Episode 24: Financial literacy in an increasingly digital world

Transcript of the recording

Liz Dempsey:
According to recent research from Payments Canada, there's an alarming gap in working Canadians' understanding of their paycheck details. In fact, nearly half of respondents say they pay more attention to the weather or their social media channels than their pay details. One third only focus on pay details when it's time to file their taxes. The findings are fascinating, perhaps even a bit shocking. But one thing is absolutely clear, as we modernize our payment systems and data travels more seamlessly with each payment, we'll gain more insight into consumer needs and potential gaps in services. And that creates a huge opportunity to offer digital solutions that make it easier for employers to help their employees understand their paycheck details. I'm Elizabeth Dempsey, Lead, Event Content and Communications at Payments Canada, and the new host of The PayPod, which explores the trends and topics influencing payments in Canada and around the world.

Joining me today to discuss financial literacy in an increasingly digital world, just in time for Financial Literacy Month, is Dr. Supriya Syal, Deputy Commissioner of Research, Policy and Education from the Financial Consumer Agency of Canada. And Kristina Logue, Chief Financial Officer from Payments Canada. Welcome, and thank you both for joining me on today's financial literacy focused episode of The PayPod.

Supriya Syal:
Thank you, it's great to be here.

Kristina Logue:
Thanks, Liz. It's really great to be here.

Liz Dempsey:
So before we begin, can you both tell me a little bit about your roles and what you do at your respective organizations? And Supriya, I'll start with you.

Supriya Syal:
Well, I'll say hello again, Liz and Kristina. Thank you for inviting me to be a part of this conversation. I'd like to begin by acknowledging that I'm joining you from the National Capital Region, which is the traditional unceded territory of the Algonquin Anishinaabe people. So my name is Supriya Syal, I work for the Financial Consumer Agency of Canada, or FCAC, not [inaudible 00:02:17], which is the rather unfortunate sobriquet an alarming number of people seem to refer to us by. We are an agency of the government of Canada, and our mandate is to protect financial consumers. We do this by strengthening the financial literacy of Canadians and helping them achieve better financial outcomes, and by regulating the market conduct of banks and other federally regulated financial entities. I am one of two deputy commissioners of the FCAC, and I run the research policy and education functions of the agency.

Kristina Logue:
And I am Kristina Logue, so as Liz mentioned, the CFO at Payments Canada. So in my role, I have oversight for traditional CFO functions, so finance and accounting and treasury. And on top of that, I have a slightly expanded mandate to also look at our strategic planning and reporting as well as our enterprise project management office. So we were the organization that commissioned this research to be done. So I've had a fair bit of time to look over the results, and I'm really excited to dive into these a little bit deeper today with you, Supriya. It's some pretty shocking results that we've seen, so I think we'll have some interesting conversation coming up.

Liz Dempsey:
Great, thank you, and welcome again. So as we get started, I understand that Canada has a National Financial Literacy Strategy. Supriya, can you give us a little bit more background on it?

Supriya Syal:
Yes. So in July of last year, we released the National Financial Literacy Strategy called Make Change that Counts. The strategy is a five-year plan to create a more accessible, inclusive and effective financial ecosystem. And its vision is a Canada where everyone can build financial resilience in an increasingly digital world. Now, the word resilience is more commonly associated with mental health, it's a word we associate with strength, and we think of it as the fortitude to surmount rather than succumb to the challenges that life throws our way. And financial resilience, I'll say, is no different. It is the ability to adapt or persevere through predictable and unpredictable financial choices, difficulties, shocks in life. And just as psychological resilience allows people to recover and get past negative life events, financial resilience allows people to recover and get past negative financial events. So how do we help people build financial resilience?

Well, the ability to build financial resilience does not lie in the hands of the consumer alone. It depends on both the individual as well as the environment or the ecosystem that they operate in. So what the national strategy does is take the onus away from the consumer alone, and it says that building financial resilience and achieving good financial outcomes is a shared responsibility. All of us in the financial ecosystem, which includes governments, regulators, such as ourselves, financial literacy community groups, researchers, financial product and service providers, all of us in the ecosystem around the consumer need to work together to build an ecosystem that will enable rather than encumber Canadians' ability to make good financial decisions. And at which point you might say, "Well, what is keeping consumers from making those decisions now?" And I will say what it is not, it is not the lack of good intention.

