What is financial literacy?

In life, Canadians are tasked with making countless financial decisions, be it something major like a mortgage or minor like where to buy your morning coffee.

Financial literacy arms you with the knowledge and skills to navigate these big and small money decisions, which can ultimately improve your overall financial health.

Why is financial literacy important?

Becoming financially literate may sound like extra work, but it pays off. It can help:

• Maximize your income and benefits

• Effectively navigate taxes and other government programs

• Pay off debt

• Use credit strategically

• Plan for your (and your children’s) future

Let’s take a look at how you can make yourself financially literate and reap all these benefits.

Start with day-to-day expenses; budgeting is your friend!

Close to half of Canadians have a budget, be it through apps or saving money in a jar. No matter the method, learning how to budget is essential to becoming financially literate. That’s because budgeting is closely associated with being able to pay off debt faster, which can eliminate financial worry and stress.

Budgeting starts with having an accurate idea of how much money you have coming in. Calculate your income from your employment, side hustles, rental income, or tax credits. Next step: look into the money going out. Familiarize yourself with all your expenses, like your rent, utility and grocery bills, travel and transportation expenses, childcare costs — everything.

After you learn your financial situation, you can see where you can save and make tweaks accordingly, which can hopefully free up room for paying off debt and putting aside savings. Depending on your income and expenses, experts recommend setting aside 10-20% of your paycheque for your future, when possible.

While it may be tedious, budgeting is an essential ingredient in developing a more financially literate self. It can show you how to maximize your income and encourages you to think of your financial future.

If you're still feeling unsure of how to start, there are plenty of resources to help you better manage your money, like this Ultimate Budget template, and KOHO’s in-app budgeting tool.

Get comfortable with investing

Learning how to invest your money is a result of researching, learning, and adopting an investment attitude. Think about what your purchases and financial choices will do for future you, instead of only present you.

Yes, investing seems intimidating. Especially when there are so many options: ETFs, RRSPs vs TFSAs — the list of confusing acronyms seems endless. Take assurance in knowing they’re all perfectly acceptable forms of investment. The key is identifying which one best suits your individual scenario.

Fortunately, you can find out with some research. Rather than jumping into the stock market right away, take time to educate yourself on what’s out there and how they line up with your values and financial scenario. Investments are all about making decisions for the future you — when you think of that person more often, you become more and more financially literate.

Credit checks, scores, cards — oh my!

Part of being financially literate is about more than making yourself knowledgeable about your credit score and forms of credit; it’s also about making credit your friend.

Maintaining a good credit score is imperative to being approved for credit, be it for a mortgage, car lease, or business loan. Educating yourself on what actions can improve and hurt your credit will help you be more financially literate.

Similarly, it’s important to know how hard and soft credit checks can impact your credit score. Checking your credit score multiple times a year can result in minor marks on your score. However, some checks are “hard” and its impact stays on your credit report for 1-2 years, while others are “soft” and do not mark your credit report

You should learn about the kind of credit that’s available to you, and know which forms are most suitable for your financial situation.

Oh YES, it’s the tax man!

Taxes have notoriously brought stress to Canadians for who-knows-how-long, and these strains undoubtedly have increased in the COVID-19 era. Luckily, there are ways to combat tax anxiety, and doing so will help you become more financially literate.

The first step is education — educate yourself on how much of your money goes to taxes, to which credits and deductions you are entitled, and how you can maximize these credits. The Government of Canada and CPA Canada offer many resources to help Canadians learn more about taxes.

If you’re still having trouble understanding your taxes, you can go to a free tax clinic for support or hire an accountant. Having your taxes up-to-date and organized gives you better knowledge on your financial situation (AKA better financial literacy!), and can, in turn, help you plan for the future.

The bottom line — financial literacy is attainable!

With all the resources out there, financial literacy is more accessible than ever. Educating yourself is the first and most effective way to live a more financially literate & prosperous life.