There’s something about money that makes people squirm. Like the “sex talk,” the “where money comes from” talk is something that doesn’t happen in every household. But how did money become such a dirty word when being financially literate is so important? Whether we’re graduating from school, renting our first apartment, starting a family, launching a start-up or retiring, our finances are tied to nearly every major benchmark in our lives. And with the payoffs being so big and the losses being so devastating, it’s time we stopped settling for half-truths and financial advice from the wrong sources. Instead, let’s start exploring what it means to be well informed about financial matters—starting with learning the lexicon needed to begin the conversation.
Being financially literate means having the knowledge and skills to make effective choices about managing money. In 2015, the Canadian Bankers Association conducted a nationwide study on financial literacy, where participants were asked five multiple-choice, financial-knowledge questions. Overall, 13 percent of participants got all 5 questions correct, and 1 in 3 failed to get more than 2 questions correct.
Based on this study, it seems that an awful lot of Canadians don’t have enough financial knowledge to plan their finances properly. The good news, however, is that it’s never too late to learn.
Financial literacy is all about asking questions and doing old-fashioned research. “You have to do your homework,” says Mark Brunelle, a certified financial planner with 18 years experience.
“Unfortunately, I often see people spend more time planning a holiday or researching which new fridge they are going to buy than establishing a financial plan.”
Brunelle says some clients are reluctant to open up to an expert about financial matters, often because they feel they aren’t where they should be financially,
“Money is tough to talk about. I had a good friend of mine tell me that he never asked me for my advice as an expert because he was too embarrassed at the poor state of affairs his financial house was in.”
Even though Brunelle feels that people should talk more about money in general, he points out that being guarded in some circumstances is also wise. “We live in a social-media world where people are sharing everything with everyone, so there is a line when it comes to sharing things about our finances. But that being said, we do need to be more open to talking about money with the important people in our lives and with professionals.” Knowing when to talk and to whom is part of being money wise throughout life.
Our lives and financial needs are constantly changing. As we reach certain benchmarks along the way, it’s important that we adjust our budgets and financial plans to fit our circumstances and life goals. Here’s a look at the financial considerations you’ll want on your radar from childhood to retirement—a roadmap to building a healthy relationship with managing and talking about money.
From the time we are five years old and being given money, we start to learn the basics about saving and spending. Many experts say that somewhere between the ages of 6 and 10 is the right time to help your child open his or her first bank account. Around these ages, your child can start to grasp the concept of saving and accumulating interest.
At most banks, anyone over the age of 12 can open his or her own account. This is also the age many kids get their first jobs or earn an allowance from their parents, so it’s a good time to get started with a chequing account. Kids this age should also be learning how to manage that account by doing old-school transactions at the bank, as well as learning to keep track of their money with online banking systems and bank statements.
When it comes to kids and money, Brunelle says it’s most important that parents lead by example,
“We learn so much from our parents. If your kids see you saving, they will learn from an early stage. You have to walk the walk. It’s like, you can’t smoke and then tell your kids not to. They see [how you manage your money] and will learn from that.”
When we enter adulthood, our finances get more complicated. We have to learn how to manage expenses we didn’t necessarily have to think about before, like rent, transportation costs and groceries. You should be learning how to create—and stick to—a household budget at this stage.
Your twenties also marks the first time you might be thinking seriously about long-term goals such as completing your education, splitting rent with others or even buying a home. You’ll likely start to accumulate some serious debt at this age (student loans, for example), but it’s also an age when you begin to establish credit by paying your bills on time. Now is also the time not to spend everything you make.
In your twenties, it’s easy to put off saving for the future; however, it’s important to develop good financial habits while you’re young. “Later is always coming,” says Brunelle. “There are two types of savers: those who save and spend what’s left, and those who spend and save what’s left. Young people need to start the habit of saving right from that first pay cheque. Treat your savings like an expense. Have a systematic payment come right off your cheque.”
Marriage is another milestone many people experience in their twenties. Brunelle says it’s important to communicate with your partner about money from the start, “I always start my meetings [with new clients] with a questionnaire. Each spouse fills it out and [when we go over it afterward] one is thinking they will retire at 50 and the other says 70, so maybe they should talk.”
Speaking of retirement, now’s the time to start planning for it. In Canada, the primary ways to save for retirement are to contribute to a registered retirement savings plan (RRSP), which lets you contribute up to 18 percent of your annual income to a maximum of $24,930, or to contribute to a tax-free savings account (TFSA), which allows up to $5,500 a year. And though the perception is that saving more money will be easier when you’re making more money, saving money is never effortless! In fact, freeing up 18 percent of your income is often easier in your twenties before children and mortgages start weighing heavily on your income flow. Start early.
