Where to Start with Financial Literacy

Whether you have a hard time managing your money or can use improvement in a particular area, financial literacy is something everyone can use more of. Those that learn the basics are less likely to run into issues and better manage their finances.

What is Financial Literacy?

Financial literacy is about developing a set of skills to help with managing personal finances by making informed decisions. Those that have a good grasp of financial literacy not only have the knowledge, confidence and skills to manage their money more effectively, they are also more likely to better manage their debt, savings and credit score. Unfortunately, personal financial management is not taught in schools and most parents do not have the skills themselves to pass onto their children. The result? It’s up to you to arm yourself.

The key areas of financial literacy include:

  • Budgeting
  • Saving
  • Debt
  • Banking

Many people struggle with financial literacy, which can lead to uniformed decisions that can create issues like living paycheque to paycheque, having a poor credit score and debt that might have been avoided. Unfortunately, most of the people involved in personal finance are just specialized salespeople at the end of the day so their incentive is to sell you what makes them the best commissions and that may or may not be what is right for you. So, let’s start with some of the basic areas of financial literacy.


A smart place to start for financial literacy is to get a good grasp on budgeting. This will also impact how much you might save or can put towards paying down your debt so it’s recommended to educate yourself here first. 

Being able to properly budget for your income and outgoing expenses allows you to determine how much you can save, how much can go towards paying debt, and how much you might have for things like entertainment, shopping and similar. Budgeting and tracking your expenses can be challenging, but there are a number of finance apps that can be helpful and make it easier to stay on track.

RELATED: How to Money – Budgeting Basics


As you begin to gain control over your finances and managing your money, saving becomes more obvious in the role it plays and its importance. Before saving for that big purchase, retirement or anything else, ensure you have saved an emergency fund, which most can use at some point. Having enough for most unexpected repairs or other expenses is a starting point. It’s advised that you eventually grow that so it might cover your bills and living costs for six months in case you were to find yourself unemployed and without an income. 

As you progress in your savings you should consider other ways you can put away money, including retirement. Many experts advise putting as much as 20% of your income towards your savings.

RELATED: Guide to Saving Money


Most people carry some debt. This is often loans for home or cars, but can also be credit cards, line of credit or other types of loans. The average amount of personal debt is about $21,000, excluding mortgages. The average household debt-to-income ratio is $1.82 in credit market debt and one of the highest in the world. 

In Canada many are ‘house rich, cash poor,’ meaning that homeownership related expenses take over 40% of their income and this leaves less money for bills and other things. For some this can make it difficult to pay down debt and lead to living from paycheque to paycheque. 

A main focus of managing your personal finances should be to focus on paying off debt so that you are able to put the money to better use, such as saving or investing. Any time that you take a loan, you should choose the shortest term possible as it will cost less to borrow. 

RELATED: 7 Debt Mistakes to Avoid

Banking Basics

Most Canadians have at least one bank account, but the unbanked and underbanked do exist. Having an account is safer than saving cash at home. Also, it can be necessary if you want an unsecured credit card or debit card, and some employers can require it so they can deposit your paycheque. 

Your banking choices can include online banks, retails banks and credit unions. They all have their pros and cons so it pays to shop around when trying to choose an option. Some might not have certain charges or fees, while others might have higher interest rates or other perks. 

The two main types of banking accounts are chequing and savings. With a chequing you are usually entitled to make more deposits and withdrawals. With a savings account, you would park some money here for saving. Most households will have one of each.

Other Aspects of Financial Literacy

In addition to budgeting, saving, dealing with debt and other topics, financial literacy can also involve investing and retirement. 

There was a time when retirement plans meant relying on pension plans. Nowadays, few are offered this option and are more likely to see employer contributions to RRSPs. Those without a plan may think the Canadian Pension Plan (CPP) will get them through retirement but will find this won’t support them and to be more supplemental. A good retirement plan includes savings and investments and financial literacy will help with setting you up for success later in life.

When it comes to investing, there are a few ways to put your money to work. These can include stocks, bonds, funds, real estate, GIC’s and other options. Your investment returns are often tied to the level of risk, and you should not invest more than you can afford to lose. 

RELATED: How to Get Started with Money Management

Benefits of Financial Literacy

When you have developed a good understanding of financial literacy it can empower you to make better decisions, take control of your finances and pursue financial goals that can help with planning and your future. 

An example being that you were able to pay off your debt and improve your credit score, which could make you eligible for better interest rates should you choose to borrow later. Being able to budget while saving more may bring you closer to your goals, from home ownership to just about anything you can imagine.

Financial literacy is a worthwhile use of your time as it helps with making wise choices with your finances, and likely to help avoid falling into debt too much.



Wizard of words, macchiato maven, soothsayer, naysayer, aspiring wordsmith and Head of Content Marketing at GoodCheddar.