Stephen Covey said that if two people think the same, get rid of one: they're redundant. You add value when you think differently.
Let's extend the thinking. If you predict an outcome, why bother wasting time, money and focus on the research?
Start fixing the problem instead.
The Force
Enter the Task Force on Financial Literacy. In elementary school, I learned that "literacy" is about understanding words and "numeracy" is about understanding numbers. Remember the "Three R's"? Reading and writing dealt with literacy and arithmetic with numeracy. Maybe financial literacy means the A-B-Cs of 1-2-3? There are three reasons why numeracy eludes us.Whatever the name, a group of well-intentioned people spent $$$ (millions?) and a couple of years to discover what we already know: more financial education is needed.
Why would the findings be a revelation?
In 2001, the Financial Consumer Agency of Canada was launched to deal with the same issue. In 2005, 40% of adults had low literacy. What progress has been made there? Maybe we need a Task Force on Nonfinancial Literacy too.
The Conflict
Do smarter consumers mean more profits? If not, there's a conflict of interest.If companies know that customers have trouble understanding numbers, they can exploit this ignorance and hide behind legalese. Unless they're fiduciaries, they aren't obligated to act in your best interest.
A pizza chain is currently advertising free toppings in large letters. The tiny fine print says you only get "1 (one) single topping". How does "toppings" become "topping"? The disclosure may be legal but it's misleading and makes it hard to fight cynicism about their real intent.Profits
Would numeracy boost or chop profits in the financial services industry? Look at
- credit card statements: only pay the minimum balance of $27.41 [and keep borrowing the rest at very high loan rates]
- mutual funds: are you shown an unbiased comparison with ETFs [which are much less profitable]?
- extended warranties: are you told they are "notoriously bad deals" [but very profitable]?
- get rich quick schemes: are you told you might get rich [but not as fast as the promoters]
In Your Corner
When you're buying real estate, your agent will explain what the wording means and help you prepare counteroffers. Most other times you're dealing directly with a salesperson and can't change the terms. That leaves you with two choices: take it or leave it. When I leased my car, there were many spots to sign. There was implied pressure to wrap up. Even if I read and understood every word, what difference would that have made?Take Initiative
You are the key to numeracy. The onus to learn basics like compound interest is on you but you're not alone. When you're ready, you'll find volunteers committed to helping you understand numbers:- bloggers: Canadian Capitalist, Million Dollar Journey, Thicken My Wallet, …
- discussion groups: Canadian Money Forum, …
- newsletters: Rob Carrick's Personal Finance Reader, …
- publications: Globe Investor personal finance, Financial Post, MoneySense, …
- seminars: Ellen Roseman, …
- nonprofit or government: ABC Life Literacy, The Money Belt, …
All these resources are free. Feel free to add more. Use them and help others too. Let's stomp on innumeracy.
Links
- Three reasons financial literacy eludes us
- Do you understand compound interest?
- The fine print taketh away
- How do you help clients who have trouble reading?
- How to fight cynicism?
- Skip the extended warranty (Globe and Mail, November 2009); read the reader comments too
- Airport security vs. financial security
- The foolproof measure of trust
- One surefire way to increase financial literacy: disclosure (Rob Carrick, May 2010) new
- Financial literacy means saying no to business interests (Ellen Roseman, Feb 2011) new
- Financial literacy: does the industry really want us to be educated? (Jonathan Chevreau, Feb 2011) new
- Canadians lack confidence with math, money management (Globe and Mail, May 12, 2011) new
- Financial literacy is only half the battle (Advisor.ca, June 15, 2011) new
- How marketers can take advantage of consumers' innumeracy (The Economist, Jun 30, 2012) (new)
- Why financial literacy fails (Time, Mar 2013) (new)
- image courtesy of Gokhan Okur (Turkey)
Podcast 104 (5:35)
direct download | Internet Archive page
PS What's $1,000,000 after taxes on the investment growth?
6 comments:
It often annoys me Promod that I have to spend time learning all these things when the sheer earning of money takes most of my time.
I often tell peers that all for profit companies owe it to their shareholders to make money off you, why are we as consumers surprised when they do it at every turn?
This weekend someone I know well explained to me that they thought they got a great deal to renegotiate a mortgage - when they were done they realized they lost money because of the penalty.
It's important, thanks for highlighting such great resources!
One I love is from an important agency who helps create financial literacy: Credit Canada
http://www.fortheloveofmoney.ca/
Million Dollar Journey is respected to so many of those I follow.
Thanks for your comments, Paul.
I have nothing against companies making money legally either. As you point out, that's their role. Making money is important to us too :)
The Internet has brought some transparency and also empowered the public.
It's too bad about the loss on the mortgage renewal. When the appropriate facts aren't weighed, the wrong decisions can easily get made.
A simple web search turns up an article entitled The art of mortgage renegotiation. Rob Carrick states "The problem in breaking a mortgage is the penalty that lenders charge."
That's a good warning to investigate further and ask for help, if necessary. The Canadian Money Forum (started by Canadian Capitalist and Million Dollar Journey) is an ideal place to start.
You have to be aware of the right financial transactions to deal with.
Promod, these are a great set of resources! Thank you.
One of the most confusing parts of all of this is that each dealer/retailer/sales person has different rules all hidden in the fine print.
I've used a technique of setting up a spreadsheet for major purchases and laying out all the small print costs to do a real comparison.
For example, looking at new cars and balancing the finance rates, lease rates, outright purchase prices and depreciation of the actual car. Someone in the world of cars has already done that math and the way it gets sliced and diced for the consumer can get really confusing. (I think intentionally)
I agree with you, Paul, on the mortgage front. My in-laws very nearly got pulled into the same situation, but luckily they were wise enough to run the numbers and find that it didn't make sense for them to move to a lower rate considering the small size of their mortgage and large penalty.
I think that a lot of this consumer confusion is a result of having so much choice in the marketplace. There are so many models and features for each product that the competition becomes based on hooking people through "Too good to be true" financial pitches that are rarely as good as they seem at first.
I agree that there are so many resources already available. The money section of your local public library is another great resource.
Thanks for the plug Promod!
@christina: Spreadsheets are an excellent tool. I create them too, but not everyone is numerate enough to do that.
@cc: Thanks for the reminder about libraries. They're an excellent resource.
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