Financial Education

What is financial literacy?

Money is 80% behavior, 20% head knowledge. It’s what you do, not what you know, that makes the difference.” – Dave Ramsey

November is Financial Literacy Month; that time of the year where the financial services industry tries to do its part to raise the financial consciousness of the nation. While the idea itself isn’t a bad one, I think it’s fair to say that dedicating four weeks right before the Holiday season to building awareness of the importance of saving and debt management might not be optimal timing!

Aside from the timing issue, for me, the whole idea of financial literacy feels like a very vague concept. When you talk to people, they seem to agree that financial literacy is important; they feel that it should be an integral part of a child’s education; they blame a lack of financial literacy for falling savings rate and the mounting levels of household debt and yet when you ask people to define what financial literacy is, they falter. Usually, after thinking for a bit, they will offer a definition along the lines of “understanding how money works” or “knowing how to manage money” but there’s usually a questioning tone in their voice that suggests they’re not 100% sure.

When you look online, the same uncertainty and vagueness are evident, even among sites dedicated to promoting financial literacy. The general consensus seems to be that being financially literate means having a basic understanding of how much you earn, how much you spend, how much you owe, how much you own and what you need to do in order to maximize your assets and minimize your debts. The assumption is that the main reason people struggle with debt and money is that basic financial skills such as budgeting and money management aren’t taught in schools. This goes hand in hand with the belief that raising our level of financial literacy will lead to more savings and less debt. However, I’m not convinced this is actually the case.

Arming people with information doesn’t necessarily lead to action and, unless you can find a way to teach money basics that inspires people to want to put their money to work for them more than they want gadgets, luxuries and “stuff”,I don’t think making personal finance part of the curriculum will actually make enough of a difference. That’s not to say that I think teaching money sense in schools is a bad idea; I’m a big supporter of teaching kids about money. However, having talked to many people over the years about finances and their own understanding of money I’m becoming more and more convinced that it’s not a lack of financial literacy that’s the problem; it’s a lack of motivation.

Just do it… or not.

Decades ago, when it was considered bad manners to discuss money matters with others and many people didn’t even finish elementary school, people didn’t seem to have trouble grasping the basics of money management. People understood very clearly the need to live within their means and save for the future; not just because they lived in a cash-based society where solvency was admired and debt was frowned upon, but also because they had no real alternatives. When you’re paid in cash and you have no credit options available to you, the choice is pretty simple: you either live within your means or you go without.

Fear is a powerful motivator and, while I’m sure that there were plenty of people living paycheque to paycheque, I’m willing to bet that there were plenty more living within their means and building solid financial foundations in order to make sure they didn’t run out of cash. Then, in the 1980s and ’90s, with the introduction of credit cards, an alternative approach to money emerged. Credit gave people the option of an easier path that removed the need to save and live within their means and offered them the opportunity to purchase experiences and products that might otherwise have been out of reach. It’s a tempting offer and one that proved hard to resist. Human beings are hard-wired for pleasure and it takes a greater degree of willpower and motivation to take the fiscally responsible path rather than the fun and easy one. Not surprisingly, as credit became more readily available and more socially acceptable, there was a steep decline in the amount people were saving and a sharp increase in the amount of debt they were carrying.

Confronting reality

As debt levels continue to rise and the struggle many people have with basic money management has become more obvious, there has been an increase in the volume of people calling for education and more promotion of financial literacy. These voices assume that if people were more educated they would make different choices, but I’m not convinced this is the case.

Over the years, I’ve met a lot of people who were in varying states of financial difficulty. While they came from a variety of backgrounds and education levels, not one of them had no idea they were in trouble and not one of them was under the impression that debt was a good thing. It’s ridiculous to suggest that someone who is behind with their mortgage or rent payments is unaware of the fact they’re living beyond their means just as it’s ridiculous to say that someone who is up to their eyes in debt doesn’t know they’re walking on a financial knife edge. However, knowing and acting are two very different things. One thing that many people in financial difficulty are guilty of is deliberately ignoring their situation; they consciously avoid taking on board any information that might mean they have to change their habits or compromise their lifestyle in any way.

Creating accountability

People can be very good at convincing themselves that things are ok when they know that they’re not. There’s a big gap between suspecting you’re off track and being willing to ask for directions and an even bigger gap between asking for directions and acting on them. With all the information that’s available online for free as well as all the books, audiobooks and other materials that you can buy (or borrow from the library) the only reason why anybody should be lacking information on finances and money management is that they haven’t looked for it. We need to create an expectation that part of being an adult is being fiscally responsible rather than giving people the impression that it will all be ok in the end because someone else will fix it. Taking away the expectation of personal responsibility is dangerous because it creates an expectation that people will be spoon-fed all the information they need and that there will be a safety net in place for those who decide not to do anything with it.

If we want people to manage their money more effectively; to increase their savings levels and decrease their debt levels then we have to create an expectation in our homes, our schools, and our social circles that taking control of our money is something important. We need to teach our kids that money has to be earned before it can be spent; we need to take the mystery out of personal finance so people feel more confident handling their own money and we need to hold the financial services industry accountable for making sure that people understand how credit works before they’re approved to carry it. More than anything else, we need to shift our way of sharing information so that financial literacy becomes less about teaching theory and more about promoting action. We need to teach people in practical ways how to take control of their money and we need to listen to their questions in order to fill the knowledge gaps.

