Defusing Canada’s debt bomb

Defusing Canada’s debt bomb

Defusing Canada’s debt bomb Don Farrall/Getty Images

Our burdens are manageable, but the trends are ominous: high consumption, dwindling pensions, rising interest rates

Don Drummond, Chief economist, TD Bank Financial Group

From Saturday’s Globe and Mail

While many economies around the world are staggering under huge public and private debt burdens, Canadians are likely feeling sanguine. Our governments’ net debt burdens remain well below international norms, and we have not experienced anything like the housing meltdown in the United States, which has put more than one-third of that country’s mortgages “under water” – a scenario in which the amount owed exceeds the market value of a home. Continue reading

Advertisements

Leave a comment

Filed under Uncategorized

Teenagers lacking education on the financial facts of life

Teenagers lacking education on the financial facts of life
Aug 02, 2009 04:30 AM

Ellen Roseman

Today’s teens know all about the facts of life, except when it comes to managing money.

With easy access to credit, they can afford to buy clothes, cosmetics, concert tickets or cellphones without paying close attention to costs.

Seeing their parents using credit to plug the gap between income and expenses, they often adopt the same habits.

What’s the solution? Should we teach students in high school how to stay solvent?

Ontario requires Grade 9 students to take courses in citizenship and career studies. But it has no mandatory course in money management.

Gary Rabbior, president of the Canadian Foundation for Economic Education (CFEE), wants youngsters to get help in handling personal finances.

But he’s not a fan of compulsory high school courses.

“Research shows they don’t have much impact,” he says.

In the United States, most states require students to receive some exposure to consumer education – including economics, consumer decision-making, consumer law and personal finance.

But in tests of their knowledge, students perform the same whether they take a course or not.

Lew Mandell, a finance professor at the State University of New York, often talks about the results of a test of high school seniors in 33 U.S. states in 2004.

Overall, students got just 52 per cent of the answers right. Students who had some financial literacy training barely did better at 54 per cent.

Research shows that children can’t become lifelong learners unless they receive an underpinning foundation of knowledge all the way through school.

To Rabbior, this means integrating financial skills into the core curriculum, from kindergarten to Grade 12.

His foundation has created the Building Futures Project to work with provincial education departments to prepare students for their future roles and responsibilities.

Manitoba is the first province to commit to the idea. It plans to implement an integrated K-12 curriculum in the next two to three years.

Ontario is studying the idea, but hasn’t committed yet.

The hope is that students gain more competence and confidence in making financial decisions.

This should lead to an improved ability to ask questions, find relevant information, avoid frauds and scams and plan effectively.

Teachers need to elevate their own confidence before taking this information into the classroom, says Rabbior. Many don’t feel up to the task.

Ontario teachers already have many resources they can use to teach students about personal finances.

The Canadian Bankers Association has YourMoney, a program aimed at high school students, that is detailed at yourmoney.cba.ca. Presented by local bankers, it has run in classrooms across the country since 1999 and reached nearly 170,000 students.

Visa Canada has a free financial literacy resource, Choices and Decisions, that was launched in 1996 and updated this year. See: practicalmoneyskills.ca.

The Investor Education Foundation, an arm’s-length agency of the Ontario Securities Commission, has Taking Stock in Your Future, a set of classroom resources. See: investored.ca/teachers-corner

Humour helps reach teens, which explains the success of the foundation’s Funny Money presentations with stand-up comic James Cunningham.

Offered to 50,000 high school students in Ontario, Funny Money will be going across Canada, thanks to funding from the Investment Industry Regulatory Organization of Canada.

Next week, we’ll look more closely at financial literacy for young people.

Leave a comment

Filed under Uncategorized

Our credit card problem

Our credit card problem

National Post- May 23, 2009

It’s understandable that government would be keen on regulating credit cards. That industry is based, at least in part, on the hope that customers will be unable to pay their bills and will thus be trapped in a web of obscure fees and ruinous interest rates. Credit card firms would protest that characterization — and it does ignore the useful roles credit cards play — but it’s the view held by many Canadians.

