Canada's top consumer watchdog has been fighting the good fight for the last five years.
And there have been many times when it has seemed like a war of attrition for the commissioner of the Financial Consumer Agency of Canada (FCAC).
"It's more than a bit of an uphill battle," says Ursula Menke, who is the second commissioner in the FCAC's 11-year history.
"Every time you try to change the way people behave, it's a huge fight."
The FCAC's role is to protect consumers and ensure federally regulated financial institutions such as banks and credit card companies comply with federal consumer-protection laws.
But its secondary duty -- one Menke considers to be of equal importance -- is promoting financial literacy.
In this regard, Menke admits there's a lot of work to be done, given the latest measures of our financial health appear a bit on the peaked side.
Personal debt continues to rise. The oft-reported debt-to-income ratio, which measures debt as a percentage of income, has been steadily climbing over the last decade. The most recent measure indicates we owe on average 163 per cent of our gross annual income.
In addition, Statistics Canada data show we owe collectively owe $1.6 trillion -- or about $46,000 per citizen.
These aren't conclusive measures, however, that Canadians are flailing financially, but they do paint a Dorian Gray-like picture of our financial health that undermines the image of Canada as a pillar of economic good sense.
Menke says the FCAC has launched an extensive campaign to help reverse this tide. Its website -- www.fcac-acfc.gc.ca -- is largely focused on providing consumers with useful information on debt, investing, credit cards and just about every other aspect of personal finance.
As part of efforts to promote Financial Literacy Month this November, Menke sat down with the Free Press to discuss the challenges Canadians face in setting their finances on an even keel.
First off, she says it's not quite as bad as it looks with regard to our debt because that ever-increasing debt-to-income ratio includes mortgages, which are considered good debt since they usually build wealth in the long run.
But real estate prices have skyrocketed across Canada in the last decade, and this cuts both ways. On the one hand, owners have seen their home values increase. On the other, new homeowners have had to take on enormous mortgages.
"The proportion of money people put into mortgages is much higher than it was 20 years ago," Menke says. "Houses just relatively cost a little more money these days compared to what they used to cost."
It's not as though all Canadians are spending recklessly. Measures regarding bad borrowing -- credit card debt -- indicate we're faring a little better.
"What we've also seen in the last little while, based on data from credit bureaus such as Equifax and TransUnion, is by and large, the aggregate seems be decreasing a little bit, so people are trying to manage their money."
Still, a recent report by the Bank of Canada has raised serious concern about the growing use of home-equity lines of credit, or HELOCs. It concluded this type of borrowing -- fuelled by increasing real estate prices -- accounts for the largest share of the rise in household debt between 1999 and 2010. And most of that debt is the result of consumer spending and home renovations.
Yet Menke says at the very least, Canadians are financially literate enough to understand this is a better way to manage their borrowing costs. They're using low-interest HELOCs instead of high-interest credit cards.
"That's not a bad idea," she says, but adds a caveat: "Definitely, the HELOCs are a concern because they're adding debt and people are putting their houses at risk if interest rates go up."
The Bank of Canada working paper also noted more research is required to determine how many and what kind of Canadian households would be most at risk if rates increased and housing prices stagnated or fell in value.
It could be some Canadian families may see their interest costs double in a few years, and they could even find themselves in homes that are worth less than what they owe -- a scenario that has played out in the U.S. for the last half-decade.
Increasingly, debt loads are a concern for FCAC, and that is largely why Menke is trying to encourage Canadians to return to basic money-management skills older generations used, only borrowing to buy their homes and living within their means.
"What we know is most people today don't budget, and that's unfortunate because it's the most basic of tools for financial management," she says. "If you don't measure it, it doesn't count, and that's really true for money management in particular."
To be sure, budgeting is much easier in theory than in practice. It involves diligence. It's tedious and shines light into the dark corners of overspending.
But for complex households, budgeting is the most effective way to cut costs and debt, which leads to savings -- which we all must have.
