Tuesday, May 24, 2011

Youth FLY to Financial Literacy Conference

Lately, I've been reading the novel The Wonderful Wizard of Oz to my daughter. When we got to the part where Dorothy and the gang have green-coloured glasses locked on to their heads by the gatekeeper of the Emerald City, I couldn't help thinking about the mysteriously glamorous world of financial products and services. My daughter and I agreed that the green-hued glasses are simply wrong. I think she even said they were "creepy."

Letting kids grow up without money skills is creepy too. But thanks to non-profit organizations like FLY (Financial Literacy for Youth), kids don't have to wait for we grown-up gatekeepers to unlock the green-coloured glasses and let them see the financial landscape as it really is.

Seriously, Youth Want to Learn About Money
It may seem counter-intuitive to some, but I have proof that kids want to learn about money. On May 14th, hundreds of high school and university students spent an entire day at McMath Secondary School in Richmond, BC furthering their financial education at a conference called "Finding Your Financial Piece of Mind." FLY directors Ampere Chan and Iris Lo said, "We're very impressed with the students who took initiative to come to the conference. Not only were more than 220 students willing to give up a Saturday, the attendees this year were the most engaged that we've ever had. Kudos to all the students who made the conference what it was!"

We arrived an hour or so after the conference kicked off. There were icebreaker activities going on in the gym. I could tell from the noise level that the students were having fun. After the icebreaker, the participants were sent off in teams to workshops led by accountants, investment bankers, financial consultants, credit counselors and finance managers.

Between workshops there were more large group games and activities focusing on financial vocabulary and reviewing the basic principles of saving, investing, earning and spending. There was also a trade show with a game that encouraged students to talk to the business professionals manning the booths.

Overall, the conference was well-done, highly professional and very youth-friendly. I was impressed and plan to get involved in future FLY events.

Help Spread the Word
There are several ways for teachers, professionals, businesses and parents to get involved with FLY. Teachers can partner by piloting the FLY curriculum (developed by students for students) in their classroom. Businesses and professionals can purchase sponsorship packages that include trade show space at the annual conference. Parents can help out, too, by letting their kids in high school or university know about the conference and telling other parents.

For more information and to stay in the loop, visit FLY online or join their Facebook page "Financial Literacy for Youth."

Remember, it's for a great cause: helping our kids see the financial landscape as it really is.

Copyright 2011. Laura Thomas. All Rights Reserved.
For reprint permission contact moneyme@telus.net.

Saturday, May 21, 2011

Who is Responsible for Financial Education in Canada?

Financial Literacy in Action
This week delegates representing governments and financial education stakeholders from around the globe will be spending two days in Toronto talking about financial literacy at a conference called Partnering to Turn Financial Literacy into Action. As I flip through the agenda for this by-invitation-only event, there is one workshop in particular that catches my eye. It's called "Financial Education in Schools: How do we bring financial education programs into the classroom?"

In this workshop the OECD (Organisation for Economic Co-operation and Development) will be presenting its Guidelines on Financial Education in Schools. The panelists will debate the pros and cons of different methods for integrating financial education into existing curricula around the world. They will also talk about the challenges of training teachers and discuss the development of teaching resources.

This workshop--coupled with some recent financial literacy presentations that I have made to primary school teachers and parent groups and some interviews with financial educators such as Gail Vaz-Oxlade--has got me thinking about who is ultimately responsible for making sure that every child is financially literate by high-school graduation.

Whose job is it?
Is it Mom and Dad's? Most parents I've talked to believe that personal finance should be taught in school. On the other hand, in a poll of 40 primary school teachers that I did a few weeks ago, half said that parents are ultimately responsible for their children's financial education. But what if mom and dad aren't financially literate? What then? Can teachers fit more curriculum into existing instructional hours? Should they?

Should it be our ministries of education? When I asked financial education self-help guru, Gail Vaz-Oxlade this question, she said that parents should be teaching this stuff to their children because "not everything should be taught in school." She used the example of how schools teach kids about the food pyramid and how that knowledge is meaningless and out of context for them because they (the kids) don't make the food choices at home. Mom and Dad do.

Money choices are the same, Vaz-Oxlade said. Teaching kids about money when they have none of their own is be pointless. Nonetheless, Manitoba and Ontario are introducing personal finance this fall, K-12 in Manitoba and grades 4-12 in Ontario.

Are we expecting our kids to be self-taught? Some of the most interesting and successful people that I have talked to about financial literacy are self-taught. Everything that I know about money I have taught myself. We never talked about money at home. I didn't learn anything about it in school. As a result I've made a lot of mistakes on my way to financial stability, but at least I've made it. Is this the best option? I don't think so, which is why I spend so much time talking to my daughter about money, and making sure that she has her own money to practice with. 