I spent some time recently talking to college students about money in an effort to understand what their misconceptions and confusions are about finance and managing money. What they seem to be lacking more than anything, isn’t an understanding of core concepts, it’s understanding the “how’s” that bring those concepts to life: How do I save? How do credit cards work? How do I buy a house? How are credit scores calculated? They’re looking for information but they’re also looking for strategies to help them apply that information to their own lives.

Perhaps, if we want to get people engaged in managing their money, we should start by setting an expectation that taking care of your money is something we should pay attention to and follow that up with a more practical approach to sharing knowledge and a more collaborative approach to implementing it? What do you think?


  1. Claude Mayrand


    To me you’re like a star author whose books I’ll automatically read.

    Another comprehensive article on behaviour about money and other financial issues.

    Some key words: fear, just do it, timing or humour (literacy month juxtaposed with Xmas season excesses).

    Fear happened 3 times for me: I was deeply in debt at 21, dipping into my RRSP for groceries and rent at 45, unemployed again t 56. I was my most influential emotion about money. I found something different to do at each stage.

    You talked about financial education and today’s motivation, or lack thereof. Money is still an abstract concept, mostly because of credit cards, lines of credit and the like. I think financial concepts should be part of other teaching moments like simple arithmetic and algebra. For instance, what is the impact of 20% credit card interest versus 30% store credit card interest on one’s disposable income. Or what is the nature of stock dividends and what is the impact on your income tax and RRSP.

    I spoke to a 28 year old this week about how I was coping with retirement via my stock portfolio. His only reaction was: “Isn’t that risky?” My reply was: “When you drive a car, you’re taking risks.” He didn’t know what dividends were, at all.

    It’s a little frightening to see the proportion of people ignorant about simple financial matters. I don’t know how to motivate individuals to reconcile their lifestyle and the financial situation. I definitely don’t know how to incorporate financial matters in a holistic manner in education curricula.

    All I know is that financial health is not complicated and certainly not mysterious or mystical.

    • Brad Turner

      Claude Mayrand, I have been reading articles on this site for over 10 years. I have always enjoyed your comments and philosophy. I started to use your methodology of passive investing 10 years ago and currently generate over $8000 per month in dividends without touching the principle. I searched every article for your comments and explanations of how you picked the right investments and started to see the value of passive investing immediately. I too fell into the financial trap with poor advisors who were only there to make money from me whether stocks won or lost, they always got their cut. I just want to take this opportunity to thank you for sharing your experiences.

  2. filleheureuse

    Excellent article! You’re right on.

  3. Iris

    I am taking your words: “We need to teach our kids that money has to be earned before it can be spent; we need to take the mystery out of personal finance so people feel more confident handling their own money and we need to hold the financial services industry accountable for making sure that people understand how credit works before they’re approved to carry it. ” to teach some kids the importance of attitude towards money and self-control in managing it.
    Your articles are really valuable. You have the ability to make people understand hard concepts.
    Thank you for sharing that ability


  4. Deborah Murray

    Completely accurate! I see many clients ranging in income but they all have the same issue, they live beyond their means and saving today is less of a priority then spending today. Many young adults get comfortable with debt before they ever get comfortable with saving because they start their adult life with student debt. They ignore the value of having good credit scores and don’t even know how to affect their credit score until they realize its in the damaged area when they really need it. So, yes we need to teach financial literacy, and more then that, give detail of how to act on the knowledge.

  5. Martin

    Thank you Sarah for a great article!

  6. Dave

    I know this makes me sound old fashion but in the late 60’s I had a daily Vancouver Sun paper route; Responsibility, commitment, and in all weather I had to receive & deliver the product on time, collect cash monthly from each customer , then make a bank deposit, write a cheque and pay the monthly bill by a certain date, which also included penalties if I had had customer complaints or was late paying. What was left over I got to save/spend – in cash. If a customer didn’t pay me the 2.50 monthly amount I had to take the loss. If I needed a new Sun canvass bag, I had to buy it.

    No I didn’t go on to be a big entrepreneur but what a great learning experience I had and it has served me very well in managing my own finances, saving, investments etc.

    Many teenagers in the past had similar experiences, clerks, gas station attendants, cutting lawns, car washing, baby sitting. We’ve lost a lot along the way.

    But what should we expect when we don’t even let our kids walk to and from school any more. How did that happen! It’s no more dangerous today than it was then.

    • Claude Mayrand


      Similar paper route experience for me. Same decades later conclusions about responsibility and commitment.

      Let me add also, no involvement by parents into child and teenager activities either. We learned independence in faring for ourselves, selecting activities and people in unexpected places.

      But we can’t go back. How do we instill all those lessons and attitudes in our grandkids?

      We had some strange fears in those days. Remember how we learned to protect ourselves from a nuclear attack? Those school desks were amazing devices, weren’t they?

      Overall, I think the grandkids will do OK. Most of them, anyway.

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