Financial literacy programs work—if they’re done right

Building Canadians’ financial literacy is one important part of our mandate at the Financial Consumer Agency of Canada (FCAC). We define financial literacy as having the knowledge, skills and confidence to make informed financial decisions, and we encourage a healthy debate about how to achieve this outcome.

It’s in this spirit that I’d like to respond to an argument made by Daniel Munro in his recent Maclean’s article, “How financial literacy programs can do more harm than good.”

As a data-driven agency, FCAC’s financial literacy programs, online resources, consumer information campaigns, and outreach are all based on evidence. And our evidence clearly shows that financial literacy programs—when properly designed and implemented—are essential in enriching Canadians’ financial well-being.

Mr. Munro refers to a 2014 analysis to support the view that many financial literacy programs “just don’t seem to work.” But on reviewing this seminal study, our conclusion—and that of the wider research community—is that financial literacy programs do work if done right. This study provides key evidence as to what kinds of interventions are effective, and why. For example, we’ve learned that the quantity and timing of programs matter. One-time programs produce some short-term, but few long-term, effects. Also, we’ve learned that financial education specific to a given financial decision, such as how to invest retirement savings, is most effective when it closely precedes that decision.

Because the impact of financial literacy can diminish over time, it’s important to teach it early and often, and in innovative ways. That’s why FCAC supports the delivery of programs over many years, at strategic times in people’s lives, and in a variety of contexts—for example, at home between parents and children, in schools, colleges and universities, in the workplace, at financial institutions, and in many other community settings.

A recent analysis of data from the first global survey of financial literacy among 15-year-olds helps to demonstrate the impact of teaching financial education in schools. The OECD’s Program for International Student Assessment (PISA) was first fielded on the topic of financial literacy in 2012. A 2016 analysis examined the results in the context of whether students across 18 international jurisdictions had received any financial education. The conclusion: financial literacy scores were significantly higher in schools where financial education programs were taught.

We know there is more work to be done. FCAC recognizes the need to evolve our understanding in order to further improve outcomes in the financial literacy field. That’s why we’ve recently developed Canada’s National Research Plan for Financial Literacy 2016-2018 to act as a clear road map for the broad network of researchers in this area. The plan is premised on the belief that a holistic approach to financial education that addresses multiple factors such as financial confidence, cognitive biases and behavioural tendencies is most effective. We’ve also partnered in the development of a new online evaluation tool that allows organizations to assess whether their financial literacy programs are meeting their intended goals.

Financial literacy initiatives must go hand-in-hand with poverty reduction. We don’t work from the assumption that bad choices are the cause of a person’s financial difficulty. As governments move forward with strategies to lift Canadians out of poverty, people will need greater financial literacy in order to manage their incomes so they can sustain their financial well-being and not fall back. A key example: several Canadian NGOs recently partnered with Canada Revenue Agency to deliver their Community Volunteer Income Tax Program. The results are impressive; in Winnipeg alone, 6,000 people who took part filed their taxes, and those filings generated $17 million worth of refunds and benefits. Once people have access to funds, financial education will be the crucial next step.

Having money in pocket is a “teachable moment” where people can benefit from learning how to effectively manage their money and debt wisely, plan and save for the future, and prevent and protect themselves from fraud and financial abuse. These three outcomes are the cornerstones of our National Strategy for Financial Literacy, and we continue to measure its impact.

To this end, FCAC is now rolling out a series of studies on the Canada.ca web site. We recently published a study of an innovative pilot project that used a mobile app to target non-budgeters and encourage behavioural change. Upcoming studies will include the first-ever Canadian results of the above-mentioned PISA survey on financial literacy. It’s the first time Canadian students have participated in this portion of the survey. The results, to be released later this month, will give us a crucial benchmark for evaluating the evolution of financial literacy among Canadian students over the coming years.

In short, there is an onus on us all to develop and implement financial literacy programs that work, and to continually evaluate those programs so we can improve the financial well-being of all Canadians.

Jane Rooney is the financial literacy leader at the Financial Consumer Agency of Canada.