Time to forget financial literacy

Time to forget financial literacy

Time to forget financial literacy Author takes exception to the financial services’ industry’s fascination with financial literacy. The focus, says this outspoken critic, should be on consumer protection. Is she right?

She is Helaine Olen, author of the 2013 book Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, which looks at the seedy underbelly of the financial services industry.

The Economist says about Pound Foolish:

”Have you ever met anyone who has grown rich just by saving? Probably not. But you may well have met someone who has grown rich looking after other people’s savings. That dark secret lies at the heart of ‘Pound Foolish’, Helaine Olen’s excellent book, a contemptuous exposé of the American personal-finance industry.”

Needless to say she’s not a fan of an industry determined to look good while selling products and services to consumers that enslave them to debt — permanently.

So, late last week when WP came across an article written by Olen for Slate magazine that says enough is enough, we as a society can no longer assume financial literacy will solve the retirement readiness crisis, we were intrigued about her message and whether those in Canada saw any validity in her thoughts.

Olen believes regulatory bite is the only way to protect consumers from corporate financial predators. No bit of education or financial literacy is going to change this.

A recent study published in Management Science, a journal dedicated to the practice of management, suggests that “… studying financial literacy has a ‘negligible’ impact on future behavior and that within 20 months almost everyone who has taken a financial literacy class has forgotten what they learned.”

Financial literacy in and of itself is a great thing.

Marie Muldowney, managing director of the Canadian Securities Institute, had this to say to WP on the subject: “Financial literacy is important for all ages… Consumer protection starts with education and extends to the advisor and financial institution. People are taught about proper eating and exercise. Not everyone eats well and works out, but we still teach these fundamentals. The same is true for financial literacy.”

However, the research shows that educating our high school students about finance won’t make them better savers as adults. The two don’t go together.

Financial advisors should be delighted to read this.

Despite statistics that show many Canadians have not and probably won’t secure the services of a financial advisor, the reality is that until consumer protection laws are enacted that protect people from themselves, there will continue to be a profound need for professional advice.

The good ones will never have to worry about having enough business.

Ken Kivenko, an advocate for the protection of small investors believesfinancial literacy is a valuable tool in the fight against unscrupulous operators.

“Today’s financial products are increasing in complexity so financial consumer protection is paramount. No amount of financial literacy will be able to keep pace with the creativity of the financial services industry,” said Kivenko in a 2011 submission to the SEC.

“A fiduciary standard needs to be applied to all those holding out the shingle of Advisor. This needs to be coupled with an effective fair, low-cost complaint resolution system.”

So, while Kivenko and Olen might disagree about the usefulness of financial literacy, they both can agree that consumer protection is vital to the health and well-being of the financial services industry in both
Canada and the U.S.