So people have the intention. I mean, most people know that their financial choices today will impact their wellbeing, their financial wellbeing in the long run. Most people would say saving money is a good thing, most people would say taking on more debt than you can pay back is a bad thing. But there are barriers in the ecosystem that get in the way, impediments that keep these intentions from turning in into actions. So an example of a barrier is information that you can't understand. If it's so complicated, so jargony, so confusing that you can't even understand it, it is very hard to use that information to make good decisions. And then even when there aren't barriers, there is a lack of catalyst, something that would help you make a decision, something that accelerates your progress, acts like an emollient, reducing the friction in your path. So an example of a catalyst is trustworthy and affordable financial advice. Advice that you can count on, advice that would help you find your way.

So what the National Financial Literacy Strategy does is lay out a framework for how we can reduce barriers, add catalysts, and help consumers develop the building blocks of financial resilience, and underlying the strategy, running through it really, the lifeblood of the strategy, if you will, is an outcomes-driven approach. So we need to experiment, we need to test what we do to make sure it works, stop doing what doesn't work, and do more of what of does work. And the way we ascertain that is by measuring the outcomes so that we know whether or not we are succeeding. And not only that, we all, as a collective, need to concur on how we will measure. We need to speak the same language, so to speak, so that we can evaluate our collective impact.

So as a companion piece to the strategy, this Financial Literacy Month, in November, we will release the National Financial Literacy Strategy's Measurement Plan, to which my team is quite cleverly given the name Counting Change. So if I can summarize, the National Financial Literacy Strategy Make Change that Counts with three points, I would say, one, the strategy's ambition is to help people build financial resilience, two, instead of trying to change the person, we're saying let's change the system to make it easier for that person who's every person, who's all of us, and three, if you want to make change that counts, you have to count the change.

Liz Dempsey:
Thanks, Supriya. And I have to say, Counting Change is very clever. As you...

Liz Dempsey:
I have to say Counting Change is very clever. As you were speaking about catalyst for financial resiliency, as you mentioned, we have Financial Literacy Month in 2022, and I just wanted to get a better sense as to what your plans are for that month. What initiatives will you have on the go?

Supriya Syal:
Yeah, so the main theme of this year's Financial Literacy Month is managing your money in a changing world. So as you know, inflation and rising interest rates have left many Canadians worried about their financial futures, rightly. Higher interest rates are making loans and mortgages more expensive. Many Canadian households carry a large mortgage debt. So with all this in mind, this year's Financial Literacy Month will focus on equipping Canadians with practical tips and tools to manage their debt, which is one of the key consumer building blocks identified in the national strategy, managing debt. And so we're going to try to help people manage their debt and find their financial balance. And then second, as I mentioned, also during Financial Literacy Month, we will release our swanky new measurement plan, Counting Change, through which we will engage stakeholders so we can track collective progress towards advancing the goals of the strategy and help the stakeholders in the ecosystem scale the impact of their financial literacy initiatives.

Liz Dempsey:
Great, Thanks Supriya. We'll look out for those initiatives. And Kristina, in our recent survey we saw that 47% of working Canadians pay more attention to their social media channels than pay details. Why do you think that is?

Kristina Logue:
Well, that is such a great question, Liz. And what I would say a bit of an eye-popping number, if you think about almost half of Canadians pay more attention to social media than their pay details. And in a lot of cases, and as Supriya just spoke about, we're in this environment of rising inflation and increased interest rates and no time is more important than to understand your cash flows and money coming in versus what's going out. So it's a really important topic to be discussing. And I think if we dive a little bit deeper into the research, so we know only half of Canadians look at the details, but we also know from the research that almost a third or just over a third of Canadians, so 35%, feel like reviewing their pay stub is a very daunting task. So there's this sense of avoidance and a lack of understanding around their pay details.

And further to that, about a quarter of Canadians feel uncomfortable asking their employers questions about it. So think about that, you're receiving this pay stub, it's monies owed to you for work performed. And not only are you not looking at it, when you do look at it, if you don't understand it, you're not comfortable asking the very people who are responsible for giving it to you questions on it. So that's a huge driver I think to this, this lack of understanding and this sense of being uncomfortable, and I think I can only speculate here at this point, but I do feel like a lot of people, a lot of Canadians feel like this is something that they should just know about and they don't. And so in that case, they feel really uncomfortable going and asking their employer.

So instead of digging into it, they avoid it and they look at it only when they feel they need to, which in a lot of cases is once a year when we're filing taxes. And I think this is fairly widespread. If I think about even in my own teams at work, since this research has been published, it's garnered a lot of conversation around our lunch table, in our team meetings, as a lot of people, even on my own teams, don't look at their pay details. And there are some areas of the organization where people are now putting up their hands saying, "Yeah, I'm one of those people who doesn't understand what those pay details mean." So I think there's a huge opportunity here for employers.

Liz Dempsey:
And Kristina, what are some of the things that we should pay attention to when looking at our paychecks?

