SUR­VEY

Ad­vi­sors could reap sig­nif­i­cant re­wards from help­ing young Cana­di­ans build up their fi­nan­cial knowl­edge

Investment Executive - - FRONT PAGE - BY RUDY MEZZETTA

Ad­vi­sors could reap re­wards from help­ing young Cana­di­ans build their fi­nan­cial knowl­edge.

fi­nan­cial literacy lev­els among younger Cana­di­ans lag both those of in­di­vid­u­als who are in their mid-life years and those ap­proach­ing or in re­tire­ment, ac­cord­ing to re­cent re­search con­ducted by Mis­sis­sauga, Ont.based Credo Consulting Inc.

For fi­nan­cial ad­vi­sors, mak­ing the ef­fort to ap­proach younger prospects can rep­re­sent an op­por­tu­nity not only to bridge the gen­er­a­tion gap in terms of fi­nan­cial knowl­edge, but also be a way to ex­pand ad­vi­sors’ busi­nesses, says Kel­ley Keehn, con­sumer ad­vo­cate with the Toronto-based Fi­nan­cial Plan­ning Stan­dards Coun­cil, a speaker and a former ad­vi­sor.

For ex­am­ple, of­fer­ing to sit down with a client’s chil­dren to ex­plain fi­nan­cial fun­da­men­tals and per­haps open a TFSA or an RRSP on their be­half — even if they don’t yet have money to con­trib­ute to­ward it — can help launch the process of learn­ing.

“It’s like get­ting two stamps on a new [loy­alty] card at the store for [younger] clients,” Keehn says. “They feel like they’ve al­ready done some­thing right, and they’re much more likely to in­vest.”

Credo asked sur­vey par­tic­i­pants a se­ries of ques­tions as part of a fi­nan­cial literacy test, then ranked par­tic­i­pants into quar­tiles based on their scores. Par­tic­i­pants with the low­est scores were placed in the fourth quar­tile; those who scored high­est were placed in the first quar­tile.

Among the Cana­di­ans Credo sur­veyed in the 18-24 age range, 44% ranked in the fourth quar­tile and 11% ranked in the first quar­tile. In com­par­i­son, among Cana­di­ans sur­veyed in the 65plus range, 31% ranked in the bot­tom quar­tile and 17% were in the top quar­tile. In gen­eral, scores in the sur­vey im­proved at each suc­ces­sively older age range, plateau­ing at age 55 and above.

Th­ese find­ings were drawn from re­cent re­search con­ducted by Credo for the on­go­ing Fi­nan­cial Com­fort Zone Study, a na­tional con­sumer sur­vey, in part­ner­ship with Mon­treal-based TC Me­dia’s in­vest­ment group. (TC Me­dia pub­lishes In­vest­ment Ex­ec­u­tive.)

Ac­cord­ing to Credo’s re­search, in­di­vid­u­als with low lev­els of fi­nan­cial literacy were more likely to re­port feel­ings of fi­nan­cial de­feat. When asked if they agreed (on a scale of one to 10) with “I feel a sense of de­feat when I think about my fi­nances,” sur­vey par­tic­i­pants in the fourth quar­tile gave an aver­age score of 4.7. In con­trast, sur­veyed par­tic­i­pants in the first, sec­ond and third quar­tiles gave an aver­age score of 3.2, 3.5 and 3.8, re­spec­tively.

There are three core is­sues that of­ten serve as ob­sta­cles for younger peo­ple when seek­ing the fi­nan­cial ad­vice they need, Keehn says:

Be­ing over­whelmed by fi­nan­cial jar­gon and in­for­ma­tion be­ing di­rected at them by the fi­nan­cial ser­vices sec­tor and the me­dia.

Un­cer­tainty about how to de­ter­mine if fi­nan­cial ad­vi­sors and pro­fes­sion­als are trust­wor­thy.

The stigma as­so­ci­ated with be­ing seen to be fi­nan­cially un­so­phis­ti­cated.

“Younger peo­ple tell me: ‘I’m go­ing to be told I need mil­lions to re­tire, and there’s no way that’s ever go­ing to hap­pen. So, I won’t bother to reach out for help’,” Keehn says. “There are a lot of myths out there about what help is [avail­able], and how you get that help.”

