With nearly 1 in 3 Canadians financially illiterate (source: World Bank), it’s about time our leaders do more about it.
And that’s what Ontario is now doing. In the first major math update to its grade 9 curriculum “since 2005,” the government is teaching youth how to make smarter financial decisions.
Among other things, students will solve more real-life borrowing problems and “examine how interest rates” affect their budget.
On the mortgage front, the government needs to drill home critical basics. Here’s our take on the mortgage curriculum we’d build based on years of experience seeing borrowers struggle with these concepts.
- Rate shopping — How much more will you pay if you settle for a 0.10-percentage-point worse rate, based on interest cost alone?
- Non-rate factors — How much more might you pay if you focus too much on the interest rate, and not enough on mortgage penalties, sufficient portability time and favourable refinance terms.
- Amortization — How does a longer amortization lower your payment and what could that cost you over your mortgage life (factoring in time value of money, a more thorny but vital concept)? When is a longer amortization actually in your best interests?
- Credit — How much more could it cost you, mortgage-wise, if you don’t pay your bills on time and don’t maintain a 720+ credit score.
- Income — How much do you have to earn to get a mortgage in your city of choice?
- Down payment — How long will it take you to save a minimum down payment based on your expected income after university, college or trade school? And why is living within your means vital to this savings process (and getting approved for a mortgage in general)?
- Renting vs. buying — Will you be further ahead by retirement if you purchase or rent? What does the math say given monthly expenses, opportunity cost and long-term appreciation? And how does the answer vary by city?
This list is far from exhaustive, of course, but it's a good running start.
With record mortgage indebtedness, it’s high time educators make math more practical for our future debtors. Getting kids thinking about this kind of real-life stuff ahead of time couldn’t be more important. What it does is raise the probability they’ll plan ahead, years ahead. It reinforces making optimal borrowing decisions. And that matters. Because if we hope to head off future retirement crises, we better hope that more Canadians make better financial decisions after entering the workforce.