On January 2nd, while you were still shaking off a hangover,
a very exclusive group of people accomplished an amazing thing; they earned
more money than you will earn all year. According to a study by the Canadian
Centre for Policy Alternatives, that’s what happens when you make an average of
$8,528,304 — which is what Canada’s 100 highest paid CEOs made. That’s
right, on average the best-paid 100 CEOs in Canada make more than 218 times as
much as an average working stiff.
Many would argue rightfully that it’s a free market and
people should be able to earn what their employer is willing to pay. Despite
evidence that the return on investment from these pay packages is very poor
compared to other outlays of corporate resources, and despite the fact that
shareholders sometimes have a say in executive pay, shareholder activism is
something very few people participate in.
The trouble is that too many of us are financially illiterate.
The aforementioned investor anxiety is a nearly irrelevant
‘gee it would be nice to have that problem’ issue for the majority of
Canadians. A recent study conducted by Scotiabank revealed some startling
observations; almost half of Canadians report being just one or two paycheques
away from a financial crisis. Some 72 per cent of Canadians say they have no
The study also suggests that a third of those who contribute
to their retirement savings will withdraw funds from their RRSPs prematurely,
using funds primarily for day-to-day living purposes.
There is an ever increasing array and complexity of
financial products available, from bank accounts to credit cards to mortgages.
What is needed is a better understanding of them. To quote Alan Greenspan, past
Chair of the U.S. Federal Reserve Board: “Today’s financial world is highly
complex when compared with that of a generation ago. Forty years ago, a simple
understanding of how to maintain a checking and savings account at local banks…may
have been sufficient.
“Now, consumers must be able to differentiate between a wide
range of financial products and services and providers. Previous less indebted
generations may not have needed such a comprehensive understanding of such
aspects of credit as the impact of compounding interest and the implications of
mismanaging credit accounts.”
This lack of comprehension of debt and credit risk is what
compelled the Certified General Accountants Association of Canada to commission
a consumer survey in the spring of 2007. The survey revealed the depths of
misunderstanding. Among the most shocking is the fact that 84 per cent of
Canadians reported having some type of debt, while 25 per cent of Canadians
were not aware that changes in interest rates, housing prices, wages or reduced
access to credit would negatively affect their financial wellbeing.