5 May 2015

The truth about financial literacy

The truth about financial literacy

Financial literacy is without a doubt a very fashionable subject right now. Canada has even declared November “financial literacy month” to raise awareness and mobilize organizations across Canada to spread the word about the importance of financial literacy.Indeed governments and organizations seem to be getting busy, meetings are being held ,programs and books are being created to help educate humanity on financial literacy. I have never seen so much information and so many products available. This is at a  time when anyone can open an online brokerage account and buy a leveraged exchange traded fund  for as little as $6.99 per transaction. Yet while all of this is now available,we can still observe an ongoing trend. People in North America are more and more in debt and they don’t save a dime of what they make,this is especially the case for the millennials. I would even go so far as  to say that the people targeted by these books and programs are not taking action at all. Before creating expensive  “expert” committees on how to educate the population ,I would suggest taking a closer look at reality.


I know it is fun to live in a fantasy world,but real problems need real solutions. First of all,nobody needs to be a financial genius to notice that  our disposable income,(this is the  amount of money that households have available for spending and saving after income taxes have been accounted for) as gone down over the past years. The province where I reside is ranked 9th out of 10 for the amount of disposable income people have left. Quebec will spend 100 billion dollars this year to “take care ” of 7 million people. Although our situation seems dismal ,I can easily find other Provinces or States where the disposable income numbers have decreased quite a bit as well. Back in the day,only the men used to work. To my knowledge ,single income families did not suffer as much as they do today.These days we have many more dual income families,but although they work more and bring more money in,these families  seem to have a harder time making ends meet than a single income family did 20 or 30 years ago.  The first lesson in financial literacy is that the government aka the “ogre” is very hungry,taxation as augmented at a faster pace than anything else. It is very tough to save after losing so much of your pay cheque. It is also important to know that home prices have surged 13 times more than wages in the past couple of years. For most North Americans,buying a home is the first and biggest investment of their lives. This investment  is certainly not cheap when you consider the prices of homes and all the maintenance costs and taxes related to owning.When you pick up a pay cheque ,although it may feel rewarding and  like you are going somewhere chances are you are backsliding. It is true that some companies are good to their employees.Recently, I read that Porsche handed out a $9400 bonus to ALL of their employees,not just management. But this does not seem to be the norm.

When you are exchanging your time for money,when you are earning the  typical wage,you are facing a battle that is impossible to win. Not only will you lose all your valuable time,but you will see more and more deductions on your pay cheque. Meanwhile assets you may wish to acquire to improve you situation ,assets that grow over  time and produce income will only get more expensive. This is  reality,the returns on investments will always grow faster than wages. On top of that,these returns are less taxed than the traditional wage.Again,I will clarify my point of view: just like it is useless to know that the Paris treaty occurred in 1763 if you don’t have money to feed yourself, it is also useless to learn about money if you don’t have any. There are so many people struggling out there that money advice always falls in the same hands, unfortunately.  The average family income here in eastern Canada is $70,000. Take off 20k in taxes,18k for housing,12k for food,10k for transportation and you have 10k left for energy bills,cable,entertainment and everything else.Most people say “I  will save whatever is left”;but this  is often less than 0! When a  pay cheque  is received,the first thing noticed is that pretty much everyone in the world has already taken a bit  of it.So people can write what they want and create the programs that they want about managing money,but if most people do not have money to manage,they will simply not care!There is no doubt,that learning about budgeting,mortgages and investing is important,but those things must follow very important and truthful advice about financial literacy. Financial literacy is learning about how money works: more specifically HOW TO MAKE IT. And if you want to make some,the first thing you have to do is WORK FOR YOURSELF. Stop exchanging time for money. You also need to build RESIDUAL INCOME. Most people have residual bills wether this is   interest and  minimum payment on the credit card,  cell phone bill or the monthly car  and  mortgage payment ,but what are you earning every month as residual income? Do you receive business income,dividend income or maybe rental income? Most “gurus” offering financial advice understand this. It can be very profitable for someone to put on a nice suit and tell people how to get rich in “5 easy steps”!Some people make a very good living out of telling people what to do. But  the most honest message is that business,self employment including residual income is the real financial literacy. Residual income is the best weapon to fight the lack of time and money most people suffer from.

I hear about   discussions on creating “money courses”right now  and bringing them into schools to teach young kids. I like this idea,but by the time governments and school officials decide what to do, it will take years before anything is actually done.  Bureaucracy is quite the creativity killer and valuable time is being wasted. What comes to mind when you think of  Canada? Chances are  you are going to think about  “cold”,”snow” or “hockey”.We are known to produce the best hockey players in the world. That is because when we are born,some of us get skates before shoes. It is a culture and some even consider hockey a religion,that is why we are so good at it.  In the country of Austria,there are 8 million people and 7 million of them   ski,what we teach our kids at a young age makes a huge difference for the future. We must set up a culture of financial responsibility for everyone.Who is best suited  to teach  about money?Parents,teachers maybe government officials?Would they  even  practice what they preach? Too often important subjects are taught by people who don’t  master them,it is time to re evaluate how our  education system works . As a  student of life and now master of  real financial literacy,I can tell you that the first lesson you must learn is to stop working for money and have money work for you!

Money can’t buy happiness, but neither can poverty.
– Leo Rosten Polish teacher and humorist