University of Alberta: Researcher wants to better equip young people to manage their financial futures

Most Canadians are living beyond their means, with a debt-to-income ratio of 181 per cent. More than half are within $200 of not being able to cover their bills and loan payments.

These kinds of statistics make Faculty of Education professor Damien Cormier uneasy, which prompted him to launch a research project to boost financial literacy in young people.

Young adults are navigating a more complex financial landscape than previous generations, said Cormier, a registered psychologist who teaches in the University of Alberta’s Department of Educational Psychology.

“The financial products available to them are complicated, there are fewer defined pensions, the cost of living continues to rise and wages have stagnated, so it makes sense for this group to be more prepared for these challenges without having to learn by trial and error.”

Taking stock of financial literacy
The research project, launched a year ago under the umbrella of the U of A’s Centre for Research in Applied Measurement and Evaluation, mainly helps establish a strong measure of financial literacy that can then be used to develop school curriculum or reference materials for consumer affairs agencies, said Cormier.

While there is an existing curriculum in some schools, he’d like to see financial literacy taught “more consistently across the board and to be more targeted by fleshing out what we want young people to achieve and how teachers can deliver that content.”

The key is starting as early as possible, because that’s how you can maximize positive outcomes. By the time you hit 18, you could be on the cusp of making some of the biggest financial decisions of your life.

The research conducted over the past year by Cormier, his colleague Okan Bulut and a team of graduate students took a two-pronged approach to the issue of building awareness about money and increasing financial literacy. Both components focused on understanding the needs of young people, through the lens of psychology.

“Most of the literature on finance appears to be from the fields of business or economics, but psychology has so much to offer in accessing thoughts and feelings about money and knowledge that isn’t easily observable,” said Cormier, adding that finances are reportedly one of the touchiest topics for people.

Student volunteers aged 18 to 24 were asked to complete a number of sentences about personal finance, and from that exercise, Cormier’s team got an understanding of people’s affinity for money, as well as their approach to financial decision-making.

“From that, we were able to define some categories which help individualize approaches to teaching about money.”

Improving money management skills
The second arm of the research project was aimed at developing a scale to measure an individual’s financial literacy.

“The financial literacy measure can tell people where they are in terms of their financial knowledge. The next step will be to figure out where the gaps are.”

For example, if someone hasn’t developed a good understanding of the relationship between income and debts, they may not do well with money management. One of the findings that was significant in defining next steps was that people who dislike math tend to have lower financial literacy.

“This leads us to not just focus on building their knowledge of financial terms, but also to help them develop good math skills so they are more likely to avoid costly mistakes and maximize their monetary outcomes,” Cormier said.

He plans to publish research papers from the current project and to conduct further research that focuses on teenagers to help prepare them as they start to hit financial milestones.

“The key is starting as early as possible, because that’s how you can maximize positive outcomes. By the time you hit 18, you could be on the cusp of making some of the biggest financial decisions of your life, like buying your first car or house.

“One of our goals now is to assess adolescents and group them according to their financial literacy to look at the predictors associated with different levels of literacy.”

Cormier would eventually like to reach preteens, as well.

“If we can provide them with structured instruction through the K-to-12 education system and they take it into adulthood, they’ll have some baseline financial literacy to be able to navigate the world more effectively.”