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Cracking the financial literacy code

Are behaviour shifts and evaluation the keys to success?

It was only in the spring of 2014 that Canada appointed its first Financial Literacy Leader, Jane Rooney, four years after a federal government task force recommended such a position.

Rooney’s mission was to combat our rising household debt levels, scant retirement savings, and apparent inability to distinguish a good deal from a scam. Her weapons: a $3-million annual budget, an officers’ mess of top money minds from corporate, government, and non-profit sectors and, most importantly, education on money management.

“Improving financial literacy and the financial well-being of Canadians will take time”
—Jane Rooney, Financial Literacy Leader

The hope was that arming Canadians with information about financial services, products, and concepts would naturally lead more of us to financial security. “Improving financial literacy and the financial well-being of Canadians will take time,” says Rooney. “But, what will success look like? In qualitative terms, a growing number of Canadians will be better informed and more confident in dealing with financial matters and making decisions that improve their financial well-being and keep our economy strong.”

Eliminate barriers

Not everyone believes more knowledge will help. The Globe and Mail reported, “NDP finance critic Nathan Cullen said he supports efforts to improve financial literacy, but he said the Conservative government should be taking more concrete action to limit the credit card and banking fees that have landed many Canadians in financial trouble.”

As well, several pilot studies and research projects involving credit unions and banks in other countries have shown that increasing knowledge doesn’t necessarily change behaviour.

Katy Davis is vice president of Ideas42, an American organization that designs projects to learn about drivers of economic behaviour. “The financial literacy framing assumes that it’s a knowledge problem,” Davis says, “but research says, knowing what I should be doing isn’t enough to compel me to do it. Small barriers prevent me from taking action even with the best of intentions.”

If our goal is to strengthen our resiliency to economic crisis, Davis says, we’d do better to aim for “financial capability” rather than literacy. In other words, measure behaviour instead of understanding. (See sidebar at bottom, “From learning to doing.”) At the 2014 national conference on financial literacy, experts from all sectors agreed that we don’t yet know enough to say whether a financial literacy strategy is the answer.

“Programs have proliferated across Canada, but evaluating their effectiveness has been a lower priority,” is a key point that was made in the report, Strengthening Financial Literacy Through Collaboration: Highlights of the 2014 Conference on Financial Literacy, published by the Financial Consumer Agency of Canada. It continues, “Tom Hamza of the Investor Education Fund reflected that the vast majority of financial education programs have been developed and continue to be offered ‘based on need, passion, and belief on what is right,’ instead of being based on evidence of what works.”

Emphasize evaluation

Nobody’s denying that improving literacy could help; we just don’t know yet how much. While there are pockets of funding, local success stories, and regional initiatives, “an intentional effort across the country to build incomes of low-income Canadians” is the new part, explains Adam Fair, director of programs at Prosper Canada. He and other attendees believe that this effort must be accompanied by rigorous evaluation methods if we want to make real progress in our goals.

Part of the reason that we haven’t had a national strategy until recently, Fair speculates, is that, compared to the U.S., Canada hasn’t been that badly off until the last 10 years. There’s been enough room in our non-profit and social systems to catch most (but not all) people with income assistance, universal health care, and other poverty-reduction programming before they slip below the coping mark.

But after a few years of a challenged economy and people living closer to the wire, we’re starting to see how experiencing what might be considered a couple of financial hiccups to some (e.g. illness or an unexpected car expense) can have debilitating longterm results for some families.

So while non-profits and social agencies have been steady in their efforts to help clients secure quality-of-life basics, they are now looking to add specific financial services and products to the curriculum.

“Underneath all these other things we care about, like housing, health care and education,” says Fair. “We’re finally saying, ‘Hey, if a parent wants to send a child to school, how do they get an RESP or a student loan? If you address financial literacy, maybe you can actually improve the results for all these other factors.”

Create connections

Basically, know-how from the financial sector would strengthen the good intentions of the social sector. On the other side, financial advisers may need a society component added to their training to be of best assistance to those most in need of their services. For example, work done by John Stapleton for Open Policy Ontario showed that low-income Canadians would actually be worse off with RRSP savings, because these funds would greatly reduce the amount of Guaranteed Income Supplement they would qualify for in retirement — leaving them with a lower annual income. But unless financial advisers work regularly with people in this income bracket, they may not be aware of the interactions between social assistance and private retirement funds.

“It’s a whole other domain that financial institutions are not really looking at,” says Fair. “But when we talk to bankers, they say, ‘It’s just not possible for us to become social workers.’ Just like it’s not possible for social workers to become bankers.”

Even if the adviser is aware of these important exceptions, an advice-seeking client may not always reveal the full story to a new adviser or a volunteer literacy educator from a financial institution. “Money is such a huge taboo. Especially if your finances are dire, you’re more likely to conceal your situation. There’s a lot of shame,” says Fair.

“Money is such a huge taboo. Especially if your finances are dire, you’re more likely to conceal your situation. There’s a lot of shame”
—Adam Fair

In its delivery model studies, Prosper Canada has discovered that trust and connection with the educator is as important as the curriculum content to successful results. To ensure this connection, Prosper Canada offers programming through organizations that are already working with their target groups. This is more effective, he explains, because “the staff have already built a strong relationship with their clients. They have a good understanding of how individuals are making decisions.”

Social-work staff are likely short on specific understanding of financial products and services. On the other hand, sending in a financial phenom won’t help if the educator doesn’t have understanding, empathy, and connection with the clients.

At base level, Fair says, “programs should be empowering folks to ask good questions. Maybe people know that an RESP is helpful, but they don’t know all the ins and outs, so they need to trust advisers or staff to direct them to the right product.”

