Canadians are living longer, which means needing more financial resources to see you through your later years. Those with an employer-sponsored pension plan know that money will continue to flow regardless of how long they live, but not everyone has this benefit. They must therefore create their own retirement savings and manage their finances carefully to maintain their standard of living in retirement. Many people say they are ‘ready,’ but they often underestimate the costs of unexpected life events, such as taking care of a loved one, dealing with illness and disability, or covering the costs associated with new needs for health and social care services. Many are even in debt when they start their retirement. In 2012, it was estimated that 42.5% of people aged 65 and over had debts (an increase of 55% over 1999 according to Statistics Canada data)(1; 2).
Once retired, older adults (and their caregivers) face the challenge of making a realistic budget based on fixed and limited incomes, while juggling many priority expenses. Consider also the difficulty of navigating the various programs and services that are partially (or not) covered by their insurance and governments, or the often opaque and complex fiscal systems at different levels of government.
We often hear about the importance of improving the level of “financial literacy.” Financial literacy refers to the knowledge, skills and confidence to make responsible financial decisions.(3) In 2014, the Financial Consumer Agency of Canada launched a National Strategy for Financial Literacy to help Canadians manage their finances.(3) A strategy specifically for older adults was also in development, with four main objectives:
- engage more Canadians in preparing financially for their future years as seniors;
- empower older adults to plan and manage their financial affairs;
- improve understanding of and access to public benefits for older adults; and
- offer other tools to combat the financial abuse of older adults.(4)
But what do we know about the effectiveness of interventions to improve financial literacy?
What the research tells us
A systematic review examined the effectiveness of interventions aimed at increasing consumers' knowledge, skills, attitudes and behaviours in terms of finances.(5) The 188 studies covered by this systematic review identified various interventions such as financial education sessions, outreach activities and even financial messages broadcasted during popular soap operas on television. The analysis of these studies does not allow definitive conclusions to be drawn about the effectiveness of the different types of financial education interventions. More than 140 studies indicate that these interventions appear to have a positive impact in some areas that are considered fundamental to good personal financial management, including increased savings and financial skills such as record keeping. That being said, these interventions do not necessarily seem to prevent certain problems, including defaulting on payments. Approximately 40 other studies, however, reveal that these interventions had no or little impact on financial knowledge and skills. Several studies also reveal that interventions have different effects depending on the target populations. These results highlight the importance of more robust studies to identify the most effective financial education interventions, as well as studies that focus more specifically on older adults and their caregivers.
Take control of your nest egg
While there is still limited evidence on the most effective interventions to improve financial literacy, this should not stop you from taking control of your nest egg! Here are some Web resources that could help develop your financial knowledge and skills:
Financial literacy self-assessment quiz: Answer this quiz to test your knowledge.
Managing multiple financial priorities: It can be difficult to manage a budget while juggling several priorities. Document your current expenses and potential future expenses.
Making a budget: Get tips for creating your budget.