Understanding financial literacy

Knowledge is power—especially when it comes to managing your personal finances. No matter where you are in life, financial literacy can empower you to make informed financial decisions, avoid excessive debt, protect your credit score and reach your financial goals.

Financial literacy refers to all the knowledge and financial capabilities you may need to manage your money on a day-to-day basis and make responsible financial decisions. It can come in handy for everything from wealth management to protecting yourself against fraud.

You don’t need a degree in economics to be financially empowered. All it takes is a good handle on the basic concepts—and the willingness to reach out to a financial professional or a wealth management advisor or consult financial literacy resources for advice when you need it.

Financial education can enable you to do things like make a budget, save money, use credit cards wisely, understand basic concepts like interest rates and reach your financial goals.

The Financial Consumer Agency of Canada certainly recognizes the importance of financial literacy. It spearheads the National Financial Literacy Strategy, a 5-year plan designed to improve Canadians’ financial well-being.

A strong foundation in financial literacy requires some core skills. Budgeting, wealth management and retirement planning are pillars that can support your financial empowerment. Taking these basic steps or talking to a financial professional could help you gain confidence in your money management skills and improve your ability to make informed decisions throughout your life.

Making a personal budget gives you a clear idea of your monthly income and expenses. Staying financially stable throughout the different phases of your life can help you manage your money, meet your financial goals and avoid excessive debt.

Having an emergency fund means you’ve got something to fall back on if life throws you a curveball, like a broken washing machine, unforeseen medical expenses or a layoff notice.

You can build your emergency fund by setting up automatic transfers to a regular savings account or a flexible investment product. What’s important is being able to access your money quickly when you need it. The general recommendation is that your fund should cover your basic fixed expenses for three to six months.

Once your emergency fund is in place, you could choose to resume saving towards goals like retirement, travel or home renovations, just to name a few.

Credit can be very useful—just think of student loans or a mortgage, for example. But it may come with its own set of risks.

Credit card interest rates are high, so only paying the minimum balance could cost you a lot of money in the long run. Plus, credit cards and things like high-interest loans can also make it tempting to live beyond your means.

Late payments and frequent loan and credit applications can put a dent in your credit score. That’s why it’s always important to practise sound debt management to keep your finances on track.

Financial literacy also means getting up to speed on tax-sheltered savings plans for your retirement. They include registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs). When you retire, it’s a good idea to plan your retirement savings withdrawals and factor in the tax implications, based on your situation.

Being able to detect fraud attempts and knowing what to do when they happen can also be important parts of financial literacy. It’s wise to strengthen your financial security by staying up to date on the most common strategies scammers use to steal your personal and financial information. It may also be helpful to learn how to prevent phishing, protect yourself from identity theft and recognize other scams.

A big part of money management is sticking to your budget. Using tools like a spreadsheet or the Your budget tool to keep tabs on your monthly income and expenses can help you maintain a balanced budget. 

Adopting healthy financial habits may be easier than you think. If you’re a Desjardins member, one way to begin your financial empowerment journey is by taking advantage of the Budget tool from Alvie, the virtual assistant in the Desjardins Mobile Services app. 

Financial educational materials, like this Financial literacy self-assessment quiz from the Financial Consumer Agency of Canada, are helpful ways to improve financial literacy. You can assess your current status and step up your financial savvy and resilience.

Teaching financial literacy for kids can spark children’s curiosity and help them develop solid financial habits and gain confidence in their ability to manage their money.

The earlier kids are exposed to financial education, the more likely they are to adopt sound financial behaviours throughout their lives, like managing their pocket money, handling their first financial responsibilities and planning for their post-secondary education.

Financial education programs like Personal Finance: I’m in Charge and a number of different financial literacy initiatives from Desjardins are designed to improve financial literacy for students and help financial consumers of all ages become financially empowered.

Difficult situations and a lack of knowledge about how to deal with them can cause financial stress. But there are simple ways to regain control of your finances.

Start by making a budget. Consult trustworthy sources to improve your debt management skills and take advantage of financial education resources.

Keep an eye out for advice and online financial wellness programs. They’re held year-round, and especially in November, which is Financial Literacy Month. You can also check out a variety of tools and resources from the Government of Canada to learn more.

Improving your financial literacy can increase your confidence and help you steer clear of excess debt, protect your credit score, prepare for the unexpected, boost your financial resilience and outsmart scammers. Remember, you don’t need to know everything—financial professionals can offer support as you move through the different stages of your life.

Want to learn more? Personal Finance: I’m in Charge