Financially literate Canadians make informed decisions about debt and money and save for the unexpected. Having skills and knowledge helps avoid money worries and falling prey to predatory lenders and abusive practices. People who have basic understanding of investing, banking, inflation, and consumer protection are better at managing their personal finances.
How Canadians Fare
According to the Managing Money and Planning for the Future Survey, just 46 percent of Canadians have a budget. The majority of people or 69 percent manage to keep up with payments and bills. However, figures are significantly lower for persons with low incomes (62 percent) and aboriginal people (50 percent). Just 40 percent of Canadians know how much they have to save for comfortable retirement. Again figures are lower for aboriginal and low-income persons and newcomers. The main sources of income they rely on include occupational pension plans and government pension benefits.
Another report, Financial Literacy and Retirement Well-Being in Canada shows that 59.6 percent of Canadians do not know how much they need for retirement. According to the report, 43 percent will be forced to resort to credit if they have to cover an unexpected expense of $500. The figure increases to 69 percent for expenses of $5,000. The main types of debt that Canadians use include lines of credit, credit cards, and mortgages.
A third study conducted in 2019, Canadians and Their Money reveals that more than 1/3 of Canadians (31 percent) feel they have a lot of debt. Some 40 percent of borrowers hold a mortgage, with the average amount standing at $200,000. Common types of debt that Canadians pay off also include student loans (11 percent), personal lines of credit (20 percent), car loans and leases (28 percent), and cards (29 percent). Some 8 percent of respondents share that they tend to fall behind on payments and bills.
Why Is Financial Literacy Important
In light of the results from recent surveys, it is evident that some Canadians fail to manage their cash flows, with 27 percent of respondents borrowing to cover daily expenses or to buy groceries. Many of them fall in vulnerable groups such as lone parents, divorced and separated persons, low-income workers, and those under the age of 65.
In contrast, financially literate persons live within their means and know how to keep track of expenses and money in general. They also know how to comparison shop and choose from different financial products (https://www.smartborrowing.ca/best-secured-credit-cards-in-canada/) with competitive terms. With regard to skills, financially competent persons keep updated on relevant topics and tend to seek advice on savings and investment products. They also stick to a budget, plan for retirement, and rarely fall victim of abusive practices. According to experts, basic knowledge boils down to good understanding of key terms, real and nominal value, and interest. Being financially literate also means using information, applying concepts learned, and being able to plan for the long and short term – visit SmartBorrowing.ca. People who make informed judgments and decisions are aware of the consequences, whether saving, borrowing, or investing. Those who manage their personal finances well are good at risk diversification as they know how money works. Literacy education focuses on topics such as tax planning, budgeting, paying for college, real estate, insurance, and more. It helps Canadians to avoid high interest rates, subprime mortgages, and predatory lenders, all of which often lead to foreclosure, bankruptcy, and poor credit. Persons with good understanding of money matters know how to reconcile accounts, negotiate competitive rates, make timely payments, and avoid the debt spiral.