By iA Private Wealth, November 15, 2019
It would be too dangerous to get behind the wheel of a car without knowing the rules of the road or even where the gas and brake pedals are. Yet that’s the way many Canadians “steer” their personal finances, with no real understanding of how money works or how to get it to work for them. Adding to the challenge is that they often don’t recognize their blind spots. An IPSOS poll of over a thousand adult Canadians asked them 15 questions to gauge their financial literacy. Although 78% of Canadians surveyed rated themselves as financially literate, more than half (57%) failed the literacy test1.
Having savings is integral to your well-being, financially and otherwise. Besides being able to cover unforeseen expenses that can pop up regularly, saving enough for big milestones like retirement requires starting in time. If you wait until the last minute, you’re more likely to fall short of your goals or worse – find yourself in financial hot water.
Monitor and control spending
Manage debt effectively
Like your spending, it’s important to have a clear picture of exactly what you owe. That’s because interest can work both for you and against you. You can borrow a small amount of money and end up owing much more than you need to over time as the interest piles on.
Use credit responsibly
When you pay off your credit card on time, all the time, it functions as a handy, interest-free loan that’s more secure than carrying around the same amount in cash. When you only pay the minimum monthly balance, month after month, it becomes an expensive means of buying things. It’s important to understand what you’re getting into, from the interest rate you’re being charged and fees that may apply to what your credit limit is. That way you can appreciate the true cost of your credit card purchases. A general rule of thumb is to never borrow more than 20% of your annual income outside of your mortgage. That said, even if your credit is out of hand, take heart – it’s possible to recover by having a concrete plan for repaying the debt and sticking to it.
The point of investing is to grow your money so that you have more in the future than you have today. How you choose to put your money to work is contingent on your personal situation, including your goals, time horizon and risk tolerance.
Investment choices available to you typically fall into three main categories: cash and cash equivalents (think T-bills and money market mutual funds), fixed-income products like Guaranteed Investment Certificates (GICs) and government bonds, and equities (stocks). In general, the higher the expected return on an investment, the more risk you’ll need to take to achieve that return. Cash and GICs are typically on the lower end of the risk continuum, while equities are on the higher end.
Lessons to last a lifetime
In today’s increasingly complex world of money, financial literacy is more relevant than ever. Dealing with personal debt, planning for longer life expectancy and navigating a growing range of sophisticated financial products all become more manageable when you grasp the fundamentals. Mastering these concepts takes time, but with practice provides a lifetime of benefits. For more information in how to advance your financial literacy, contact one of our Investment Advisors today.