Should entrepreneurs step up and develop lucrative products that will do the job? There are a few small companies in Canada that are currently developing financial education products and services. (I know. I've been approached by a few). But the question remains, who should those products be aimed at? Can you make any money developing financial education products for schools? Or would it be better to create products that will help parents teach their kids about money? Which is the better investment?

Responsibility Leads to Action
This is a funny place that were are in right now. It reminds me of the whole sex-ed dilemma. Whose responsibility is it to teach kids about sex these days anyway? The family? The school? There is an uncanny parallel between sex and money in education. What is it about teaching kids the "facts of life" that sets parents' and educators' teeth on edge and makes them pass the buck back and forth?

It will be interesting to see where the discussions lead at the "Turn Financial Literacy into Action" conference next week. Seriously, if we don't agree on who is ultimately responsible, it will be impossible to point the finger at anyone and say, "Okay, Dude, open up your wallet and spend some money on financial education." Without responsibility, there is not likely to be any action and I'm not sure the global economy can afford that.

Copyright 2011. Laura Thomas. All Rights Reserved.
For reprint permission contact moneyme@telus.net.

Tuesday, May 10, 2011

Moola Lingo: Derivatives

Derivatives is a money-word that bounces around quite a bit in the business news, often in the context of traders' "bad behaviour" and the "blind greed" of the American bankers who drove the U.S. into the mortgage meltdown and the rest of us into the global financial crisis of 2008. But, seriously, I had no idea what a derivative was until I decided to invest far too many kid-free hours of the last two days into not only finding out what it means but how I might translate into something that the average financial illiterate (and his or her five-year-old) can understand.

Yes. You read that right. I'm not only working on how to teach we grown-ups what a derivative is, I am also taking a crack at introducing it to five-year-olds. If you are thinking that I'm crazy, you are not alone. Last week I had the chance to ask 40 elementary school teachers whether or not kids in primary school should be introduced to moola lingo such as ETF, liquidity, T4, bonds, passive income, equities, overdraft, capital gains, etc.

Almost all of the teachers said, "No way!"

I disagree, of course. For me financial literacy comes down to two things: vocabulary and confidence. It's never too soon to start building either of those highly valuable personal commodities. And as someone who has logged many hours as a coach, I know that sometimes we grow the most when the bar is set higher than we think we can handle. When it comes to moola lingo, the word "derivatives" certainly fits the bill as a training tool. So put on your helmet. Here we go.

Not the Real Thing
A derivative is NOT an original thing. A derivative gets its meaning and its value from something else. In science, think of opium's derivatives: morphine and codeine. In etymology (the study of words), think of the Latin word "aqua" and its many derivatives such as aquamarine, aquatic, aquarium and Aquaman. Just think, without the Latin word for water (aqua) Norris and Weisinger might have named their underwater hero Soggyman or Wetman.

In moola lingo, it's the same idea. Derivatives cannot exist or have meaning or value without the thing that it is based on. There must be real wheat for flour and real pork bellies for bacon before you can create and trade in corn futures or pork belly options. (Options and futures are the two most common kinds of derivatives.)

According to Investopedia.com a derivative is "a security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties." Here's an example.

Short & Long on Balls
Imagine a market where everything baseball is bought and sold. A coach needs new balls for her team. There is no avoiding it. She will have to spend money on balls but, hopefully, not too much. The annoying thing is that the price of balls goes up and down all the time. Sometimes they cost $2 each, sometimes they go as high as $10 each. She does not want to pay $10 for each ball. She needs 100 balls, so that would cost $1000!

The day the coach goes to the baseball market, balls are selling for $5 each. She doesn't need the balls today (she doesn't even have enough money to buy today) but she wants to buy the balls at today's price. She goes up to a ball guy and tells him that she will buy 100 baseballs from him at $4 each and that she will need them delivered to the field on opening day. The guy agrees because he thinks that the price of balls is going to go down to $3 when all the other ball sellers come to the market next week.

The coach and ball guy write all of those details on a piece of paper. That piece of paper is now called a "futures contract" and it's a kind of derivative. Like the word "Aquaman" depends on the existence of the Latin word "aqua," this piece of paper depends on the existence of real baseballs and how much they cost at the market on any given day.

The coach is called a "speculator" who is "long" on balls, which means that she thinks that $4 is a good deal because the price of balls will probably go up. The ball guy is called a "hedger" who is "short" on balls, which means that he thinks the price of balls is going to go below $4 and he wants to get as much money for his balls as he can.

