6 Ways to Improve Financial Literacy
Just thinking about personal finances makes over 50% of adults anxious.
But financial illiteracy doesn't stop at your bank account balance; it can play a devastating role in other areas of your life too (think: overall well-being and mental health or future opportunities).
On the upside and on a macro level, there is significant economic potential from a population that is financially literate: a better functioning and bigger financial market, bigger pension savings, and better managed and lower levels of debt.
We recently defined financial literacy and its importance, but how do you get there? What should you be doing to gain confidence to make proper decisions or ask the right questions?
No matter what stage you’re at—just starting to sharpen your financial skills, hitting reset on what you know, or upskilling and enhancing your existing knowledge—here are 6 basic concepts to help you build wealth and put yourself in a solid position to make informed decisions and navigate the complexities of personal finance.
1. Educate Yourself & Do Your Research
The foundation of financial literacy begins with education. Take the time to understand basic financial concepts, such as budgeting, saving, investing, and debt management.
There’s an incredible amount of online resources, books, podcasts, and courses available to help you navigate any of these fundamental principles.
If you’re looking for some financial feminism recommendations in particular (because it’s always valuable to learn through an inclusive lens!), take a peek at these books to add to your TBR list.
Additionally, staying informed about current financial trends and economic indicators will enable you to make strategic decisions based on a broader understanding of the financial landscape.
Aside from some go-to media publications like New York Times, Forbes, Fortune, The Wall Street Journal, and The Globe and Mail, a sample of resources we have on rotation around finance, business, tech, and national ecosystem updates include:
2. Learn to Budget
You’ve heard it time and time again, and for good reason: build a personal budget and stick to it.
Understanding and learning to budget is one of the most effective ways to improve financial literacy. A budget helps you track your income, expenses, and savings goals. Listing your sources of income and categorizing your monthly expenses not only helps identify areas where you can cut unnecessary spending but also where you can reallocate funds towards savings, debt repayment, or investing.
Reports find that 60% of people didn’t know how much money they spent the previous month. Regularly reviewing and adjusting your budget ensures you stay on track to meet your financial objectives.
But bear in mind that everyone’s situations are unique.
For one, women have to budget for a higher cost of living as the gender gap also applies to inflation. Men are 33.3% more likely than women to have their salaries keep up with inflation. The notorious Pink Tax is alive and well, and price increases for women’s products are far outpacing men’s.
Budgets need to be built to prioritize your financial future and work with you and your evolving needs (including the reality where the system is stacked against you).
Pink tax: Gender-specific pricing on women’s goods, contributing to the disproportionate financial burden that women face at a time when inflation is hiking up prices for many goods. It can also apply to the practice of inflating costs for women seeking services.
3. Understand the True Cost of Debt
As said, inflation is a growing concern (literally). The prices of everything are on the rise—rent, mortgage rates, gas, groceries, and more—and it’s overwhelming trying to tackle existing amounts of debt that only seems to get bigger, not smaller.
Knowing the true cost of debt is a critical aspect of financial literacy. Take some time to evaluate the interest rates and terms of your existing debts, such as credit cards, loans, and mortgages.
Not understanding how interest compounds and the long-term impact of carrying high-interest debt is one of the most costly mistakes. A report from the National Financial Educators Council found that:
38% of individuals said their lack of financial literacy cost them at least $500 in 2022
15% said it set them back by $10,000 or more (up from 11% in 2021)
The average cost was $1,819 (nearly $500 higher than the average $1,389 in 2021)
Learning how debt affects your overall finances then building a strategy to manage and reduce your debt will free up room in your budget for things such as investing, saving for retirement, and building an emergency fund (and easing your mind).
And speaking of some wiggle room in your budget…
4. Invest Wisely
Investing is a good way to grow your money and a hedge against the realities of inflation. Additionally, financial literacy is associated with higher returns on investments and investment in more complex assets that offer higher rates of return.
But before you start throwing your money into just any asset classes, it pays to have a plan.
Identifying your short and long-term financial goals will help determine which types of investments and planning approaches will be the most suitable and effective to help you save for your needs.
You should be investing to achieve your goals—AKA matching your financial vision with the right investments.
Explore different asset classes and investment vehicles, such as GICs, RRSPs, RESPs, TFSAs, stocks, bonds. Diversifying your investment portfolio is key for a well-rounded, long-term investment strategy and helps spread risk and optimize returns.
Take early-stage investing, for example. Investing in early-stage companies brings the potential for high returns, but it’s also a high-risk investment.
Despite the exciting possibility you could see a return on your investment many times over, it’s more important to approach early-stage investing as just one piece of your portfolio since it’s also possible to lose those dollars entirely.
Your portfolio should be regularly reviewed and rebalanced to align with your changing financial circumstances and goals.
5. Keep Up With Your Credit
If you can’t remember the last time you checked your credit score or read your credit report, here’s your sign.
About half of Canadians have never checked their credit score, and individuals who assume their credit rating is above average are less likely to check their score.
But knowing your ‘creditworthiness’—basically how risky it is to lend you money—plays a pivotal role in your financial health. Regularly monitor your credit report, check for inaccuracies and address any issues promptly. Further, understand the factors that impact your credit score, such as payment history, credit utilization, and length of credit history.
Looking through an inclusive lens in this category, nearly a third of women have had a bad overall experience with credit, which points to a credit gender gap. Considering the gender pay gap and women earning less than men, it makes it more likely for women needing to rely on credit cards to make up the difference—driving up credit utilization and being seen as less creditworthy.
But don’t overlook this: those three digits don’t define who you are. There are some things you cannot control when it comes to your credit score (like credit history), so it’s best to work on being proactive about the things you can.
6. Lifelong learning is the key to financial literacy
It really can’t be emphasized enough: financial education is the key to unlocking the foundations of economic opportunity.
Financial literacy is an ongoing process, starting with a working knowledge of basic concepts followed by the motivation to continue learning as your finances change and become more complex over time.
Enhancing your education or exploring new financial opportunities can take many different forms:
Keep up to date with books, articles, and podcasts
Engage in more money conversations with friends and family (break that money talk taboo!)
Create a community of accountability
Seek out courses and programs to gain new skills
On that last point, when you’re ready for wealth building from an early-stage investing perspective, we offer in-depth programs to do exactly that.
Beyond the 101 of early-stage investing, you’ll learn it all through a women and gender-diverse lens that allows you to align this strategy with your values and champion women and marginalized groups—promoting economic stability.
By embracing the principles of inclusivity and diversity, we can create a world where everyone has the knowledge and skills to make the most of their financial potential—regardless of their background.
Good luck on your financial literacy journey, and keep an eye out on our blog for more resources to supplement your learning along the way.
*Please note that the information provided in this blog is for informational purposes only and should not be construed as investment or financial advice.
