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Monthly Archives: February 2013

Financial education has had disappointing results in the past.

HERE is a test. Suppose you had $100 in a savings account that paid an interest rate of 2% a year. If you leave the money in the account, how much would you have accumulated after five years: more than $102, exactly $102, or less than $102?

This test might seem a little simple for readers of The Economist. But a survey found that only half of Americans aged over 50 gave the correct answer. If so many people are mathematically challenged, it is hardly surprising that they struggle to deal with the small print of mortgage and insurance contracts.In this section
Margin calls

The solution seems obvious: provide more financial education. The British government just added financial literacy to the national school curriculum, to general acclaim. But is it possible to teach people to be more financially savvy? A survey by the Federal Reserve Bank of Cleveland (see sources below) reported that: “Unfortunately, we do not find conclusive evidence that, in general, financial education programmes do lead to greater financial knowledge and ultimately to better financial behaviour.”

This is especially the case when children are taught the subject at school, often well before they have to deal with the issues personally. Surveys by the Jump$tart Coalition for Personal Financial Literacy, a campaign group, found that American students who had taken courses in personal finance or money management were no more financially literate than those who had not. A detailed survey of students from a Midwestern state found that those who had not taken a financial course were more likely to pay their credit card in full every month (avoiding fees and charges) than those who had actually studied the subject.

Perhaps the answer is to teach people when the issues are more relevant. That was the conclusion of the Cleveland Fed researchers, who recommended that programmes be targeted at specific individuals, such as those making a house purchase or struggling with credit-card debts. There is evidence that employees who receive training about the benefits of pension plans are more likely to join schemes and to save more when they do.

But even this approach has its problems. Consumer enthusiasm for learning about finance is limited. When a free online financial-literacy course was offered to struggling credit-card borrowers, only 0.4% logged on to the website and just 0.03% completed the course. Those who choose to be educated about finance may be those who are already interested and relatively well-informed about it.

Making such education mandatory for consumers would be expensive. And who would pay for it? Governments have many claims on their cash. Financial firms might sponsor such courses but would the resulting advice be entirely objective?

Another problem, highlighted by critics such as Lauren Willis of Loyola Law School, Los Angeles, is that many financial issues are much more complex than deciding whether to pay off credit-card debts. How much money should you set aside for retirement, for example? What is the optimal portfolio mix between equities, bonds and other assets? The “right” answer to this question may differ from individual to individual and can be known only in retrospect. Fifteen years ago the conventional wisdom was that equity-heavy pension portfolios would earn high returns and that individuals need make only modest contributions. That turned out to be wrong.

Furthermore, many consumers do not want to make their own financial decisions, either because they find the issues too complex or because they fear the consequences of choosing the wrong option. They would rather leave the decisions in the hands of an adviser or rely on the experience of family and friends. When firms offer a range of pension funds to choose from, the default option is by far the most popular. Governments should focus on making that option as safe and inexpensive as possible.

So should we give up on financial education altogether? Not necessarily. The purpose of education is to prepare children for the challenges they face in life. Coping with finance is one of those challenges. It may be that better-designed courses can be more successful: replacing yakking lecturers with financially-themed video games is one way that people are trying to make education more appealing. None of this, alas, will help if students cannot understand basic maths. As the saying goes, there are 10 types of people: those who understand binary numbers and those who don’t.

The Economist
February 16, 2013

Our value systems are the basis of our perceptions and decisions – both about people and inanimate objects.

Our value systems frequently lead to significant misunderstandings.

The environment and culture in which we grew up are key factors in our outlook.

Our natural intelligence and physical well being are equally keys to our views.

This note is prompted by my 50 years of experience with a unique segment of our society – Professional Engineers.

As a group they are simply ‘Straight Arrows’  – what you see is what you get.

Their performance standards includes ‘Raising The Bar’ very high.

Their purpose is to solve problems which make the lives of society better.

There is nothing we use, see or own that has not had a Professional Engineer’s input.

In short, they are highly reliable and productive members of our society.

Their character and integrity are typically impeccable.

Generally they are not ‘touchy’ ‘feely’ individuals.

If you want to get to know them ‘Listen to Their Heart’.






Dan Zwicker


Daniel H. Zwicker, Principal
B.Sc. (Hons.) P.Eng. CFP CLU CH.F.C. CFSB

Professional Engineers Ontario
Certified Financial Planner
Chartered Life Underwriter
Chartered Financial Consultant
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Financial Practitioner Designations

CFP – Certified Financial Planner

The Certified Financial Planner designation is an internationally recognized standard for financial planning. It is granted by the Financial Planners Standards Council (FPSC). An advisor with a CFP may help you with personal financial planning and offer advice on investment products and strategies.

CLU – Chartered Life Underwriter

For more than 80 years, the CLU designation has been widely recognized as a mark of excellence in the industry. The Chartered Life Underwriter is a professional financial advisor specializing in developing effective solutions for individuals, business owners and professionals in the areas of income replacement, risk management, estate planning, and wealth transfer.

CH.F.C – Chartered Financial Consultant

A Chartered Financial Consultant is a financial advisor with advanced knowledge in wealth accumulation and retirement planning. An advisor with a CH.F.C. is an expert in retirement planning and capital accumulation