‘Generation debt’

TORONTO – As Canadian consumers waded deeper into debt during the so-called Great Recession, the federal government decided it was time to boost financial literacy, a life lesson many Canadians missed before their balances plunged deep into the red.

Finance Minister Jim Flaherty launched the Financial Literacy Task Force in June, citing his belief that a financially literate population would create a more stable economy.

After a 20-year trend of increased household debt and reduced savings, combined with easy credit and dwindling pension plans, financial planning must be ingrained in Canadians, said Tom Hamza, president of the Investor Education Fund, an arm of the Ontario Securities Commission.

“The recession has caused us to focus on these things to a certain extent, but these problems have been brewing for a long, long time,” he said.

The fund is part of a working group charged with figuring out how to integrate financial lessons, such as how loans and credit work, into Ontario’s curricula for Grade 4 to 12 students by September 2011.

Hamza said that educating children about money matters can help combat some of the damaging examples many parents have inadvertently taught their children over the last two decades.

“That is the exact time period that our household debt levels have gone up, our savings levels have plummeted, and we’ve changed our perspective from ‘Can I afford it?’ to ‘Can I afford the payments?”‘ he said. “That’s the circumstance in which our kids are learning.”

Canadians students have had very little exposure to managing their future and budgeting, adds Stephen Ashworth, a former teacher and current vice-president of education at Junior Achievement Canada.

JA Canada is sharing ideas from its financial planning seminars, offered in classrooms across the country, with Flaherty’s task force.

“We really owe it to our students to teach beyond just the basics of financial literacy, so they can make sound decisions around managing money and credit,” Ashworth said.

He said parents should sit down with their children and discuss what it means to budget, or be in debt, and involve them in the family budgeting process.

He suggested offering small financial or other incentives for kids to help parents cut back on the household phone bill or heating costs.

Parents can also help their children learn proper savings techniques by putting away a portion of their allowance every week to save for a larger purchase.

Meanwhile, older members of the demographic, sometimes referred to as “Generation Debt,” are accruing debt at rates never seen before.

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A recent Harris-Decima poll suggests that 60 per cent of baby boomers financially support their adult children, and while a majority said they were financially self-sufficient by age 21, they expect their children’s independence to be delayed to age 25.

Jane Olshewski, manager of financial life planning at Investors Group, says the phenomenon is attributable to the fact that young people are pursuing post-secondary education in larger numbers than ever, and many are taking on exorbitant debt to pay for it.

“If this generation is going to school in a higher percentage of numbers, and taking on debt in order to obtain that education, of course it’s going to take them a little bit longer (to become independent) than generations in the past,” she said.

Compounding the setback of massive debt, recent graduates just entering the workforce have found that in the post-recessionary job landscape they enter the bottom of the seniority ladder.

“This economic downturn caused kids to say ‘I either lost my job or my career path has slowed down a bit, I have to go back home now to regather my financial footing,”‘ Olshewski said.

The survey also found that 20 per cent of graduates live with their parents, many rent-free.

Olshewski noted that delayed independence means saving begins later in life than for prior generations. So parents should encourage their kids, who aren’t paying for day-to-day living expenses, to save for retirement, a down payment on a house, or to pay down debt.

She added that parents should consider introducing their children to a financial planner who can help prioritize their finances.

“A big part of what a financial planner does is help people understand this world of finance that we live in,” she said.

But while baby boomers struggle to support their children longer, Depression-era grandparents are dying off, and so too are the lessons they can impart about budgeting and frugality, Hamza said.

“We have to give people the basic tools (in school) so that they can comprehend how to assess the various financial decisions they have to make over their lifetime,” Hamza said.

“Not so that were graduating sophisticated investors, but we are graduating people that understand the basics and the expectations on them as citizens.”