The state of financial education

As kids, teens, and university students head back to school in September, it’s a great time to reset and refocus on our goals for the year ahead. The economy is top of mind for almost everyone these days, and the landscape feels more complex than ever. How can we feel confident in creating and following through with a solid financial plan when we’re getting conflicting information from all directions?

The rising cost of living, increased debt utilization, and a rapidly changing financial marketplace is finding many Canadians seeking more from financial education than they got growing up.

The current economic climate in Canada

Canada’s economy has been particularly newsworthy lately. Housing affordability is a top concern, with many Canadians struggling to enter the real estate market in the first place, manage higher interest rates, or find an affordable rental in a competitive market. While younger generations in major markets wonder if they’ll ever own a home, the affordability challenge has trickled over into communities of all sizes across the country. On average wages are not keeping up with the cost of living, so more Canadians are turning to credit card debt and other loans to stay afloat.

What’s the buzz: demystifying common economic terms

You might be hearing these terms in the news and around the water cooler.

Austerity: Economic policies put in place by governments to reduce budget deficits. This often includes public spending cuts and tax increases.

Inflation: The rate at which the prices for goods and services is rising. With inflation, the purchasing power of each dollar goes down.

Interest rates: The cost of borrowing money. Interest rates are set by central banks to manage inflation and economic growth.

GDP (Gross Domestic Product): The total value of goods and services produced by a country in a given period. You’ll often hear this in the context of GDP per capita, or total GDP.

Real GDP growth: A measure of economic health defined by the inflation-adjusted increase in a country’s total economic output.

Recession: A significant decline in economic activity lasting more than a few months.

These concepts and others are important for understanding what is happening in our economy and making the best financial decisions for your family.

Financial education in Canada

If you’re a parent, you’ve likely found yourself forced to explain at some point that money doesn’t grow on trees. Totally unfair, we know. While the situation is starting to improve, many Canadians still feel underprepared to manage their finances optimally. A survey by Edward Jones Canada revealed that less than half (46%) of Canadians surveyed believe they were adequately prepared to navigate their finances when they graduated from high school. Among younger Canadians aged 18-34, that number was only 40 percent.

How does Canada measure up to our counterparts around the world?

Canada has called for a 5-year National Financial Literacy Strategy for 2021-2026 to make financial literacy more accessible, inclusive, and effective. Internationally, Canada ranks lower in financial knowledge compared to the Netherlands and Australia, where financial literacy rates are significantly higher. For example, a study by the OECD (Organisation for Economic Co-operation and Development) reported that 62% of adults in the Netherlands demonstrate strong financial literacy skills compared to only 30% of Canadian adults. While our knowledge and practice around budgeting and saving for retirement is concerning according to a Government of Canada report, about three quarters are saving for their kids’ education with an RESP–a great sign of hope.

Do you have a young adult starting off on their financial journey?

For those moving out or starting university in September, now is the perfect time to brush up on the basics and start saving early. There are a few key areas that will make a huge difference to young people just starting to earn their own money or kicking off their careers.

Start budgeting: Get used to setting goals and tracking income and expenses to understand how earning, saving, and spending patterns look in real life.

Build an emergency fund: Saving 3-6 months of living expenses for unexpected costs is good advice at any age or life stage.

Understand student loans: Work with your kids to make sure they understand repayment terms and interest rates.

Learn about credit: Understanding how credit works and using it responsibly are great skills to have early on. There is no time like the present to start building a good credit score.

With only 40 per cent of young Canadians aged 18-34 feeling that they graduated with a good financial education, parents need to play a role early. Remember that some things you might take for granted, like using credit responsibly, may not be obvious to young people just starting out. Sure, they can live and learn from their mistakes like many of us did, but why not set them off on a prosperous path from the start.

Financial education has always been important, and more and more Canadians are feeling like they could be better prepared. As always, we’re here to help.