Task force to craft plan to teach money skills
Canada’s Federal Finance Minister, Jim Flaherty announced on June 26, 2009, the appointment of a new 13 member task force on FINANCIAL LITERACY that will develop a national strategy to help Canadians learn the basics.
It was reported the three areas of concern are as follows;
Financing a home
Balancing the cheque book
Saving for retirement
Donald Stewart, CEO of Sun Life Financial, chairman of this new task force, said
“our focus is going to be on practical solutions for real people in real life”. Balancing a cheque book is practical and its common sense because most Canadians can do simple addition and subtraction!
Saving for retirement is obviously practical and extremely important, however my concern is “Financing a home”. This task force is expected to deliver its findings in the fall of 2010. I assume this task force will addresses very important practical issues such as understanding mortgage interest calculations, compound interest, effective interest rates, cost of borrowing for a mortgage and premature mortgage renewal “penalties” such as Interest Rate Differentials (IRD).
A compulsory course, such as “Home Finance”, taught in Canadian high schools would be a very practical solution and prepare future Canadians for the real world. Hopefully, these new, “practical solutions for real people” will help Canadians understand advertisements such as the one that appeared in a current Canadian Real Estate publication. Lowering your monthly debt payments is realistic and a practical solution during these tough financial times. Canadians want to remain financially afloat and not lose their homes by defaulting on mortgage payments. However Canadians should also be aware of all costs of borrowing involved or be able to calculate them.
In this example, Canadians should be able to calculate the two scenarios or at least be made aware the lower monthly payment solution has associated COSTS! These associated costs, in this example advertisement, are as follows.
1. The time to pay off the new mortgage has almost doubled (31.53 years vs 16.16 years).
2. The new mortgage costs $37,418 more in total interest ($128,342 – 90,924).
3. The advertisement neglected to mention if an IRD “penalty” is involved to prematurely terminate the existing mortgage. If the start of a five year term had to be terminated for example, the IRD would be a whopping $17,628.
These are some of the practical home financing skills that need to be taught to real people in real life, starting with high school students. The last course on a high school graduates mind before graduating should be home finance. The compulsory home finance mathematics course should be taught in grade 12 and algebra course must also be a compulsory prerequisite credit in grade 11. Too long a time span between the two courses is not advised.