A long term plan for financial education
David Christianson, CFP, R.F.P., TEP
Here are some statistics that I hope will shock you. These are based on a survey conducted in 2009 by the Canadian Securities Administrators.
Investment scams have seemed rampant lately, topped by the $13 billion with which Bernie made off. But he’s not the only modern-day grifter to parlay a gift for the gab into millions of purloined dollars.
Survey says - 40% of Canadian investors have been approached with a possible investment scam. Here are the shockers – 11% of investors have participated in such schemes, and 21% of them have done it twice!
But wait, there’s more: 8% of scam victims have invested three to five times. And these statistics are based on those investors who will admit to it, or have reported the scam. Many do not.
What are we doing wrong, that our citizens remain so vulnerable to these skilled scam schemers? Why is Canada such fecund ground for the planters of false hope?
Clearly, there is a gap in the education system, and a dearth of practical training in what money can really do and how to recognize exaggerated promises. I have great news for you in a minute on that front, which will help a lot in the long term.
In the meantime, is there a profile of these scam victims, from which we can learn? It turns out there is.
Not surprisingly, victims of fraud are people who are naïve. But other characteristics may surprise you.
The profile says that victims tend to be over 55, educated (often post-graduate degrees), active confident investors, ardent researchers, and tend to be overconfident and highly accepting of risk.
With this confidence comes a tendency to not consult real professional advisors. (My thought is that this group of people tend to be sceptical of conventional advice, thinking it is all a big conspiracy to make corporations money, and that other independent-minded rogues like them have better answers. But I have no empirical evidence to support that supposition.)
The survey also identified the emotional characteristics of greed, naïveté, wishful thinking, impatience and a need to belong (especially to a smaller group which thinks it knows more than the general public – again, my supposition, not research).
Recently, the federal government introduced legislation to come down harder on the apparently omnipresent con men (and yes, it’s almost always men) who prey on the innocent. That’s a great first step, but I fear that anyone who is sociopathic enough to steal from his family and friends is not going to believe he will ever be caught, so mandatory jail sentences might not be much of a deterrent.
At least this will help dispel the international belief that Canada is a haven for scams, with a moribund and toothless enforcement regime.
A longer term solution is education, and I have great news for Manitoba parents on this front. Manitoba is the first jurisdiction in North America to introduce a comprehensive series of financial education modules, integrated into all school courses. This approach has proven to be much more effective than a stand-alone course on consumer math, especially since such a course tends to only be taken by students who don’t take higher level math (and go on to be post-graduate students and victims of scams).
This initiative is called Building Futures in Manitoba, and it launches in 2011 in middle schools and 2012 in high schools. Ultimately, courses as diverse as Social Studies and Science from grade 4 to 12 will have integrated components drawn from this curriculum, so financial education is continually taught, in all contexts.
This is a joint venture of the Canadian Foundation for Economic Education (CFEE) – led by the peripatetic and indefatigable Gary Rabbior - and Manitoba Education, under former minister Peter Bjornson, with the financial support of Investors Group. It is now being copied in Ontario and being examined by President Obama’s task force on financial literacy. I will write more on this exciting initiative in the future.
Hopefully, all of this will someday make regulators and fraud squads functus officio.
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David Christianson is a fee-only financial planner and investment counsel with Wellington West Total Wealth Management Inc.