How did this come about? Credit cards were originally issued by a few department stores and gas stations to make it easier to shop without carrying around wads of cash. Interest rates were higher than usual, but if you paid your bills every month you didn’t have to worry. Eventually all-purpose cards like Visa and MasterCard came along, enabling consumers to use one card for virtually any purpose.

The problems began as the industry expanded. The number of issuers grew, and to increase the customer base they flooded the market, with reports emerging of cards sent to children, pets or the dead. Since anyone could get a card, the rate of defaults grew, so issuers had to offset losses with higher rates, obscure fees and dubious ancillary charges. To avoid attracting attention, they hid the details in small print and impenetrable legalese most users could be counted on to ignore. It worked marvelously well, and a disturbing number of Canadians now find themselves in a semi-permanent cycle of swollen debt, paying monthly charges at high rates on a balance that never seems to decline.

In assessing how to address this, the government needs to focus on the roots of the problem. Many people are choosing to access credit at exorbitant rates of interest because they don’t understand they are doing so. Others are simply not good at managing their money.

The Conservative government in Ottawa introduced restrictions this week that seek to solve the first issue by requiring greater transparency — essentially making credit card companies describe their terms in language ordinary people can understand. The government also introduced restraints on some of the industry’s more objectionable practices.

The Tories should be commended for resisting demands for more radical measures: Capping the rate that card companies can charge, as supported by the New Democratic Party, would only result in a reduction of credit, harming the working families the NDP claims to champion. After all, when the choice is between expensive credit or no credit at all, sometimes expensive credit makes sense, depending on the individual life situation. We are glad the Tories have recognized that adults should be able to decide for themselves whether pricey credit is right for them, as long as they do so with full information.

But while the Conservative approach is worthy enough, it fails to address the second problem: the frightening inability of such a large percentage of the population to handle money in a sensible way. Financial illiteracy, it appears, is epidemic. One recent report estimated the average U. S. household owes almost $11,000 in credit card debt. In Canada, the Canadian Bankers Association says there are 68 million cards in circulation, more than two for every man, woman and child in the country.

You can’t force people to be smart with their money. But education might help. We teach children how to read and write from a young age, but not about the basics of handling money. Teens must meet rigorous standards to acquire a drivers licence, but receive no formal instruction on dealing with credit come-ons that arrive in the mail. Most people are left to figure it out for themselves, or get by on the example of parents who may be struggling with debt. Money is a basic element in a capitalist society. We should try to teach people to deal with it responsibly — or at least to know what that means. It might very well be the best way to keep future governments from meddling further in our financial lives.

Leave a comment

Filed under Uncategorized

Save your money!! Learn how now!!

“You can’t force people to be smart with their money. But education might help. We teach children how to read and write from a young age, but not about the basics of handling money. Teens must meet rigorous standards to acquire a drivers licence, but receive no formal instruction on dealing with credit come-ons that arrive in the mail. Most people are left to figure it out for themselves, or get by on the example of parents who may be struggling with debt. Money is a basic element in a capitalist society. We should try to teach people to deal with it responsibly — or at least to know what that means. It might very well be the best way to keep future governments from meddling further in our financial lives.”

From: Our credit card problem – National Post – May 23, 2009

____________________________________________

Re: Our Credit Card Problem, editorial, May 23.

“When I was teaching high school some years ago, one of the most well-received series of topics was on personal finance, which was part of an optional business course I taught. The topics ranged from mortgages, credit card interest, finance companies, department store credit cards, investing, car loans and the value of buying versus leasing cars. Interest was always extremely high among students when we dealt with these topics — so much so that students who had a free period would ask to sit in on these classes, as they had heard their friends talking about the topics.

Most students, unfortunately, are not exposed to personal finance topics. What I learned when I taught these topics is that there was immense interest among the students to learn about something that would play a major part in the rest of their lives. Topics that are such an integral part of our lives shouldn’t be optional but rather compulsory learning. This would go a long way in reducing the tremendous financial illiteracy that exists today.

Jeff Spooner, Kinburn, Ont.”

1 Comment

Filed under Uncategorized