Younger Cana­di­ans of­ten don’t have enough as­sets built up to be able to ac­cess qual­ity fi­nan­cial ad­vice. How­ever, you can ap­proach th­ese prospects i n a way that makes busi­ness sense, such as of­fer­ing group events, sem­i­nars and we­b­casts that fo­cus on fi­nan­cial fun­da­men­tals, says Sara Gil­bert, founder of Mon­treal-based Strate­gist Busi­ness De­vel­op­ment.

“[You should] share in­for­ma­tion on how to man­age debt, or how to man­age cash flow or how to do a bud­get,” Gil­bert says. “In my opin­ion, it’s part of an ad­vi­sor’s re­spon­si­bil­ity that clients un­der­stand what they’re do­ing.”

Pro­fes­sion­als in the fi­nan­cial ser­vices sec­tor un­der­stand they have a key role to play in teach­ing younger Cana­di­ans about their fi­nances. The Toronto-based Cana­dian Bankers As­so­ci­a­tion (CBA), for ex­am­ple, de­vel­oped a pro­gram called Your Money Stu­dents that of­fers young peo­ple, their par­ents and teach­ers re­sources to ex­pand fi­nan­cial literacy.

That pro­gram of­fers non-com­mer­cial class­room sem­i­nars de­liv­ered by vol­un­teers from the bank­ing sec­tor and fo­cused on top­ics such as bud­get­ing, bor­row­ing or in­vest­ing rather than on prod­ucts.

“In cer­tain pock­ets [of the younger pop­u­la­tion], there’s some de­gree of hes­i­ta­tion and ret­i­cence [about ask­ing for fi­nan­cial in­for­ma­tion], and I un­der­stand why,” says Neil Par­menter, pres­i­dent and CEO of the CBA. “The goal is how do you make it more ac­ces­si­ble for peo­ple, and more com­fort­able for them to put up their hand, tap into re­sources and, ul­ti­mately, ask the right ques­tions.”

In fact, Par­menter says, he prefers the term “fi­nan­cial education,” as “it im­plies a con­tin­u­ing jour­ney” as op­posed to the term “fi­nan­cial literacy,” which im­plies that some­one is ei­ther fi­nan­cial lit­er­ate or not.

“It’s not a stop-and-start ex­er­cise,” he says. “When you’re at dif­fer­ent points in your life, there are dif­fer­ent lev­els of depth that you need to have about fi­nan­cial prod­ucts and ad­vice.”

In fact, al­though older Cana­di­ans in gen­eral may feel more com­fort­able with fi­nan­cial con­cepts and terms than younger in­di­vid­u­als do, the older set also may ben­e­fit from fi­nan­cial education pro­grams — par­tic­u­larly those iden­ti­fy­ing fi­nan­cial abuse and fraud, man­ag­ing money in re­tire­ment and un­der­stand­ing govern­ment ben­e­fits, says Jane Rooney, Canada’s fi­nan­cial literacy leader who is over­seen by the Ot­tawa-based Fi­nan­cial Con­sumer Agency of Canada.

For ex­am­ple, the Cana­dian credit union in­dus­try launched a pro­gram, de­vel­oped as part of the na­tional fi­nan­cial literacy strat­egy, to help front-line staff bet­ter iden­tify fi­nan­cial abuse and to re­port it, says Rooney, who was ap­pointed to her role by the fed­eral govern­ment in 2014.

“Higher-risk con­sumers need to un­der­stand bet­ter that there’s fi­nan­cial ad­vice and ad­vi­sors out there be­cause we don’t ex­pect con­sumers to be ex­perts about fi­nan­cial prod­ucts and ser­vices,” she says. “But we’d like [those con­sumers] to get in­for­ma­tion, be con­fi­dent to ask the right ques­tions, then bet­ter un­der­stand their rights and re­spon­si­bil­i­ties, so that they’re mak­ing a de­ci­sion around the best prod­ucts or ser­vices that suit their needs.”

The on­line Fi­nan­cial Com­fort Zone Study has polled 22,000 Cana­di­ans thus far. The sur­vey is meant to gain in­sight into the re­la­tion­ships among fi­nan­cial ad­vice, fi­nan­cial well-be­ing and over­all life sat­is­fac­tion in Cana­dian so­ci­ety. Cana­di­ans are polled monthly, and the num­ber of sur­vey par­tic­i­pants will in­crease each month.

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