One of the things that the Canadian education system fails to teach our young kids are the lessons related to financial literacy. It’s quite bad if you think about. Most kids will grow up knowing how to read, write and do arithmetic but when they get older they won’t even know the basics of how to open a bank account, how income taxes are calculated or what a TFSA account is.
It’s a failure not only on the part of the school system, but parents as well. Parents will teach kids that the only way to a healhty retirement is to buy a home, put your money away in a high interest savings account and pray it doesn’t run out. This worked well for the previous generation of Canadians where houses cost 3 times salary and perhaps $150K total to buy that first home. Not to mention that GICs back in the day actually earned you a decent interest rate of 6-7%. Well not anymore!
This has really created a large walking zombie population of financial illiterate individuals. The reality is, we neglect our financial knowledge. We simply refuse to learn, because there are so many distractions around us that amuse or warrant our attention. The latest computer game, the latest music festival or the latest iPhone all serves to distract us away from the need to actually learn about personal finance.
Lack of Credit Knowledge
Perhaps one of the scariest thing that Canadians fail to understand is how to manage their credit. Most Canadians think of their debt as assets. That’s because debt is used to buy real assets like houses, cars or furniture. There’s something tangible there that you can touch, so people think they actually have assets when in fact it’s all financed by debt.
It’s all a mirage because individuals don’t own these things. These physical things are bought using borrowed money. Borrowing money to buy things is essentially borrowing from your future self to get something you want now. It may seem like a good thing at the current moment, but your future self will regret it down the line when you’re paying for things you no longer want or use.
This ignorant thought that credit is assumed to be an asset is a scary thought. It’s no wonder Canadians continue to gobble up the free money that the banks and credit unions are willing to offer like an all you can eat buffet. That’s why the average Canadian is at 167% debt to income ratio. That means on average each person owes $1.67 for each dollar they earn. Since I’m not in debt, that means some poor fellow owes $3.34 per dollar they earn. Let’s just take a moment of silence for that person right now.
One of the craziest things I experience talking to individuals about personal finance is the lack of motivation. “I know I should do something… but I haven’t gotten around to doing it.” What else are you doing with your free time? Is your financial well-being not important enough to even take a couple of hours a week to learn?
One of the most frustrating scenarios I encounter are individuals who have accumulated a large amount of savings, but just not doing anything with it. You are wasting the potential of that money to work for you! Don’t hesitate because if there is one thing you can’t get back in life is time. You can miss your TV show and watch it later on Netflix, you can always catch the next train if you miss the first one, if you miss 5 years of compound interest growth you will never get it back. The longer you take to learn about proper financial management, the larger the opportunity cost will be.
Start talking to your family members and your peers and start sharing your financial knowledge. One of the best ways to learn is to learn from the experiences of others. Unfortunately, finance and money has always been such a taboo subject. It’s like we all like to be judged by the amount of wealth we have accumulated rather than discussing how to help each other instead.
There are so many good resources that are out there. Go pick up many of the great books that are out there. Many financial blogs are devoted to helping individuals balance their lifestyles to meet their needs. Even the Canadian government has a good site to get you started (Canadian Financial Literacy).
You have to remember that everyone is different. That’s why it’s important for you to learn for yourself. You can’t replicate someone else’s success because so much about personal finance is based on emotional behaviour. We’re all built differently, so we are all going to want different things and react differently to different situations. The only thing we can do is prepare ourselves from the unknown.