"It's good to save for a rainy day," Menke says. "It's important to save for your retirement because the chances are your work pension -- if you have one -- isn't likely to cover the lifestyle you would like to have."
A study released earlier this year by the Canadian Payroll Association adds weight to her argument. Almost 75 per cent of those surveyed haven't even reached one-quarter of their expected retirement-income needs. It's a situation that could have a nasty effect on many people's retirement reality in the coming years, Menke says.
"Certainly, if you rely on the basic pension schemes we have available, you'll have food and shelter, but you won't have much of a lifestyle if all you've got is the Canada Pension Plan, old age security and the guaranteed income supplement," she says.
Still, saving is much more complex than a generation ago. Most people can't save enough low-earning investments such as GICs and bank accounts for the future. They likely need to invest in the stock and bond markets.
"Investing is a very complicated activity," Menke says. "First of all, the risks are much higher than most people understand."
Financial literacy has a vitally important role to play in helping Canadians in this regard. A large component of that role is providing them with rules of engagement with the investment industry's massive sales force -- euphemistically referred to as advisers and financial planners.
Many of these professionals are indeed helpful to millions of Canadians.
But we also must understand our interests versus theirs. Most have their bread buttered by selling product. There's nothing wrong with that -- everyone needs to make a living -- so long as we're being sold investments that are mutually beneficial.
"If there is a potential conflict of interest between the adviser and the client, the client needs to understand what that means."
To do that, consumers must know the context in which they're making decisions. Certainly, this requires a fair amount of financial literacy.
And there's no time to like the present -- given that it's Financial Literacy Month -- for a little personal finance callisthenics.
Think about it this way, Menke says: Knowledge is power, especially when it comes to money.
"If you don't understand a product, it's much easier to be sold a product that may not be in your best interest."
The earlier the start, the better
Financial Consumer Agency of Canada commissioner Ursula Menke has been pushing for the education system to make financial literacy part of the regular curriculum since she took over the role five years ago. The FCAC's The City -- a personal financial-education package for high school students -- has been a successful part of that effort. It includes 11 modules about debt management, creating financial plans, investments and even insurance. But Menke says there's more work to be done. She would like to see financial education become part of the curriculum from elementary all the way through to adulthood. "Right now, we're working on a project for grades 1 to 9," she says, adding the FCAC is partnering with Manitoba, Saskatchewan and Ontario to develop suitable programs. But the challenge isn't developing the material. "There's an awful lot of material out there and we don't want to waste time reinventing the wheel." The big obstacle is getting this type of learning into the classroom -- just one more thing for teachers and schools that have limited resources. Yet it's vital to the healthy development of our youth, Menke argues. "I think financial literacy is such a basic life skill that it's right up there with reading and writing," she says. "I think in a world that is so based on money that we really need to understand how money works."
The Hail Mary debt-reduction plan
Earning more and saving less are the straightforward, yet often difficult, strategies to getting out of debt. But according to a survey released earlier this week, many Canadians have an unorthodox and somewhat unrealistic approach to debt reduction. The survey, commissioned by Credit Canada Debt Solutions and Capital One, a credit card firm, found one-third of those surveyed count on winning the lottery or receiving an inheritance as part of their strategy for achieving financial well-being. It also found more than one-third of those surveyed spend more than their monthly budget, with temptation and reward as the primary driver for overspending. In most cases, the reward is food-related, either on groceries or dining out.
Cigarettes and bad money management
Nothing exemplifies burning through money senselessly better than smoking cigarettes. Yet smoking and financial management have a little more in common than that, Menke says. She relates the challenges of bringing financial literacy to the masses to the battle to get society to butt out. "It took a long, long time for us to get the numbers down from about 50 per cent of adults smoking to where it is today, which is a considerably smaller number." (A little more than one in five Canadian adults smoke, an increase from 17 per cent in 1999, according to federal government statistics.) But raising financial awareness is a little more challenging than convincing people smoking is a hazardous pastime. "It's not just 'Don't do this.' It's 'You need to know all this stuff.' "