When we enter our thirties, many of us are more established in our careers, are becoming homeowners and are starting our families. As we reach these benchmarks, our financial outlook will change quite drastically.
At this stage in life, you should start protecting your finances: purchasing life, disability and critical illness insurance, drawing up a legal will, reducing your debt and starting an emergency fund. You should also be accumulating some wealth: buying property, contributing regularly to RRSPs or mutual funds, saving for your children’s education and learning to invest money.
A lot of life changes may be happening at this age, but Brunelle says to take things one step at a time. “Maybe you buy a house or a car or have a baby. It’s time to prioritize your spending. Remember, you need to walk before you can run. Start with protecting yourself and your family financially, and build your way up from there.”
As we enter mid-life, we become even more established in our careers, which hopefully means we are earning more money, too.
With your finances protected by the work you did in your thirties, you should be continuing to accumulate wealth, but be adjusting your budget as your financial circumstances change. “Your savings should go up with your income,” says Brunelle. “If you’re at a point in life where you can afford to spend a little more, you should also save a little more. Think of it as more of a percentage than a fixed amount, around 10 to 15 percent, and then you can split that up depending on your goals and objectives.”
Life and family dynamics can change completely when we reach our fifties. Many of us are in the kids-leaving-home phase. No longer supporting a family, you may notice your expenses start to decrease at this stage. At the same time, the prospect of retirement is closer than ever before. To prepare for this stage, you should still be focused on financial growth and diversification—paying down your mortgage, contributing to your savings plans and investing.
You should also be making sure you’re financially ready to retire when the time comes.
“It’s time to have a close look at your retirement plan and make sure things are on track,” says Brunelle. “Hopefully you’ve been trickling some money into retirement savings already. Again, it’s time to revisit your budget; it should change as your life does.”
According to a 2015 Statistics Canada study, the average age for retirement in Canada is 63, and one in eight Canadians over 65 still work. If you have a retirement goal in mind, it’s important to crunch the numbers early on (in your twenties) to get an idea of how realistic you’re being about how much you’ll need to save and when you need to begin. “It’s never too late to start saving for retirement, but the best day is yesterday and the second best day is today,” says Brunelle.
And if you’re planning to rely on your Canada Pension Plan (CPP) or Old Age Security (OAS), you may want to reconsider. CPP pays out a maximum of $1,114.17 a month (and not all retirees are eligible for the maximum amount). OAS payments max out at $583.74 a month.
“Retirement isn’t a right, it’s a privilege. If you don’t have money saved, you can’t retire. Many people think they can live on their pension or old age security, but subsistence living is just barely getting by. If you want to go on a trip or you want to renovate, you will need some extra money.”
Overwhelmed by the roadmap? That’s probably because it’s a little overwhelming. And that’s okay. What’s not okay is thinking you can’t manage it. Many people fail to plan their finances (or do a poor job of it) because the financial world can be so complex. From researching mortgage rates to understanding savings and investment options, to choosing the right insurance, financial management can feel overwhelming. The good news is, working with a qualified financial professional you trust can make things much easier.
But, how do you know if you’re working with the right advisor? Brunelle offers this advice: “If I could tell people one thing, I’d tell them to research their financial advisors. Make sure you are working with licenced professionals who are accredited properly.”
Brunelle also warns people not to be fooled by flashy sales pitches or too-good-to-be-true “guaranteed” offers.
“Unfortunately, too many people get taken in by these types of things. Your financial advisor should be taking his or her own advice and buying the same products he or she is selling to clients.”
In the end, whether we’re flush or financially strapped, we’ve all got money on our minds. It’s time to open up about our finances and help each other stay on track to a secure financial future. t8n
When it comes to finances, gender should not determine decision-making power. However, in many households this isn’t the case.
“In a lot of families, men want to take the driver’s seat [when it comes to finances], but it’s very important that women make sure they are involved in all financial decisions,” says Brunelle. “All parties at the table need to have a say in what’s going on. Statistically, women outlive men. If they don’t pick up [financial knowledge], they won’t know what to do when they’re on their own.”
According to a 2012 Statistics
Canada study, 71% of Canadian families had at least some debt (including both mortgage and
consumer debt). That number was up from 67% in 1999.
The same 2012 study found that the median debt for Canadian families was $60,100 (up $23,400 from 1999).