This is the official campaign slogan to kick of Financial Literacy month in Canada for 2024, marking the 14th edition lead by the Financial Consumer Agency of Canada (FCAC). In 2021 they unveiled a 5-year national strategy to make the financial ecosystem for Canadians more accessible, inclusive and effective.

On the surface, the notion of financial literacy seems quite simple, acquiring the skills and knowledge to make informed financial decisions. In its most basic form, we think of notions like the value of a dollar, savings, budgeting and debt management. For some, these are principals that have come to be second nature, perhaps because they were commonplace at the dinner table or it was taught early on. For others, there are still barriers to gain this knowledge and develop the skillset to put them on the right track to financial wellbeing.

Even for those who feel they have a good grasp on financial concepts, we can’t ignore the impacts of our changing financial landscape. More specifically, the rapid adoption of financial technology (or fintech). It wasn’t that long ago, that if we required a bank account, credit card, mortgage or investment account – we would have to make an appointment and meet with a qualified representative. At that time, we would (hopefully) be advised on the important disclosures and other relevant information as it relates to the product we are walking away with. Fast forward to present day, and there really isn’t much we can’t do online. Herein lies the issues, is everyone reading the fine print? If they are, are they understanding it? For example, you sign into your mobile banking app and see that you have been pre-approved for a credit card or line of credit. How many of those “pre-approvals” are accepted without understanding the potential implications, like the impact to one’s credit score or debt ratios for future credit applications. How these advancements in financial technology will impact consumer choices and behaviour longer term is unclear, but it certainly needs to be monitored.

It's evident that breaking down barriers and providing accurate financial information for individuals extremely important. The buck (pardon the pun) doesn’t stop there; creating accessibility isn’t enough. Going one step further past financial literacy is financial resilience, which, as defined by the Canadian Financial Consumer Agency, is the ability to adapt or persevere through both predictable and unpredictable financial choices, difficulties, and shocks in life. Ultimately, financial literacy leads us to make decisions but it is financial resilience that allows us to recover and navigate through negative financial events. A recent phenomenon has been the rising popularity of variable rate mortgages. This isn’t surprising given that we have been in a low interest rate environment going into the pandemic and the resulting accelerated principal payment resulting from a decrease in bank prime rates. Now enter the rapid pace of interest rate increases introduced to combat inflation from monetary easing and stimulus during the pandemic. By 2022, one third of all mortgage loans in Canada were structured as variable rate and by the first half of 2023 almost eighty percent of those variable rate mortgages with fixed payments had hit a trigger rate. Something worth considering would be the potential reduction in this percentage if more Canadians not only knew but acted on the ability to lock into a fixed term in the early or mid-stages of the rate hiking cycle?

The importance of financial literacy extend past the individual level and can have a profound effect on our economy as a whole. There have been studies aimed at analyzing the relationship between levels of financial literacy and gross domestic income. While there is some compelling data that suggests that a relationship cannot be ignored, we can also view a similar relationship in the reverse order. Are nations with strong stable GDP growth able to foster higher levels of financial literacy. As it relates to Canada, a country with a large reliance on consumer spending to drive economic growth, the choices of the individual will cumulatively impact the nation as a whole. It was estimated by the Canadian Mortgage and Housing Corporation (CMHC) that in 2024 and 2025, 2.2 million households would be subject to an interest rate shock with a total amount to be renewed in these years coming in at around $675 billion. There are many other factors impacting the success and growth of an economy but the strength and ability of the consumer to navigate through financial uncertainties, whether in the borrowing or investment landscape will have lasting impacts.

It's no surprise as to why this National Strategy exists and it’s worth noting the structure of how the FCAC is setting out to achieve this goal. At the top level, is fostering Ecosystem Changes by reducing barriers through ‘communicating in ways people understand’, ‘build and provide for diverse needs’ and ‘support increased digital access and digital literacy’; and catalyze actions in order to ‘enhance access to trustworthy and affordable financial help’, ‘use behavioural design to simplify financial decisions’ and ‘strengthen consumer protection measures. Following this, they have outlined 5 key consumer building blocks in which stakeholders (such as those in the financial services industry) can work with Canadians to improve their financial resilience; those being: 1. Skills to navigate the financial marketplace, 2. Just-in-time knowledge and confidence, 3. Managing expenses, 4. Managing debt and 5. Managing savings.

Our commitment to clients has always been education first, and sometimes we get take this approach to other venues. This month I’ll be partnering again with Junior Achievement to deliver financial literacy programs to a few schools in the area, further breaking down barriers to fundamental financial information. As we head into November, there may be other headlines capturing our attention, especially as election day draws closer, but we’re hopeful that the important conversations will continue and the money on the mind is talked about.

On behalf of Pyle Wealth Advisory, have a wonderful weekend!

Ally Pyle