Kristina Logue:
Well, first of all, you don't need to be a payroll expert or an income tax expert to start looking at and understanding your pay details. I think the first thing you want to do is a pretty simple thing is just log into your online banking details and see the amount that's hitting your bank account. And we already know through the research that about half of Canadians are doing this step. But I think further to that, it's really important to just dig a little bit deeper and on a more regular basis. So around, like we said earlier, a third of the people only look once a year when it's income tax filing time. And at this point it may be really difficult when you do come across errors. It could be difficult, it can be time consuming to start to go back and correct those errors from your current employer or if you've changed employer during the year.

So that's just an extra burden that needs to be taken on at the end of the year. So I would say start looking more regularly. If you are a salaried employee with a single employer, it's pretty straightforward to take a look at that every time it hits your bank account and start to look for anomalies, sort of red flags if that number's fluctuating a lot from the last time you had it deposited. And then that can sort maybe spur you to go and ask the questions in terms of your manager or your HR team just to see how it's calculated and why there's differences from one week to the next. So those are some pretty simple ones without having to understand all of the ins and outs of the codes on your pay details.

Liz Dempsey:
Great, thanks Kristina. And just going back to that research report, we found that 45% of working Canadians report having no plan on how they'll spend, save or invest for each paycheck in advance of receiving their paycheck. Supriya, what do you think is driving this trend?

Supriya Syal:
I mean, I think it's worrying, but I would say if you think of it from a sort of behavioral science type perspective, it's actually not that surprising. Which I feel like is a shocking statement to make in and of itself. But human beings are very smart, but our capacity for attention is very limited. And there is a lot of information that we are bombarded with that we process every day at work, at home, in our relationships, our food, our children, social media, the news, the list just goes on. And the decisions that we are most likely to procrastinate on are the ones that are the hardest, either emotionally or physically or both. And money is hard.

Financial information is difficult to understand. Financial decisions can seem labyrinthine, formidable, requiring you to traverse a mosaic of emotions. And we've created social taboos around asking for help with money matters, value judgment, no pun unintended. The saving grace, if you will, is that now we know. So we have identified, this research has identified a pain point which is planning what to do with a paycheck, a barrier, which if we can help people transcend, we could plausibly help them make better decisions about what they use the money from their paychecks for.

Kristina Logue:
I can jump in and add to that list if that's okay.

Liz Dempsey:
Yes, please.

Kristina Logue:
Sure. So I think that that hits the nail on the head. And I think further to that, talking about our pay details and money in general and our financial health is not something that is comfortable for us to do in Canada, let alone with your friends, which is probably, think about it as you're growing up and you're entering the workforce and you're out on your own and you're getting these paychecks now, but you're also now responsible for rent or mortgage and bills on a regular basis. Your friends are the ones that you may go to more often, but we've kind of learned over through our history growing up, and it's our natural inclination to not talk about this topic with those people.

And I think we have an opportunity here that now, like Supriya said, we know there's an opportunity and we know there's a gap that we can close here and we can do that as employers in the workforce. We can do that as educators, we can do that as parents, to start talking about this and not making it such a taboo subject. Especially I worry about a time like we're in now where you may be approaching a recession and we're in these inflationary times. It's so important right now to understand how to manage your pay day to day to try to help avoid some of that stress that could come with it. Financial stress is huge and being able to manage through that and having the tools and...

Kristina Logue:
And being able to manage through that and having the tools and feeling comfortable, having the conversation and having the tools to understand will go a long, long way.

Supriya Syal:
Here. Here. Couldn't agree more.

Liz Dempsey:
And it wasn't that long ago that Canadians would receive an envelope with a paper check inside on payday. Today, around 88% of us receive our pay via electronic transfer. Supriya, is more needed to support financial literacy now that we're in this digital world?

Supriya Syal:
Yes, doubtlessly and undeniably. So the vision of the National Financial Literacy Strategy is Canada, where everyone can build financial resilience in an increasingly digital world. And that digital is a very specific insertion, an acknowledgement of the reality that the financial marketplace is moving online, to tremendous space, and an acceptance of the way in which we, the ecosystem, the people around the consumer must evolve. And if we want to help people, and we do, we have to meet them where they are. And where they are is online.

So say, the lack of digital literacy and the lack of digital access are both key barrier reduction priorities of the National Strategy. As you can imagine, the lack of digital access is an obvious barrier to financial inclusion. But even when broadband internet access is not a barrier, the lack of digital literacy can be... Some people aren't comfortable interacting with content or making financial decisions online. Some other people simply don't know how. So to help people make a good financial decisions online, we need this to support their ability to be online, but we also need to support their ability to navigate that online world capably and securely.

