Are you Literate???

It appears many of us Canadians are not. Many of the experts in the field agree that the lack of financial literacy among most of us is contributing to broader economic issues, such as the current household-debt crisis in this country.

Finance Minister Flaherty in his recent budget apparently listened to the Feb. 9, 2011 Task Force on Financial Literacy presentation and is taking small  but forward steps to correct the issue.

The education system teaches little to nothing about practical personal finance. We are constantly faced with real-life decisions requiring at least some degree of financial know how. Sadly, not enough Canadians use professional financial advice to make sound financial decisions—a strategy which can greatly improve one’s overall situation now and in retirement.

We are all familiar with the basics of good physical health: eating right, regular exercise, not smoking, and a good night’s sleep, yet many have forgotten the basics of good financial health such as saving and living within your means. While not everyone is expected to know and understand the complex nature of some financial products like hedge funds, understanding a few key concepts can help one make better financial decisions.

Borrowing—Knowing the difference between good debt and bad

High-limit credit cards or pay-later schemes make it easy to fund those needs and wants, but does the purchase make sense for today and tomorrow—is it truly a need? Or a self-satisfying want that could be delayed or denied, there is a place and time for borrowing where is does make more sense, i.e., car, home education.

Budgeting—Personal finance

Living within a budget does not necessarily mean doing without or having no fun, it is making the most of what you have. A well-defined budget is little more than organizing where money goes to be spent, day-to-day expenses, short-term savings, repayment of debt, and retirement savings.

Retirement—Plan your own future

With more and more companies abandoning pension plans, and more self-employed people than ever, we can no longer rely on government, union or employers to provide for us when our working days are over.

Make your retirement plan automatic and start; start early, it’s amazing how fast a small steady contribution into a RRSP or TFSA can build up.

Investing—risk versus reward

Most real-life financial decisions require an understanding of this concept, many have only a vague notion of how this plays out in the various financial products presented to them.

What are the different financial products available to us? How do they work, what are the fees? What are the trade-offs or pros and cons for each age and stage for investors?

These are important questions that need to be asked so sometimes being literate is more about asking the right questions.

So where to go for good advice? Remember that many financial institutions such as banks or credit unions may have potential conflicts of interest but they are a good starting point for some basics. Most products and services are sold with disclosures but there is a limit to how much these actually help a consumer. Here are a few good resources to get you started down the path to financial literacy and freedom:

Task Force on Financial Literacy        www.financialliteracyincanada.com

Practical Money Skills Canada       www.practicalmoneyskills.ca

Canadian Centre for Financial Literacy       www.theccfl.ca

Advocis  Financial Advisors Association of Canada      www.advocis.ca

Investment Funds Institute of Canada                    www.ific.ca

 

 

Leave a Reply

You must be logged in to post a comment.