Today's economy

Here’s why financial literacy is so tough

By Kevin Press,

Comments (4)

Ever wonder what makes personal finance such a difficult subject to master? Adult learning theory helps explain the problem.

Here’s why financial literacy is so toughWhile concerns about financial literacy date back centuries, it wasn’t until the mid-1990s that North American policy-makers’ efforts to improve our understanding of basic economic and personal finance matters began to gather momentum. Despite all the good work that’s been done since, too little progress has been made. Young adults are leaving post-secondary school with five-figure credit card balances. At the same time, millions of working Canadians are struggling to plan for retirement.

Why is financial literacy such a stubborn problem? Two thoughts:

First, I think it’s a mistake to argue that personal finance is uniquely difficult to teach and learn. It is a complex and technical subject certainly, but so are dozens of others. We could just as easily be sweating about why so few Canadians understand how to take care of their cars.

Second, the complexity of the subject is not the issue. The problem is the way we are trying to teach it. Adult learning theory — a field pioneered in the 1830s by German educator Alexander Kapp — explains a number of things about how adults prefer to be taught new information.

Four examples:

  • Our preferences become engrained over time. Like in so many other aspects of our lives, we become set in our ways. Some of us prefer reading, some would rather listen. Others learn best by doing. The older we get, the stronger these preferences become.
  • A lot of us prefer to learn in private. Adults don’t like to be embarrassed. So if the information being presented is technical or in some way challenging, many would rather learn one-on-one or via some recorded medium.
  • We don’t memorize new information. We differ dramatically from children on this. We’re prepared to learn new concepts, but we’re less interested in remembering large amounts of detail.
  • We’re action-oriented. Our motivation to learn is highest when we have a task to complete. It’s much easier to engage an adult about an aspect of his or her finances when a decision is pending.

Those last two points are key. Generally speaking, adults possess neither the capacity nor the patience to learn new information they don’t have a pressing need for.

The answer to Canadians’ difficulty with personal finance is not, in my opinion, more plain-language educational materials or more easily understood videos. What’s most important is that Canadians have access to financial expertise when they need it.

That’s where a good financial advisor comes in. One of the hallmarks of a quality advisor is that he or she takes the time to answer your questions. The best are just as committed to educating their clients as they are to recommending the right products.

None of this is to suggest that more educational programs are a bad idea. (I have spent the bulk of my career trying to help Canadians understand money.) But I think most policy-makers would agree that the techniques used to teach our kids calculus aren’t going to serve us well in our promotion of financial literacy among adults.

More on financial literacy:

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[…] Ever wonder what makes personal finance such a difficult subject to master?  Ever wonder what makes personal finance such a difficult subject to master? Adult learning theory helps explain the problem. […]

AAFS Insurance on

Interesting idea, but your suggestion involves the individual taking action only when they need to. Those who want to become financially literate will always find a way, while those who want to remain in the dark will continue to do so, until they are prompted to take action.

Plain language educational materials and easily understood videos serve their purposes, and should be promoted to more Canadians in a non-intrusive way, such as while waiting at the bank or short online ads. on

    I think the issue is far more complicated then the article suggests. Many people passing themselves off as financial advisers are really trying to sell you a product. Whether that product is what the person needs is something else. It’s hard to trust someone is looking out for your best interest when you know they’re working on commission. Many people already have the tools they need to make sound financial choices but short term gain is more important to them than a long term financial strategy. Some financial advice is hard to follow such as saving for a down payment on a house while paying rent. Sometimes you can do one or the other but you don’t have enough to do both. And not all financial advice is as good as advisers think. They often just quote the going trend. For example It use to be; max out your RRSP first then look elsewhere. Now people are starting to realise that it may be better in the long run to focus on a TFSA. Now some experts are starting to say home ownership might not be the best plan for everyone.

    The biggest problem I think is that most financial advice is directed at people who already have lots of money. The advice is always about how to make even more with what you’ve already got. But there’s a whole – growing – class of people who just don’t have anything left at the end of the day to invest in the future. Teaching those people how to make the most of what little they’ve got might help them and the whole economy prosper.

    Mike Houghtling

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