can now multiply your personal productivity with the time value of money. That means you can ultimately work less or have more choices because your money is working for you.

Taxes are a big part of this because there are three steps to becoming wealthy in society today, where we share our productivity with the community at large: You want to keep more of the first dollar you earn, hold on to it the longest without the eroding power of taxes, and then transition it out to your retirement or your heirs as intact as possible. Kids also need to know about social programs and how to tap into them.

Recently the return on our investments have been poor and/or volatile. Tax efficiency is most important in adding to the performance of our investments, but also in preserving our capital pools.

6. What are some tips that you would give Canadians on how to save money?

EJ.  Save at least 18% of your earnings from employment or self employment for your retirement – that’s the RRSP maximum up to a dollar limit of $23,820 for 2013. Budget – understand what your basic needs are, cover them, and save the rest. Don’t overpay your taxes – read a book like Jacks on Tax to learn how to do your own return – everyone should know how to do that. Then read a planning book – like Essential Tax Facts – to find out how to invest and save with tax efficiency.

7. How can teachers integrate financial literacy into their curriculum and daily lessons? Are there any great resources available online as part of the Task Force?

EJ.  Many teachers are uncomfortable with discussing this subject, so the first thing to do is to review basic financial literacy principles for yourself and your family. Don’t be afraid to ask questions and explore how financial literacy affects various life events:  moving out of home, buying a new car, getting married, having a baby, buying your first home, incapacity, retirement, death, and so on. 

Then, keep it simple: make sure your students have strong budgeting skills – that involves projecting your financial life into the future and so that’s a great exercise. Teach saving habits early. Help them understand the consequences of getting into debt and how to get out of it. That’s an absolutely essential skill for graduating high school students who may get into years of debt with their student loans. Debt is not about getting in, it’s about getting out.

Kids also need to understand credit. Do lots of examples on how a 25% interest rate affects every purchase. Paying off the minimum is not enough. It erases the benefits of a 25% off sale item immediately and will add to the cost in the longer term.  Those $100 shoes become $125 and more quickly.

Finally help kids understand their T4 slips (many of them work as teenagers), how to do a tax return using software, and how to read and interpret financial documents that are meaningful to them. They should know about compound interest and the concept of inflation. All of that requires an understanding of some tax and financial terms – language skills they will need in the 21^st century.