Our Literacy Leader agrees that cross-sector collaboration is key. “Improving Canadians’ financial literacy,” says Rooney, “requires a concerted and sustained effort by all sectors, including governments, educators, financial service providers, employers and non-profit organizations, as well as individuals and families.”

Find common ground

One positive step has been the Canadian Financial Literacy Database launched in November 2014 by the Financial Consumer Agency of Canada (FCAC). “It is a comprehensive source of 1,100 resources and almost 1,500 events, offered by financial education providers from 138 organizations across the country,” says Rooney. She explains that its prime value is “enabling organizations to see what already exists, foster partnerships on similar initiatives, and identify gaps in financial literacy resources. It also reveals potential sources of funds for new initiatives.”

Having a nationally accessible database of programs is a great start to collaboration. The next step is adding a robust evaluation component to all programming so that we might develop a common set of metrics for assessing the effectiveness of programs, says Fair and the reason Prosper Canada plans to launch its own database shortly (developed in partnership with FCAC), which will collect assessments of each program.

Having a nationally accessible database of programs is a great start to collaboration. The next step is adding a robust evaluation component to all programming so that we might develop a common set of metrics for assessing the effectiveness of programs

“That’s the gold standard in any field,” says Fair. Without these common measurement tools, Fair fears there is little to show that the field is making headway, and a greater chance that either the private or public sectors will lose interest. “By showing a common way that the work is making a difference, you aren’t vulnerable to losing funding.”

Fair is adamant funders and other decisionsmakers should not expect the database to rank projects. The field is still at a stage where poor results are teaching us as much as good ones, about how to better design programs, and “share this learning with other organizations,” he adds.

Share outcomes

So funders need to think about their larger objectives. “Is it just helping those that are successful to carry on? Or is it to learn as much as possible about how to improve financial well-being? If the latter, then give your organizations as much latitude as possible, so that if a program isn’t effective they’re not going to lose the relationship.” At minimum, Fair urges organizations to share learning internally. It’s surprisingly common, he says, that staff never have a chance to talk over the layout of the program — what ran smoothly, what was more awkward, surprises that helped or hindered delivery.

“Social services are running full steam and so often there doesn’t feel like there’s even that moment to reflect. By the time the project has finished, you’re already on to the next,” he says. “But if improvement is an objective, [sharing results] should be part of the evaluation. And making sure the presentation lends itself to sharing — not dry technical reports, but digestible and applicable.”

He adds that sharing outcomes with participants or students is another smart choice in the longer game of growing the field. “Clients say it’s frustrating that every time they take part in a program they have to complete a form that asks all this private, exhaustive information. So be really clear with people about how they’ve helped with the study, and show them the overall outcomes.”

Good evaluations often involve pre- and post-interviews or questionnaires — a huge energy outlay for participants. To prevent these prime “sources” of information from ignoring followup calls, provide an opportunity for students to see how the class fared as a group.

Strike a balance

While the hope of the national financial literacy strategy seems to be greater knowledge leading to greater economic power, that doesn’t mean every Canadian needs a PhD in economics, any more than every Canadian needs an automotive technician’s certificate to operate a car. Nevertheless, it is helpful to know how to fill up with gas, change the oil, and boost a battery. The more one understands about the basics, in finance or auto repair, the easier it is to direct the right questions to the right professional.

“We’re still trying to figure out, as a country, what level of knowledge people need,” says Fair. “We don’t want all Canadians to be experts, but we need a level of trust that the people who are helping have your best interests at heart.” ◊


From learning to doing

To improve saving habits of credit union members, Ideas42 partnered with a credit union in the Pacific Northwest to deliver one-on-one counselling sessions on budgeting, goal-setting, and debt repayment.

Half the members spent the whole hour working with these principles, while the other half (the “action” group) quickly moved through the information section and then opened real savings accounts, set up automatic transfers for saving or bill payments (or signed up for text reminders for these tasks) all with the adviser’s guidance.

After two years, 28 per cent of the action group had saved an average of $500, compared to 16 per cent in the control group. Nineteen per cent of the action group saved $1,000 or more, versus 13 per cent of the control group. Members of the action group who had started out with no savings had 21 per cent more savings at the end of the study. Davis believes the key to success was leaving no room for procrastination.

“When the task is somewhat complex, we’re more likely to procrastinate. Plus, there’s the principle of avoidance: if I feel bad about not saving in the past, I might avoid the task because it stimulates negative emotions”
—Katy Davis

“In typical programs, the participants develop the intentions, but the next actions can be very difficult. For example, I want to open a savings account for the first time, but I really want someone walking me through which one is best and helping me follow through. When the task is somewhat complex, we’re more likely to procrastinate. Plus, there’s the principle of avoidance: if I feel bad about not saving in the past, I might avoid the task because it stimulates negative emotions.”

The pilot was so successful that Ideas42 is now helping a larger CU set up a similar experiment — this time making use of its in-house call centre. As in the first study, an adviser talks to all participants about budgeting and goal-setting, and then walks members in the action group through the practical steps outlined above.

Results of the 500 sessions completed so far have shown that phone consultations may be just as effective as the in-person sessions. Members have appreciated the convenience of being able to call before or after work, says Davis, and most felt they were able to establish a positive connection with consultants over the phone.

Telephone appointments may not work best for all members, cautions Davis, but where call centres are already in play, it’s a cost-effective way to help members develop better moneymanagement skills.

Read more about Ideas42’s project in the Dominican Republic, “Just enough, in time.”