Do you carry a balance on your credit card? Did you skip a payment last month to fund the purchase of the latest iPhone? Do your debits regularly outweigh your credits on your bank statements?
If you’ve answered “yes” to one or more of these questions chances are, no matter how many post-secondary degrees you have, you’re scoring poor marks in financial literacy.
According to a recent financial literacy survey conducted by the Credit Counselling Society (CCS), 66 per cent of Canadians are in the same boat, believing they’re financially smart, yet continue to make silly financial decisions.
Both studies, released during what is Financial Literacy Month here in Canada, underscore the need for more financial education, experts say.
"With the myriad of financial considerations affecting the lives of Canadians, ensuring that we have the necessary level of financial literacy - the knowledge, skills and confidence to make responsible financial decisions - is absolutely essential," states BMO Nesbitt Burns chairman Jacques Menard, who was also vice-chair of the Canadian Task Force on Financial Literacy.
"Financial literacy is an issue affecting Canadians at every stage of life and creating awareness is key, not only during Financial Literacy Month, but all year," he says.
CCS president and CEO Scott Hannah says financial literacy goes deeper than simply knowing the basics of saving and spending.
“It’s about having sound money management skills and confidence to make responsible financial choices,” he says.
The CCS survey says 64 per cent of Canadians who frequently carry credit card balances, which usually means they’re paying higher interest rates than other types of loans, claim to be “highly financially literate.”
Among those survyed with household incomes of more than $100,000, 82 per cent claimed to be highly financially literate, but about half said they don’t follow a budget or spending plan.
The CCS survey also says 76 per cent of respondents ages 25-to-34 report they follow a budget, but more than two-thirds are stressed by having moderate to significant amounts of non-mortgage debt.
“What we found is that many people believe they are highly financially literate, but their actions tell a different story,” Hannah says.
The CCS says financial literacy is something that needs to be taught and takes a bit of work, which for most Canadians includes setting a budget and tracking spending habits.
Gary Tymoschuk, vice president operations at CCS, says financial literacy doesn’t necessarily mean people must deprive themselves of certain luxury items, as long as it’s in their financial plan.
“It comes down to needs versus wants,” he says. “Sometimes we’ll make purchases based on a want as opposed to a need. That’s fine, if you’ve built that in. Some people get too caught up in the wants.”
He says many of the people who seek credit counselling have good jobs, but have trouble balancing their spending and expenses.
The disconnect between perceived financial literacy and good personal finance practices is widespread.
BMO’s 4th Annual Financial Literacy Month survey, released last week, says more people felt knowledgeable about healthy eating (82 per cent) that they did about how to invest their money (56 per cent).
About 56 per cent of Canadians felt they would benefit from a basic course on personal finance, the BMO survey shows.
Women report being less financially savvy
According to a recent Canadian Financial Capability Survey, released last week by Statistics Canada, about 17 per cent of men and 23 per cent of women reported being “not very knowledgeable” about financial matters.
That compares to about 8.7 per cent of men and 5.5 per cent of women who described themselves as “ very knowledgeable.” The rest were either “knowledgeable” or “fairly knowledgeable,” the report shows.
Financial services firm Foresters recently offered five tips to get smarter about your finances:
- Learn everything you can about your finances, including your mortgage terms, bank interest rates and credit score.
- Start with the simple things like contributing to RRSPs, setting up RESPs for your kids and protecting your family’s financial future with life insurance.
- Keep track of every penny you spend for a couple of months and look for ways to cut back and start saving. Even a small commitment to saving will make you feel better about your finances.
- Look ahead 10, 20 and 30 years. Imagine the life you want and what it will take to make that happen.
- Talk to your kids regularly about money, involve them in household budgeting, open bank accounts for them and encourage them to save for things they want.