It’s hard to grow your money if you’re financially illiterate.
With Financial Literacy Month coming to a close, I thought it would be the perfect time to discuss why financial literacy matters. In high school we learn about algebra, chemistry, history and even physical education, but when it comes to personal finance we’re on our own. The fact that we even have to have a Financial Literacy Month shows just how much work still needs to be done to make Canadians more financially savvy. While I have yet used my algebra skills from high school, being financially literate sure would have come in handy when I made major financial decisions like enrolling in college and university and buying my first home.
1. Canadians Relying Heavily on Debt
With over half (51 per cent) of Canadians living paycheque to paycheque and the household debt-to-income ratio near a record-high, clearly there’s a need for better financial literacy. With only a third of workers with a workplace pension plan, you can no longer rely on the safety net of an employer sponsored pension plan when you retire. A lot of Canadians lack basic financial skills like budgeting and debt management. Surveys over the years have found fewer than half of Canadians have a family budget. Not only is a budget helpful for tracking your spending, it makes us aware of things we may be spending too much on like entertainment and restaurants.
2. A Lack of Financial Literacy Can Lead to Divorce
A lack of financial literacy can have a major impact on our personal lives. Life is more hectic than ever these days. Mobile phone and computers have turned us into a 24/7 society. We want things instantly and aren’t willing to wait. It should come as no surprise we are less patient when it comes to marriage. A recent BMO poll has some startling findings: over two-third (68 per cent) say fighting over money would be their top reason for divorce, followed by infidelity (60 per cent) and disagreements about family (36 per cent). That’s right, fighting over money is worse than cheating on your spouse!
3. We Are Less Likely to Rely on Credit Cards
Credit cards have made it easier than ever to spend money. With the simple swipe or tap of your credit card you can spend $20 or $200 in an instant. The pain of parting with cash is no longer there. Canada ranks among the highest for cashless transactions in the world. In 2012, 32 per of all transactions were made with credit cards (Source: CPSS – Red Book Dec 2013). While credit cards are partially to blame for the financial mess we find our society in, at the end of the day it’s your responsibility to use your credit card responsibly.
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4. We’re Less Likely to Carry Debt into Retirement
The baby boomers are known as the credit generation. While our grandparents who grew up during the depression were strongly against debt, a lot of boomers are carrying debt into their golden years. Millennials could be in for a rude awakening if they try to follow in the footsteps of their parents: defined benefit pension plans are being scaled back and replaced with defined contribution pension plans and group RRPSs where your income in retirement depends on how your investments perform during your career.
5. Financial Literacy Empowers Us to Make Better Decisions With Our Money
When we’re financially literate we can make proper and informed decisions with our money. When I walked into my local bank branch to get pre-approved for a mortgage five years ago, I had no idea what a mortgage broker was. It was only from watching CP24’s Hot Property that I decided to shop the market with a mortgage broker for a better rate. While we can rely on the banks for financial literacy, the problem is there’s a conflict of interest. Do you really think BMO or RBC is going to tell you to go online to and visit RateSupermarket.ca for a lower mortgage rate? Fat chance! While there are non-profit charities out there like Credit Canada Debt Solutions fighting the good fight, the onus on the individuals to seek out help.
What’s the Solution to the Lack of Financial Literacy?
That’s the million dollar question. Although there are plenty of resources, not enough people are taking advantage of them. The toughest part isn’t delivering the information to the masses, it’s changing people’s behaviour. Improved financial literacy benefits society as a whole. If more people were financial literate and responsible with their money, there would be fewer people relying on social assistance.
Kyle Prevost of Young & Thrifty, who is a teacher and financial blogger is a strong advocate for financial literacy and how to best implement it. While a financial literacy task force is a good start, more needs to be done to make the next generation of Canadians financially literate. Rather than weave personal finance into already existing courses like business and physical education, I strongly believe we should have a mandatory course dedicated to personal finance. Anything less than that is a failing grade in my books.
Why does financial literacy matter to you? What do you think is the best solution to the lack of financial literacy in Canada?
Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians, available now on Amazon and at Chapters, Indigo and major bookstores, and as an Audiobook on Amazon, Audible and iTunes.