Please Note: I wrote this piece for financial advisors working in credit unions. But the advice applies to everyone. Feel free to use the advice accordingly.
Questions Asked – Answers Provided
When financial consumers and credit union members want to discuss financial literacy, I think they are really looking for financial wellness.
While you might get questions about contribution limits for RRSPs and TFSAs, the answer you give should probably offer needs to include information about emergency funds and insurance.
It’s a bit like asking your doctor about LDL and HDL in a cholesterol test when you should be figuring out how to change your diet or get more exercise.
Give them the information that will make a real difference
So, while members can benefit from understanding key concepts and terms about their personal finance, their lives will be improved when they put a plan in place that gives them the financial security they need and desire.
This is an important conversation to have with members, as we all try to sort through the physical and financial consequences of the greatest public health crisis in a century. And as we have witnessed, that health crisis became so much more.
COVID put all of us to the test. Now it’s time to move on and prepare for an uncertain future.
After all, hasn’t this whole episode reminded us that stuff happens? And we need to prepare, as individuals and as a society, for the possibility of chaos? Let’s help our members properly prepare for a future we cannot predict in detail.
Defining Financial Wellness
Let me really get this conversation started by sharing a definition of financial wellness I found from Fortune magazine.
Financial wellness, put simply, is the ability to have a healthy financial life. It means your debts are payable and you have ample emergency, college and retirement funds. You’re well prepared to handle any financial crisis.
John F. Wasik, [link=”ext-6876a811-cdc3-40b5-a183-772a553cf1e6″], October 11, 2019
In a nutshell, isn’t that what members are really looking for?
Answering the underlying question
While they might be asking questions about how to invest their RRSP money or whether they should buy term or whole life insurance, their real goal is financial peace of mind and a decent night’s sleep.
And we can help members achieve financial wellness by presenting them with the building blocks they need to put their financial house in order. And those building blocks include:
- insurance for emergency needs
- a nest egg for financial potholes and uncertainty
- money for homeownership, college or university education, and eventually, retirement
- a personal will and plan for one’s passing that has been shared with those responsible for its implementation
Preparing for the Unexpected – Insurance
Everyone “knows” they need insurance. To:
- Cover medical costs, including hospital care, dental services, related personal benefits, and lost wages due to illness or accident
- Replace their home and the things in it
- Safeguard their families in the event of their death
While insurance is often a topic that members want to avoid (especially life insurance), it is essential to their family’s financial well-being.
Health and Disability Insurance
Many of your members have health and disability insurance with their employers, but some don’t. Maybe they’re a small business owner or a budding entrepreneur. Or their employer doesn’t offer that benefit.
And there are many aspects to health and disability insurance you can help them understand.
Go ahead. Take the time. Or at least introduce the topic. They’ll appreciate it.
Home and Tenant Insurance
Yes, families with a mortgage generally need home insurance, but families without a mortgage need protection too. This includes families who own their home without a mortgage and families who rent – tenants.
Even members without a mortgage will benefit from a good home or tenant policy’s security and confidence.
You know that. And you can help members of your credit union who don’t have that basic tentpole in their financial framework understand it too.
Maybe members don’t want to think about the prospect of their own death, but they still need to make sure their families are financially cared for if they die unexpectedly.
According to [link=”ext-1c10177f-7a3c-429a-a198-aafb51bebd63″], 49% of Canadians have never purchased their own life insurance. While many of these families have insurance through their employee benefits plan at work, that is not an effective solution in the event of job loss or career change.
This leaves far too many Canadians in a dangerous financial situation – one we can help them fix.
Financial wellness means making sure you have enough insurance to cover your family’s needs.
Financial literacy means that you understand the difference between term and whole life insurance and then decide what is best for you and your family.
You can help your members achieve both of these goals. You can have “the conversation” that starts them thinking about their family’s life insurance needs. Then you can help them understand their options and decide how to prepare.
Make insurance part of your next member update conversation. You might find they appreciate it.
Preparing for the Rough Spots – Putting Together a Nest Egg
I suspect that none of the items in this list are unusual or unexpected. The idea of having emergency funds – a nest egg – available to help during possible difficult times like job loss or significant injury or illness – is certainly not new.
And it is probably the easiest one for members to understand and accept.
But even so, many Canadians report that they are living paycheque to paycheque, without the financial resources to cover hardship. And [link=”ext-f4b36e91-4bdb-417a-aedf-ba6be42adfd3″], published in 2020 by the Canadian government, shows that issues such as family or marital status, homeownership and income have a distinct impact on savings levels.
Helping members to establish savings accounts and regularly transfer money to those accounts is probably the first step in helping them to achieve financial wellness.
Preparing to Meet Your Goals – Home Ownership, College, and Retirement
After you cover your necessities, it’s nice to start planning for long-term goals. Many members probably only start talking to financial advisors at their credit union when they address one of these goals. Maybe:
- A young couple starting a family approaches you about and looking for an ideal starter home and needs mortgage advice.
- Parents and grandparents have figured out that they need your advice about saving money for their children’s education
- Parents have watched their kids grow up and begin to establish a life of their own. Now those members have come in asking for detailed advice as they prepare for their retirement
I suspect this is when members truly believe they need to improve their financial literacy. You can help them become financially literate, but you can also implement those plans and improve their financial wellness.
Mortgages and Home Ownership
Owning a home is often the single largest purchase a family will ever make. Finding a mortgage, finding a home, and putting all the pieces in place can be confusing and terrifying. Members will come to you to help make that process less stressful.
As kids get older, parents will likely start thinking about how they can help their kids with college and university expenses. Your help with understanding Registered Education Savings Plans and maybe even scholarship options will be appreciated.
Retirement – Entering One’s “Golden Years”
As your members prepare to retire, they have many things to consider. Personal savings, work-related pensions, and government programs all have their own rules. There is a whole set of acronyms that many of them are going to find confusing. More information and advice will be appreciated.
Whether members are trying to:
- Understand their options for the Canada Pension Plan (CPP)
- Decide on the benefits of Retirement Investment Fund (RIF) or annuities, or
- Figure out how to handle a work pension plan – buyout of indexed plan
You can help them understand and act on their options.
Preparing for the Inevitable – Death and Taxes
Nothing is more predictable when talking about financial planning than hearing the phrase “death and taxes.” Death and taxes will almost certainly come to mind when people develop their financial literacy or improve their financial wellness.
While you may have already discussed life insurance, talking to your clients about having a will is also an important part of any financial wellness plan. You can certainly help introduce that conversation, begin a review of their needs and even discuss how to proceed.
There are plenty of options for getting a will prepared – online options and local estate lawyers who can help with this necessary though discomforting process.
Ideally, part of tax preparation should be retirement preparation. Many of the decisions about a Registered Retirement Savings Plan (RRSP) versus a Tax-Free Savings Account (TFSA) are based on their impact on a member’s tax status, both now and when the member hopes to retire.
And although we already reviewed topics to discuss during the preparation for retirement, the conversations about how to save for it obviously must come first.
Many members will list this as a topic of confusion in their “quest” for financial literacy. You can help them understand enough to achieve financial well-being – by actually investing in their retirement.
And as you know, this is a perennial issue. The best day to start doing any of these things – improving their own and their family’s financial wellbeing — is the day you sit down to start the conversation.