And I'll add one little other point there, which is that this move to digital opens up many opportunities for financial inclusion. As stakeholders, our reach is unprecedented. We commonly speak about digitalization of financial services is particularly problematic for people with financial vulnerabilities, and this is true. But on the other hand, there's also a fair bit of data from developing economies and low income consumers to show that digitalization can increase and spur financial inclusion.

I'll take one example. There's this MIT study from Kenya showing that mobile money services helped raise 194,000 Kenyan households out of extreme poverty because it helps them build financial resilience. Or another study found that mobile money users didn't need to reduce household spending to deal with an unexpected drop in income while non-users did, because when there were digital financial services, people were able to manage that financial risk. They reached out to friends or relatives or family to borrow money when times were tough. And so they didn't have to turn to things like high interest loans.

So the point I'm trying to make is obviously not that we shouldn't worry about digital access or digital financial literacy, these are barriers, we need to address them, and we note as much in the National Strategy. At the same time, the digitalization of financial services provides stunning opportunities for financial inclusion, opportunities that we should capitalize on by testing what works and by incorporating insights from other domains such as behavioral finance, through evidence based decision making in general, which is all in many ways substantially easier in the digital environment because you can test many different ideas quite expeditiously to figure out what actually works.

Liz Dempsey:
That's exciting to hear. How do you think evolving technologies and modern payment options will help improve financial literacy amongst Canadians? And Kristina, we'll start with you.

Kristina Logue:
Thanks Liz. I think this is where things start to get really exciting for Canadians and for this ecosystem in general. So we go back to the survey findings just quickly. It's really interesting to me that we also, we can see in the survey what consumers respondent said they would want changed in terms of how they receive their details right now. And that included things like having all the financial information in one centralized secure hub. So that security piece that Supriya mentioned is so paramount in all of this. We'll just have to put that out there as table stakes that has to be there when we're talking about this digital world. As well as receiving pay on a more frequent basis. So that's a really interesting opportunity that's coming forward as well. So this really tells us that people want security, they want convenience, and they want speed, which are all things that can be addressed in a modernization of Canadian payment systems.

There's a growing interest amongst working Canadians for pay on demand, which is really an emerging pay platform where an employee can access some of their wages on demand as the work has been done instead of waiting for payday. So think about currently, now, I'd say probably the most common pay cycle is on a biweekly basis, where you're paid on hours that have been earned over the prior two weeks, or sometimes even a little bit longer than that. If you're in the workforce now when you're working and say you needed an advance or you just wanted to receive pay for yesterday and today because you've got a bill coming due and because you've done your planning, that this is coming forward, you can put in a request to have that pay remitted to you on demand for no additional cost to yourself and no additional work from your employer. At this point in time, that would be a very time consuming and manual process for your employer to be able to manage that process.

So I think that's a really exciting opportunity that's going to come when we look at how we're going to digitize the Canadian payment system. And when we look at the data that can come with that. So they're receiving your pay more frequently, which is really exciting and interesting, but I think about this financial literacy piece and how do we educate more and how do we get people more comfortable with it? Well, it's ensuring that they have the relevant data accessible and available to them in real time, in the place where they need to be receiving it. So right now, what could be happening is you're receiving your pay electronically and that goes through your online banking system. And you'll know it comes from your employer because there's probably a pay code when you log into your online banking that says your company's name.

But then you want to see the pay details and you've got to now log into likely another system, since you're not receiving your paper pay stub anymore, and go and review those pay details. And then maybe you have to go into another system to understand what the codes or look at what your vacation balances are or whatnot. So it's not all in one place. So imagine a world, and this is where I get a little bit excited about data and payments, but imagine a world where you can log into your online banking platform and there's a link there that will just take you to the pay details that you require, that can show you the number of hours worked, that can show you what's been withheld, for what reason, or if there's a bonus amount or any of those types of differences that happen. And I think that's really exciting. And if we can educate along the way, this provides a huge opportunity for Canadians to be able to elevate that financial literacy across our country.

Liz Dempsey:
Great. And Supriya, you talked a little bit about this already in reference to digital acceleration, but do you have any thoughts on what new possibilities will be enabled by consumers having more access to data and how that will enhance financial literacy?

Supriya Syal:
Yeah. Sort of building on the point that Kristina was just making, just in time information, which is also something we speak to in the strategy. I mean people, when we were saying earlier, people are constantly bombarded with so much information that the thing that you are likely to pay attention to is the thing that is contextually relevant, right? Relevant to you right now. So for instance, I'm more likely to care about compound interest and amortization if I'm in the process of buying a house relative to you just suddenly start having a conversation with me about market's terms. And so I think there's...

