Young child, with help from mother, putting a coin in to a see-thur piggy bank

“Here in Canada, the financial literacy landscape has shifted greatly in recent years,” says Francis Fong, chief economist at CPA Canada. “There is now a concerted effort to improve the money management skills of Canadians.” (Getty Images/Nakhorn Yuangkratoke/EyeEm)

Features | From Pivot Magazine

Retained learnings 

How can we translate effective financial literacy education into long-term, responsible money management?

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Financial literacy is one of those issues that’s incredibly important in our society. Many of our economic concerns are grounded in it, and Canadians face real challenges when it comes to managing and making decisions about money. We fret about all sorts of things—household debt, retirement savings, the rise of precarious work—that have a financial literacy angle. Yet, challenges remain in closing the gap between financial literacy and affecting positive behaviour over the long term.

New research offers insights on what to consider when looking to improve the financial literacy of Canadians. A recent study from CPA Canada, for example, shows for the first time in a Canadian context that when personality traits are taken into consideration, gender becomes a significantly less important factor. [See Men may not be more financially savvy than women after all, study says

The academic literature had long pointed to a significant gender gap in financial literacy. For example, according to Statistics Canada’s 2014 financial capability survey of over 100,000 Canadians, only 15 per cent of women could answer all five questions on the shorter financial knowledge quiz correctly, versus 22 per cent of men. Moreover, less than one-third of women reported feeling that they were “financially knowledgeable” versus 43 per cent of men. International studies, both in Europe and in the United States, show similar gender gaps.

But the new research finds personality traits—like conscientiousness, for example—could serve as a good predictor of whether someone will be proactive in attending to their financial affairs. It’s an important finding because recognizing the role personality plays can greatly assist in building upon the approaches already being taken to strengthen financial literacy. A shy person may want to learn more but might avoid conversations or gatherings that would give them valuable information.

“The reality is that the factors that drive how we learn financial behaviour are numerous, complex, and reflect our diversity of needs.” 

Taking advantage of research is vital, especially in today’s ever-evolving economy. Consider the many labour market shifts we’re seeing today—the move toward more precarious and volatile work, concerns about worker displacement due to new technologies and automation, the rise of the gig economy. Every one of these is resulting in situations that put more pressure on individuals to save more aggressively and be more proactive in managing their finances.

Attention must also be paid to both the short term and long term when it comes to helping Canadians strengthen their financial skills. A 2013 meta-analysis of over 200 international studies on financial literacy programs around the world concluded that education interventions brought about significantly positive short-term benefits to behaviour, but that they didn’t last over time. Over the long term, just 0.1 per cent of the variation in financial behaviour could be explained by differences in financial education. Most importantly, the authors pointed to huge divergence across the results of the various studies, suggesting that the fundamental drivers of financial behaviour are far more complex than studies can currently explore.  

What we need to do is go much further in identifying the factors that drive positive financial behaviour. Research and a dedicated approach can play a key role in doing just that.  

Here in Canada, the financial literacy landscape has shifted greatly in recent years. There is now a concerted effort to improve the money management skills of Canadians. We have our first-ever Financial Literacy Leader in Jane Rooney. There is a steering committee on financial literacy that is working to implement a national strategy. CPA Canada president and CEO, Joy Thomas, is one of the committee members. 

“It’s important to recognize that the financial literacy needs of individuals change over time with major life events.”

Let me ask you a question, dear reader: how did you learn how to manage your finances? Did you learn from your parents? From school? Lurking on Reddit’s r/personalfinance? Did you learn as a child? Working part-time as a teenager? Out of pure necessity as an adult? 

I’m willing to bet your answer is “sort of” to every single one. The reality is that the factors that drive how we learn financial behaviour are numerous, complex, and reflect our diversity of needs. We need to better understand those drivers so that our financial education programming can better motivate us to make good decisions. Only then can we turn knowledge into action.

It’s important to recognize that the financial literacy needs of individuals change over time with major life events, such as attending university, getting married, buying a home, having children and, ultimately, retiring. Personalities also change over time as individuals become more mature and take on new responsibilities. 

In a commentary published in Maclean’s last year, Rooney neatly summarized what must be done going forward: “Because the impact of financial literacy can diminish over time, it’s important to teach it early and often, and in innovative ways.” Bringing personality, and the challenges that come with it, into the mix will mean new approaches and, undoubtedly, new successes.