The Importance of Financial Literacy for Young Canadians: A Call for Action
In today’s economic climate, it’s essential that Young Canadians need to develop financial literacy skills. Despite this necessity, many parents in Canada feel unsure about their ability to guide their children towards financial responsibility. This article delves into why financial literacy is a critical skill for young Canadians and how we can address this pressing issue.
The Current State of Financial Literacy
According to a recent survey conducted by TD Bank, about a third of Canadian parents doubt their capability to set a sound financial example for their offspring. The survey further unveiled that almost half of the parents do not operate with a household budget, and a mere 29% perceive their household’s financial health to be either “excellent” or “good”.
In this context, it becomes evident that young Canadians require fundamental financial management abilities to invest in their future, accumulate retirement savings, and steer clear of crippling debt. This highlights the need for government intervention to prioritize their financial future.
The Shortcomings of the Public Education System
Regrettably, Canada’s public education system has traditionally failed to impart the practical knowledge young people require to manage their finances effectively. This is a glaring gap that needs to be addressed promptly.
Conversations about Money: A Taboo?
Society has ingrained in us the notion that discussing money matters is impolite. Consequently, parents often avoid having financial discussions with their children. When they do, they tend to highlight the positives while downplaying the negatives. While this might make the conversation more comfortable, it does little to prepare young people for the harsh realities of managing household finances.
As for debt, silence often stems from shame. There’s an entrenched stigma associated with taking on excessive debt, portraying those who do as indulgent or financially reckless. When questioned about their feelings of guilt over their debt, many overlook the uncontrollable factors and simply feel they should have been more knowledgeable.
This underscores the importance of financial literacy.
Efforts Towards Financial Literacy
Some Canadian schools are making an effort to incorporate more financial literacy content in their curriculums. Meanwhile, young people under the age of 25 are increasingly turning to social media as their primary source of financial information.
But is this enough?
Impact of Financial Illiteracy on Young Canadians
The lack of adequate financial education in the Canadian education system has significant repercussions on young people’s financial health.
The Office of the Superintendent of Bankruptcy provides a revealing breakdown of insolvency filings by age group in 2021:
Ages 18 to 34: 25.1%
Ages 35 to 49: 36.1%
Ages 50 to 64: 26.1%
Ages 65 and over: 12.7%
It’s unsettling to realize that a quarter of those aged between 18 and 34, who are just embarking on their financial journey, find themselves needing to file for Bankruptcy or a Consumer Proposal. This indicates that our young people lack the preparation to handle a budget or take on debt responsibly. Inadequate financial literacy skills lead to the development of poor financial habits.
A Call for Change
In a nutshell, students and young adults need to learn about setting financial goals. Here are some strategies to get started:
1. Embrace Budgeting
Begin by auditing your income, savings, and assets — these are the resources you have to achieve your short-term, mid-term, and long-term goals.
Next, itemize your fixed monthly expenses such as rent and car payments, and identify your variable expenses like groceries, entertainment, and travel. This allows you to calculate your cash flow by subtracting your costs from your income.
If your objective is to maximize cash flow while maintaining a reasonable standard of living, you’ll need to find ways to reduce variable costs. For instance, you could start cooking meals at home instead of dining out. In the following months, you can streamline budgeting using smartphone apps or a spreadsheet.
2. Kickstart Your Savings
Aim to save at least 10% of your income in a retirement savings account. Retirement might seem a long way off, but the benefits of starting early are significant. The longer the period for compound interest to accumulate, the less you’ll need to save each month to reach your goal.
Additionally, establish an emergency fund in a high-yield savings account that is easily accessible but can still earn you interest.
3. Develop a Debt Management Plan
Create a debt repayment plan and commit to it. Prioritize paying off your most expensive (high-interest) loan first. Remember, credit cards, while necessary in today’s economy for building credit history, can be a double-edged sword. Strive to pay back more than your minimum monthly payment — and ideally, settle the balance in full every month.
The Way Forward
Financial literacy is crucial for students, young professionals, self-employed individuals, and everyone earning an income.
On a personal level, financial literacy fosters independence and self-sufficiency. On a societal level, it enhances overall financial health, leading to a more robust and secure economy. Until such education becomes widespread, we all bear the responsibility to improve our financial skills and help younger generations build confidence with money.
We can start by investing in basic financial literacy courses for ourselves and the younger generation, providing reliable solutions to their financial challenges, and setting healthy financial examples for them to follow.