Supriya Syal:
It's terms. And so I think there's, from a financial literacy perspective, sort of adjust in time information or the ability to deliver through this phone that we bring everywhere with us for instance, the information that is most relevant to financial decisions that are at hand. And I think the purveyors of financial product and services, whether they are long standing banks or brand new FinTechs, all have the ability to build financial literacy initiatives of various sorts right into the innovation or offering, whether those are apps or online tools. Which to the point Kristina was just making you go to, you're able to link through to your data from one place. And then you imagine that the education that you are getting is also built into it and it is actually specific to you and your own data. And then that becomes so much more powerful, so much more relevant, so much more likely that you will spend that extra time paying attention to it and understanding it and then hopefully using it.

Liz Dempsey:
Great. Thank you. So we're coming to the end of the discussion and I'll ask both of you just one last question. Supriya, What tips, tricks, or resources would you recommend to Canadians who are looking to improve their financial literacy?

Supriya Syal:
Well, first I'd say taking active interests in your finances, even if it seems overwhelming or just simply boring at first. I mean this may seem self-evident, but research shows that people who take an active interest in their finances make better decisions with their money. The FCC provides a lot of free and we think pretty good tools, tips and resources on our website, Google us, that is literally FCAC.

Second, when you're in the market for shoes, you try on a few for size, right? You go to a shop, you try on a few different shoes. That teaches you about what features of the shoes you need to have for you to feel comfortable. It teaches you about what to pay attention to. It teaches you that some shoes look terrific, but walking in them is tedious. It's the same for financial products and services. There is a lot to be learned about financial literacy, about those products and services about money. There is a lot to be learned from shopping around. So shop around.

And number three, and this is something Kristina alluded to earlier, conversations about money don't have to be awkward. Recent study showed that Canadians rank money as their greatest cause of stress in life, more than personal health, more than work, more than relationships. And yet we spend so much time talking about health, work, relationships. We ask our friends and our family for health with billing, with health work relationships, but we don't talk about money because of some bizarre societal stigma that was created to preserve inequity. We don't need to be subservient to this idea that money is a taboo topic. You know what else used to be taboo? Women wearing pants used to be taboo. Sneezing in public used to be taboo and I can assure you the vast majority of people listening to this podcast have sneezed in public. So we need to bury the taboo and actually talk about money.

Liz Dempsey:
That's great advice. Thank you so much Supriya. And Kristina, what is one thing that all Canadians can do starting today to better understand their paychecks?

Kristina Logue:
Oh, one thing. The very first thing is to start to ask questions. I think that is the number one thing you can start to do. Understanding your payroll details. It's complex. I can appreciate that and I can understand that. But now more than ever, we have access to technology innovations that will offer an ease of access to pay related financial information. So don't hesitate to ask the questions, because chances are that if you're not understanding it and you have these questions, then you're not the only one that's trying to figure this out. So get out there, ask your family, ask your friends, ask your manager, ask your HR manager. All of those people are equipped to start to answer your questions. And if they don't have the answers, they know who to point you to start to get answers to your questions.

And one last thing I'll say is that we need to get ready for modern payments. So with the modernization of our systems, we're going to start to enable Canadian consumers and businesses to securely send and receive payments within seconds 24/7 365. So we better prepare for that. The more information we have, the better prepared we'll be.

Liz Dempsey:
Great advice. Thank you so much for that. Supriya, at the beginning of this discussion, you talked about taking the emphasis off the consumer alone and making financial literacy a shared responsibility. And I want to thank you and Kristina for taking the time today to further that goal. So thank you.

It's clear from today's discussion that we all have a role to play in improving the financial resilience of Canadians because financially resilient Canadians lead to a financially resilient economy. And part of this involves empowering Canadians to understand their finances, including how their income and deductions work on their paycheck, regardless of how they receive it. With a continued modernization of our payment systems and increased data traveling with each payment, we'll be able to put the details back in front of the employee without them needing to go searching for it.

Supriya and Kristina, thank you both once again for joining me for this episode of the PayPod. It was a pleasure hearing your perspectives.

Kristina Logue:
Thanks for having us, Liz, and it was great chatting with you Supriya.

Supriya Syal:
Likewise. Nice to chat with you, Kristina and Liz, it was a pleasure to be here. And please join the conversation on our social media channels during financial literacy month, the hashtag FLM 22.

Liz Dempsey:
To stay connected to the latest developments and payments visit payments.ca and sign up for the Exchange Payments Canada's Newsletter. And be sure to visit the summit.ca to register for the summit, our annual payment conference. I'm Liz Dempsey, thanks for tuning in.