Financial freedom is available to those who learn about it and work for it. [Robert Kiyosaki]
So November is Financial Literacy Month in Canada.
To be honest, I’m not sure what that means. Personally I don’t put much stock in setting aside specific months, or days to talk about specific issues. Especially issues of day to day significance, like Financial Literacy.
We need to get better at teaching financial literacy in this country. That much is certain.
In 2009 Statistics Canada in conjunction with Human Resources and Skills Development Canada (HRSDC), Finance Canada and the Financial Consumer Agency of Canada, conducted a broad ranging study known as the Canadian Financial Capital Survey. The survey was conducted to shed light on Canadians knowledge, abilities and behavior concerning financial decision making. In other words, how Canadians understand their financial situation, the financial services available to them and their plans for the future. The results were sobering and as a result the agencies involved decided to sponsor Financial Literacy Month every November since 2011.
How did we do? Overall, Canadians average 67% on the survey. But lower incomes meant lower scores, highlighting the need for financial education, especially in lower income demographics. Canadians who earned less than $67,000 per year generally received a score of less than 60%, those with incomes of greater than $95,000 generally received a score of 70% or above. The vast majority of Canadians earn between $67,000 and $95,000 per year, making the scores in the mid 60s the most statistically significant.
In my opinion the fact that even so called wealthy Canadians rarely got better than a B on the survey says something not only about the state of financial education in this country but also our expectations about what constitutes financial literacy.
There are a few fundamentals I think everyone must learn in order to be considered financially literate enough to function in society:
1 – Start a Budget.
Budgeting does need to be fancy or scary. If you prefer, call it a spending plan instead because in essence that’s what it is. Start with figuring out how much money you have, spend it all on paper before the month begins and then stick to it. If you’re on a limited or variable income it helps to triage your money as well, break your expenses down into the 3 main categories – Food, Shelter and Transportation, everything else is luxury anyway.
2 – Pay yourself second.
You read that right. Conventional wisdom says pay yourself first but the conventional wisdom is just plain wrong. Instead, pay your highest interest debts first. By doing that, in a way you are still paying yourself first because every dollar spent on interest is a dollar you can’t spend on anything else. Once your debts are under control then paying yourself first makes sense, until then you’re putting the cart before the horse.
3 – Reduce, reuse, recycle
It’s not just a good slogan for environmental responsibility. In terms of financial literacy it could be rephrased as spend less, keep longer and re-purpose. We live in a throw away society. Not only is it hurting our planet, it’s killing our wallets. When done right, environmental responsibility is very economical. Start small, buy a reusable shopping bag and carry your own insulated travel mug, you’ll save anywhere from 5 to 15 cents every time you shop or go for coffee.
4 – Save, save, save
Save for a rainy day by building an emergency fund of at least 3 months of expenses, preferably 6. Save for retirement. You’ll need enough to replace 70% of your pre-retirement income if you don’t want to take a major hit in your lifestyle once the pay cheques stop coming. And Save for major purchases like kid’s education, new cars and major repairs.
As part of financial literacy month I put together a little quiz of my own. This one focuses on the types of products and services I offer through my financial practice. Check it out here https://laurensheil.typeform.com/to/uC5wUu Add your email address at the end to be entered in a draw for a $25.00 Tim Horton’s Gift Card.
Happy Financial Literacy Month.