November means it’s Financial Literacy Month. This month is dedicated to helping Canadians become better with their money so they can be the best financial version of themselves. The Financial Consumer Agency of Canada (FCAC) will be promoting events and resources from various organizations to create high quality information Canadians can absorb.
So, what does it mean to be “financially literate?” How can you know if you have a good understanding of your money? Let’s dive into it.
What is financial literacy?
Financial literacy is a bit of a broad term that encompasses a lot of different parts. As a basic definition, financial literacy is about having the skills necessary to make important financial decisions, like budgeting, debt management, investing, etc. A financially literate person understands their money and financial situation to a point where they can make informed choices about their own finances to increase their wellbeing. You don’t have to be an economist or a mortgage professional to be financially literate! Finances are complex and there will always be things you need professional help with, like buying a home or creating a detailed investment plan. However, financial literacy means you understand how to manage your money on a day-to-day, month-to-month basis, and you can logically plan for the future, even if you need some help setting those plans into motion.
Important tasks that require financial literacy
Why do you really need financial literacy? What are some things you can’t do well if you’re not financially literate? Remember that financial literacy isn’t just for big-time investors and business owners. There are a number of ordinary money-related tasks you will need financial skills to do.
Creating an accurate budget
Budgeting is one of the most important parts of our financial wellbeing. Without an accurate budget, we might overspend, underestimate our savings, fall behind on payments, and a whole host of other unpleasant situations. Your budget should balance your income, your expenses, and your savings, so you can make your payments while still saving money and not falling behind on your payments. A good way to help organize your money with a budget is the 50-30-20 rule. This means in one month, 50 per cent of your income goes towards needs like mortgage payments or bills. 30 per cent is for wants and unnecessary expenses, and the final 20 per cent is for savings. This way, you can ensure you know where your money goes and how you’re spending it.
Using your credit wisely
Most people have credit cards. They’re magical things, allowing you to make purchases you don’t have to pay for until a point in the future that seems distant at the time. When that distant future arrives, it’s important to make sure your past self didn’t overdo it on the spending. Using too much credit and being unable to pay it back on time results in late fees, and the interest on your purchases will exist for longer. Financial literacy teaches us how to be smart with our credit usage. In general, try not to spend more than 30 per cent of your available credit each month. This allows enough credit history to build a good credit score, but not so much that you can’t handle the repayments.
Planning for retirement
Retirement might seem like a far off milestone right now, but it’s not too early to start planning. This change in lifestyle and income means your budget will be different, and what you spend money on might have to change. You’ll have to be familiar with your RRSP. On that note, this is an account you can start contributing to early, so you have a nice bundle of savings when you reach retirement age. You can read more about planning for retirement here.
Saving for a down payment
Buying a home, while a very common goal, requires a good understanding of financial literacy. More specifically, saving for a down payment requires you to be disciplined with money and make smart moves on contributing to that savings fund. Without financial literacy, you’ll have more trouble knowing how much to contribute each month and how long you should save. This applies to all major purchases too, not just a down payment for a home. If you’re planning to take a big vacation, do a home renovation, or send a child to post-secondary school, you need a savings plan.
Making a debt repayment plan
People with good sense know they shouldn’t overuse their credit, but it can still happen. Cars break down, job losses occur, emergency expenses pop up, divorces can happen, and so can a number of other things that might put you into unexpected debt. Financial literacy means you’ll have the ability to make a repayment strategy that works for your situation and meets the payment requirements. It also means if you can’t find a solution on your own, you have the self-awareness to reach out to a mortgage professional or another expert for help. In any case, a financially literate person can find the quickest way to secure a debt-free life once more.
Ways to learn
So how are you supposed to learn all of this? By reading blogs like this, you’re making a good start. Blogs and online resources are incredibly helpful in teaching Canadians the basics of financial literacy. You can set aside time to read finance-related news or listen to podcasts that discuss money, investing, the economy, and a whole host of other topics. The internet is full of sources that range from basic information to the ins and outs of complex topics. You can also look into any events or workshops, in-person or virtual, that might be of interest to you. With Financial Literacy Month, you have access to lots of options! Check out the full database of resources here.
Since it’s Financial Literacy Month, it’s a great time to check on your own financial literacy. Remember, it’s okay to not know everything, as long as you know where to reach out for help! If you have questions about your mortgage needs, you can get in touch with me.