Young Canadians need to develop financial literacy skills. Here’s why

2022-10-05  5 minute read

Alana Orrell

Debt Solutions

Every young Canadian needs the basic financial management skill to invest in their career, build a nest-egg for retirement and enjoy their lives free of unmanageable debt. This makes it increasingly important for the government to prioritize their financial future. Unfortunately, Canada’s public education system has historically fallen short in providing the practical knowledge young people need to manage their money effectively.

According to a survey released by TD Bank in October 2021, 33 percent of Canadian parents aren’t confident they’re setting a healthy financial example for their children. The survey also revealed that 45 percent of Canadian parents surveyed don’t have a household budget — and only 29 percent consider their household to be in “excellent” or “good” financial health.

man reviewing documents

Money as a taboo subject

We’ve long been conditioned to not talk about money in polite company. Parents, therefore, rarely have financial conversations with their children. And when they do, they often feel it’s easier to accentuate the positive and downplay the negative. This may make the conversation easier, but it doesn’t set anyone up for the cold realities of trying to keep a household afloat.

When it comes to debt, silence is often a product shame. There’s an unshakeable stigma that those who take on too much debt are indulgent or reckless with their finances. When asked why they beat themselves up about their debt, many will look past the factors beyond their control and simply say they feel they should have known better.

Yet the only way to know better is to be financially literate.

Some Canadian schools are trying to include more financial literacy content in school programs. And for the under 25 group, many are using social media as their go-to source of financial information.

But is this enough?

The effects of financial illiteracy on young Canadians

The absence of sufficient financial education in the Canadian education system has quantifiable effects on the financial life of young people.

Here’s a breakdown of 2021 insolvency filings by age group, according to the Office of the Superintendent of Bankruptcy:

  • 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 sobering to think a quarter of those aged 18 to 34, who are barely at the start of their financial lives, are needing to file a Bankruptcy or Consumer Proposal. This is a sign our young people are ill-prepared to handle a budget or responsibly take on debt. Poor financial literacy skills lead young people to developing poor financial habits.

What needs to change?

Simply put, students and young adults need to learn about setting the following financial goals.

Here are ways you can start:

1. Have a budget

Conduct an audit of your income, savings and assets — these are the resources at your disposal to achieve your near, medium, and long-term goals.

Next, make a detailed list of your fixed monthly expenses such as rent and car payment, and identify your variable expenses like groceries, entertainment and travel. Now you can calculate your cash flow by subtracting your costs from your income.

If your goal is to maximize cash flow while maintaining a reasonable standard of living, you must find ways to minimize variable costs. For example, you can start preparing your meals at home instead of eating out. In subsequent months, you can start budgeting using smartphone apps or a spreadsheet.

2. Jumpstart your nest-egg

Attempt to save at least 10 percent of your income in a retirement savings account. Retirement may seem eons away, but the benefits of starting young are exponential. The longer the timeline to accumulate compound interest, the less you’ll need to save each month to reach your goal.

You should also set up an emergency fund in a high interest savings account that is easy to access but able to give you accrued interest.

3. Create a debt control plan

Set up a debt repayment plan then stick to it. Focus on paying off your most expensive (high interest) loan first. Also, be aware that credit cards are a necessary evil in today’s economy as you need to demonstrate a credit history to build your credit score. Commit to paying back more than your minimum monthly payment — and ideally paying the balance in full every month.

What we must do

Financial literacy is vital for students, young professionals, the self-employed and everyone who earns an income.

On the individual level, financial literacy helps people become independent and self sufficient. At the society level, it elevates overall financial health leading to a stronger and secure economy. Until financial education becomes commonplace, we each have a responsibility to improve our own financial skills and help younger ones build some confidence around money.

We can begin by investing in basic financial literacy courses for them and ourselves, proffering reliable solutions to their financial challenges and setting healthy examples for them.

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