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Daily Banking

What is financial literacy?

May 19, 2023
3
min read

With a better understanding of financial literacy, you can reduce your stress, grow your savings, and lower your debt load.

Woman reading book and holding mug

If you’ve spent time reading about personal finance, then you’ve probably come across the term “financial literacy” before.

But how confident are you in your financial literacy skills?

The way you manage money affects many areas of your life, from your everyday purchases to the debt you may carry.

And if you don’t have a firm grasp on financial literacy, you may constantly second-guess your choices, feel uneasy about your spending habits, or worry that you’re stuck with debt.

Understanding your finances puts you in the driver's seat. It empowers you to:

  • Resist impulse purchases by understanding your financial priorities.
  • Set savings goals, such as retirement, buying a home, or paying off debt.
  • Feel confident about how you use your money.
  • Become more financially stable and lower your stress levels.

Today, we’re covering financial literacy for beginners. Getting started is easier than you think.

What does financial literacy mean?

In general, it refers to how well you understand different concepts in personal finance. But it goes beyond just knowing.

Financial literacy is also about doing—putting what you learn into action to make smarter choices with your money.

A better question might be: What does financial literacy look like?

It’s making a budget for yourself.

It’s paying down debt and cutting back on unnecessary spending.

And it’s thinking carefully about the most effective ways to grow your savings, whether that’s by investing or opening a high-interest savings account.

Why is financial literacy important?

Without financial literacy, you may feel overwhelmed about how to manage your money—and end up in a worse financial position because of it.

For context, here are a few quick stats on debt from the most recent Canadian Financial Capability Survey:

  • 73% of Canadians have some kind of debt.
  • 31% believe they have too much debt.
  • 17% say their monthly spending is greater than their income.

Numbers like these go to show why financial literacy is so important.

How to improve your financial literacy

For many people, financial literacy isn’t something they learned in school. It’s something they gained through experience.

With that in mind, here’s how to brush up on your money management skills:

Start with a budget

Before you can decide if you need to change the way you spend money, you need to figure out where it’s going. That means you need to write it all out.

First, figure out your monthly income. Then, subtract your monthly expenses.

This includes your fixed expenses, like rent and utility bills, and your variable expenses, like eating out or subscriptions to streaming services.

Now you can see what’s left by the end of the month. If it’s not enough to meet your savings goals, you can try to reduce your variable expenses.

For a more detailed look at your finances, try the Government of Canada’s Budget Planner tool.

Make a debt plan

Whether you’re paying off a car loan, credit card debt, or a student loan, you can make a debt plan to pay it off sooner.

Saving and investing money is great—but if you’re also paying high interest on your debt, it may make more sense to pay off that debt first.

This way, less of your money goes towards paying debt (and interest on that debt) and more of it goes towards your savings.

Check out our blog on tackling your debt.

Set aside emergency savings

An emergency fund gives you a financial safety net. It’s a way to prepare for things like losing your job, falling ill, or any unexpected expense.

In general, try to set aside enough money to cover 3-6 months of expenses. That’s a lot right off the hop, so you can start small; for example, start by trying to save $1,000.

Finally, keep your emergency fund in an account that’s easily accessible and won’t fluctuate in value too much (because you might need to draw from it at a moment’s notice). With a Cambrian Premium Savings Account, you can earn interest and still withdraw your funds at any time.

Follow Cambrian’s blog & social media

We’re always sharing free financial literacy advice for our members, helping them gain a deeper understanding of their finances. It’s part of our commitment to member-focused service.

Be sure to follow us on Facebook, Instagram, and LinkedIn to stay up-to-date on what we’re posting. And check back on our website for more financial literacy content – we publish new blogs every week!

Get in touch with a Cambrian Advisor

Financial literacy puts the power back in your hands. It takes discipline. It takes consistency. And sometimes, it takes sacrificing something you want for something you need.

We can help you get there.

Whenever you have questions about buying a home, taking out a loan, or investing, we’re happy to help. Contact us to meet with an advisor today!

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