We Canadians like to think we know about personal finances. A recent survey discovered that a whopping 78% of us believe that we are financially literate.
This survey then went on to find out if this high level of confidence actually did reflect our level of expertise. Sadly, only 43% passed a basic financial literacy test. Clearly, many of us can improve our financial knowledge. But why is financial literacy in Canada important? And how does financial literacy help you?
First of all, what is financial literacy?
Financial literacy in Canada is defined as the knowledge and understanding of a wide range of subjects around personal finance. These subjects include:
- Managing money
- Borrowing
- Credit
- Credit cards
- Debt management
- Mortgages
- Investing
- Retirement benefits
Financial literacy is also the ability to make financially responsible decisions. Why do we need financial literacy? If we’re going to avoid financial stress and hope to have a comfortable retirement, financial literacy in Canada is essential. Now we know what financial literacy is, why is it important?
The importance of financial literacy in Canada for retirees
With the boom in the use of technology for financial services products, how we hold, spend and save money has changed drastically. For decades, cheques were the preferred payment method for many of us, but now they’re almost obsolete. The importance of financial literacy in this fast-changing world is huge.
For older retirees, it can be difficult to keep up with these changes. Financial literacy can help manage the changing world of personal finance, so they are better prepared to stay out of debt and avoid having financial issues in retirement.
For any widowed retirees whose spouse took care of their personal finances, suddenly finding themselves without their financial expert can be very daunting. They need to quickly learn how to manage their money, pay their bills and make their savings last. One of the benefits of financial literacy is that it can quickly turn you into a personal finance expert.
Retirees also need a different level of financial literacy compared to working Canadians. Managing finances without a regular wage coming in requires very different skills and resources.
So why do we need financial literacy?
There are a number of answers to the question, why is financial literacy important? Here are some of the key advantages of financial literacy:
- To know how to manage your money
- To get the best mortgage
- To choose the right insurance policies
- To properly manage debt and credit
- To plan for your retirement
- To successfully save for major events
- To decide on the most suitable investment products
The importance of financial literacy in Canada can be the difference between a comfortable retirement and financial stress. It could mean owning your own home instead of renting forever.
Financial literacy for retirees
Why is financial literacy important for retirees? Because they have unique financial challenges. All of a sudden, you start taking money out of your retirement savings, rather than putting money in. Now, a budget is even more important, because you likely don’t have any more pay cheques coming in.
You need to know exactly how you’re going to spend each cent – and how long your money will last. You don’t want to end up running out of money in retirement. You may want to reconsider the risk aspects of your investments, thinking about the need for continued growth and a greater aversion to potentially losing value in a crash.
Finally, financial literacy is important when you need to consider estate planning – deciding on how you will pass your inheritance on. This can be very complex.
Now that we know why financial literacy is so important for retirees, let’s take a look at how to get financial literacy.
How to improve your financial literacy in Canada
We now have a good idea of why financial literacy is important. But how do you go about improving it?
A good place to start is your financial institution. Many banks, such as TD, RBC and CIBC, as well as many credit unions, provide financial literacy resources.
The Canadian Bankers Association provides a series of seminars called About Your Money. These seminars cover topics specific to retirees, including improving your cash management, making your money last in retirement and how to prevent fraud.
This Practical Money Skills brochure from Visa provides in-depth information on budgeting, banking services, saving, credit and debt.
Financial literacy in Canada is an important topic for the federal government, and they provide a number of great resources. Your Financial Toolkit is a 12-module learning program that covers personal finance information and tools, such as the basics of investing, tax essentials, retirement income and financial planning.
The Canadian Financial Literacy Database has a wealth of material on financial literacy in Canada. It contains 200 financial literacy resources, covering a huge variety of topics, including tax planning, annuity calculators, general budgeting and action plans for retirement.
Completing your financial literacy in Canada
One of the biggest advantages of financial literacy is knowing all of your options. When it comes to financial literacy and retirement planning in Canada, an important option for many Canadian retirees to be aware of is the CHIP Reverse Mortgage®.
This can be an important retirement tool for Canadian homeowners aged 55-plus. It allows you to cash in up to 55% of the equity of your home and use the money to boost your retirement income. You only pay what you owe when you decide to sell your home or move out, so there are no regular mortgage payments to make.
Call us at 1-866-758-2447 to find out how much you could borrow to help towards your retirement planning.
