According to the Financial Consumer Agency of Canada (FCAC), “finances continue to be the greatest source of stress for Canadians, significantly more than work, personal health, or relationships.” The financial landscape is a difficult one to navigate and many people are finding themselves financially vulnerable due to lack of education around finances, systemic barriers, and the fast-changing nature of the financial marketplace. Many people also tend to report a lacking in knowledge of resources to help them make informed financial decisions that make sense to them and fit their needs.
Definition
So, what even is financial literacy?
Financial literacy can be summarized as the understanding of financial concepts, products, and tools to make educated and informed financial decisions. This extends to the ability to act upon those decisions in a way that leads to positive financial outcomes.
Different Aspects of Financial Literacy
There are four major financial pillars that people should be aware of. Those pillars are:
Earning: you understand how much money you make, and how much you will need to make in order to
afford your daily expenses and your long-term goals.
Saving: you have a retirement plan and an emergency fund in case anything unexpected arises. You are
also capable of saving money in a smart way to be able to afford your future long-term goals.
Spending: you are not living beyond your means and understand how to manage debt effectively. You
can also create and follow a budget and track your monthly expenses.
Investing: you understand the importance of diversification and have invested the money you save to
allow it to grow and yield returns.
Additionally, it’s important to understand things like taxes, insurance, government grants, credit, and so much more. Now, this seems like a lot, and it can be very overwhelming if you don’t have any of these skills. However, many people do not have these skills and there are resources available so you can get started at any age to improve your financial standing.
Benefits
The reason why financial literacy is so important is that it can give people a sense of confidence and security. You are able to take charge of your finances and not have to worry if you’re making the right decisions or that you may not be able to afford basic necessities. When you know that you can afford your goals and expenses you feel more prepared for the future, as well as for any economic setback that may occur. Those with low financial literacy also tend have higher levels of stress, and lower overall levels of happiness due to that stress.
Additionally, people who are financially literate are less susceptible to fraud and are less likely to make mistakes with their finances that may lead to negative long-term outcomes. When you’re financially literate you can achieve your short- and long-term goals far more easily and go into retirement knowing that you’re prepared.
Resources
When it comes to finding resources, it can be a bit of a mix, and you’re not always able to verify that the information you’re receiving is legitimate. Luckily, the government of Canada created the Financial Consumer Agency of Canada (FCAC) in 2001 for exactly this purpose. The FCAC protects the rights of consumers when using financial services or products, supervises banks and other federally regulated financial institutions to ensure they are adhering to legislation and codes of conduct, and provides educational resources for anyone looking to enhance their financial literacy.
In addition, in 2021, they released the National Financial Literacy Strategy 2021-2026, which can be found on their website. In this report, they discuss the findings of their research into the current state of financial literacy in Canada and how they hope to create a more financially resilient Canada.
Not only does the report cover personal finances and education but it also addresses systemic and structural barriers that many Canadians face that stop them from being financially resilient regardless of their financial literacy. They acknowledge that the everyday person cannot be expected to be an expert in all things finance, and pledge to work with financial entities to provide Canadians with relevant information that is accessible and easy to understand.
Lauren Schwartz | Staff Writer