On opening day, the price of balls at the baseball market is $10. The ball guy delivers the 100 new balls. The coach pays him $400 dollars and is really happy. She saved her team $600 dollars. The ball guy is not happy. He lost $600 because the futures contract says that he must sell 100 balls for $400 when he could have sold those 100 balls that day at the market for $1,000. Poor guy. But what if the price of balls on opening day had been $2 each. Then the ball guy would be happy that he had the coach locked into paying $4 per ball. The coach would have been annoyed at paying $400 instead of $200.

As you can see, how it works out for the speculator (the coach) or the hedger (the ball guy) totally depends on how many balls and how many coaches needing balls will be at the market on a certain day. No one can control how much something like a baseball will cost tomorrow, the next day or next Wednesday. This is why derivatives are considered useful.

Sellers like the ball guy want to be sure they get a good price for their balls at the market. Buyers like baseball coaches want to buy their balls for as little money as possible. They talk, come up with a price for baseballs that they both like and set a date for the balls to be delivered to the buyer. Maybe having a futures contract helps them both sleep better at night knowing that no matter what the price of baseballs is tomorrow, they have a deal.

Where a speculator or hedger might lose sleep or have nightmarish flashbacks to 2008 is when the contracts themselves are bought and sold on the derivatives market (this is not something that I can visualize yet) or when a contract comes due and there isn't enough money to pay it out (apparently when buying a derivative, you don't need to have the all the cash on hand, just a small percentage of the face value of the contract).

As you can imagine, my fellow financial illiterati, there is much more collateral lingo attached to derivatives that we can learn. But not today. I think we've done enough of a workout. I know I have...

Copyright 2011. Laura Thomas. All Rights Reserved.
For reprint permission contact moneyme@telus.net.

Monday, May 2, 2011

The Collective Canadian Pocket & Why Voting Matters

I just finished writing a financial literacy lesson plan for preteens called "An Intro to Making Money." In this lesson I use a pocket to demonstrate what income and expenses are: income puts money in your pocket while expenses take money out.

With today being election day, I got to thinking about our collective Canadian pocket and how an election is all about deciding which party will be in charge of what goes in and what goes out. By the way, did you know that in the recently defeated budget our collective pocket takes in $235.6 billion in total revenue and pays out $276 billion in total expenses. That's a lot of loose change!

The funny thing (or perhaps disturbing thing) is that about half of us don't really seem to care about which party controls our collective cash. According to Elections Canada, only 58.8% of eligible voters turned out for the last federal election in 2008. Are we going to do any better this time?

I know the old complaint (often made by really smart people who are really good at managing their personal pockets) that the parties are all the same so there's no point in voting. Well, I'd  like to challenge that truism with some examples of how significantly the parties differ in how they want to manage Canada's cash.

How the Parties will Manage OUR Money

Arts & Culture
The Conservatives will establish a Children's Arts Tax Credit of up to $500 per child. The Liberals will double the annual budget of the Canada Arts Council from $180 million to $360 million over the next four years. The NDP will increase public funding for the Canada Council and implement tax averaging for artists and cultural workers.

The Conservatives will extend support for the Canada Youth Business Foundation which provides loans and mentoring to young entrepreneurs. The Liberals will establish a new Early Childhood Learning and Care Fund beginning with $500 million in the first year, rising to an annual commitment of $1 billion by the fourth year. The NDP will raise the education tax credit from $4,800 per year to $5,760 per year.

Families & Households
The Conservatives will establish a Family Caregiver Tax Credit, on the amount of $2000, to support Canadians caring for infirm loved ones. The Liberals will invest $1 billion annually in a new Family Care Plan. The NDP will improve Family and Maternity Leave Benefits.

Health & Health Care
The Conservatives will double the value of the Children's Fitness Tax Credit up to $1000 per child. The Liberals will invest $40 million over four years to implement a new Healthy Start program to help children from low-income families access healthy, home-grown foods. The NDP will introduce an intergenerational Home Forgivable Loan Program to help up to 200,000 families a year retrofit their homes to create self-contained secondary residences for senior family members...up to a maximum of $35,000 per family.

Yours, Mine & Ours
You can do more party platform comparisons online and I hope you do. I mean really, if you care about money at all, yours, mine and ours, this is a great way to show it. The winners today will be in charge of our collective pocket. And having your say in which party is going to have that control is worth a trip to the voting booth. After all, your personal pocket has a stake in it too.

And don't forget to drag the kids along. As with financial literacy and the language of money, you can start teaching your kids to speak democracy at any age.

Copyright 2011. Laura Thomas. All Rights Reserved.
For reprint permission contact moneyme@telus.net.