The Myth of Financial Literacy
Barrie McKenna has a very good column in todayâ€™s Report on BusinessÂ about Bay Street simultaneously promoting â€œfinancial literacy,â€ more personal borrowing, and high-fee financial products.
He makes some of the same points as contributors to this blog did when the Harper governmentâ€™s Task Force on Financial Literacy began consulting, accepted submissions and reported.
What I would like to know is where are the Canadian banking regulators? Why are they allowing banks to overload people on debt?
Literacy is fine for those with the inclination, but there will always be information asymmetry between lenders and borrowers.
I’m curious to know what the banks/insurance companies will be charging to manage the PRPPs. If the managers charge 10 or 15 basis points for providing professional management of a broadly diversified portfolio, it might help ordinary savers a lot (although it appears that participants will be required to determine their own investment mix). If they charge, say, 150 points, then the program will be doing very little to achieve its stated goals. Does anyone know whether the PRPP rules will regulate the fees that can be charged? I didn’t see anything at http://goo.gl/gkrJX.
The whole thing is a scam. Even if you are financially literate it takes a lot of time to investigate the claims being made for any product and lot of what if scenarios. Basically what the industry wants to be able to say is that Canadians basic financial literacy is higher than the G7 average so if they do get suckered it is their own fault.
OTOH, maybe we should fly with the idea as long as the reading material is Marx, Lenin, Keynes, Minsky and Kalecki. With the Art of War and the Prince thrown in for good measure.
@ John Loukidelis:
You can find the PRPP legislation at:
Clause 26 says that the plan must be “low-cost”, but that’s pretty vague. Detailed regulations under the legislation might define it in more detail.
On the other hand, if what you want is a diversified portfolio with costs of 20 basis points or so, and you don’t want to wait for Federal government action, you might find this interesting:
We already had fairly good competition on ETF charges in Canada between iShares and Claymore but it’s now heated up. It’s absolutely true that mutual fund charges in Canada are too high, but it’s also true that you don’t have to pay them.
financial literacy= lets promote money for nothing and your chicks for free- and yes those guys are dumb.
How about technical literacy and job skills? Instead of using EI money for training everybody, we use the financial literacy money for job training.
It is the whole finanicalization fo the economy that got us into the economic crisis. Now what- we want to promote a culture of the casino.
I actually think given the returns on investment and the whole money for nothing issue, one might actually be better off walking into a provinical casino and putting it all ona game of 21, at least you know the odds. I don’t trust a single financial advisor on the planet. As they all work for a bunch of crooks in some head office on Bay Street or Wall street who have very little regulation.
So my advice to those seeking investment fortunes, go read a good book on probability and statistics, learn how to count cards and then visit a casino.
Otherwise buy up long term govt bonds and be content with a long term pay safe pay off on your extra cash. (if you are lucky enough to have any)
How leveraged up is the average ETF?
You should always read the prospectus. Having said that, and focusing on North America, iShares, Claymore, and Vanguard ETF’s are not leveraged.
In the U.S., Rydex and ProShares tend to be leveraged (as much as 3 times, and even inverse). In Canada, Horizons fills that niche.
I don’t know much about European-listed ETF’s and so I can’t offer an opinion on them.
My personal belief is that leveraged and inverse ETF’s are for people who are braver/more foolhardy than I am. I would stick with broad equity or bond indices with no leverage.
I have to admit I am amazed at the reactions we are getting from the debt scenarios of many countries and their effects on the markets today, and how irrational the seeming inability of Americans to cut their debt and eficits have influenced the core financial literacy culture.
Just look into history, we have had debt since the day we realized that to expect govt to balance budgets was a recipe for disaster. We then had a long run of Keynsian policy. And there was a critical tipping point in the 70’s. We had a build up of debt and power of the state and unions, ( a bit of power trnsfer not like that which the neo cons want to portray) We actually started getting to some notion of economic democracy. And wham, the neo con movement struck at the heart of actually existing capitalism and killed it. For 30 years we have been running up more debt, and this under the neo con rules.
When do finally get to the point where debt is considered a good investment. When do we get to the point that we realize capitalism the way the neo cons regulate it (and call it like it is, self regulation is regulation by the 1%) and the financial market do not work. When is it we realize that what we as citizens desire and need as outputs from our economic machine are both a mix of public and private provisions. When do we realize that any literacy in finance must start from the square that says, we need to satisfy our needs and wants and there does not need to be a profit attached to it.
Ultimately with the destruction of the environement and all the risk that capitalism has unleashed onto our societies and civilizations, we need a huge space now for the public provision of utility to provide. We need debt and we need to spend beyond our collective needs under the current form of capitalists organization.
Potentially, now matter how hard capital tries to transform us into commodites and play our role in the well oiled profit machine, we are not commodities. (I think the reference to Polanyi’s commodofication process stopped short when it came to labour, it is not just our work that was to be commodified, it was our entire existsence. They already destroyed our worklife, now the quest for profit is attemtping a final and complete victory- to destroy our non-worklife)
So why is it debt is so bad. Low interst rates, unused assets, many opportunities to profit, yet we cannot convince capital to come out of its investment rock. So yes- you want to talk about financial literacy I think we need to gather together the CEO’s of all major corporations and send them on a finanical literacy course. And well we are at it, I know a great Enviromental Statistcial course at Berkley they should take, it has all to do with Carbon dioxide and its interaction with other molecules in the atmosphere and how it works with these tiny pulses of energy called photons. The statistics on concentrations and known quantities was pretty enlightening. I think I got an A on that course.