Money Matters: Are You Financially Illiterate?
Protect your investments A new survey from BlackRock, the world’s largest asset management firm, explored the investment and saving habits of Canadians.
The BlackRock Global Investor Pulse survey, the largest of its kind, polled 1,000 Canadian investors across all income brackets revealed that while most Canadians recognize the need to save for their future, many aren’t taking the necessary steps required today to meet those goals.
Of the many challenges Canadians face when seeking to secure their financial future, the rising cost of living, economic uncertainty, and large debt loads posed the biggest risks. Improving one’s financial literacy can play an important role in helping to navigate and overcome these challenges, and help Canadians meet their retirement objectives
"For those who aren’t sure where to invest their money, and lack the time to do it themselves, seeking guidance from a financial professional may be the right option for them."
Understanding your options
“There are two levels of financial literacy,” says Bruce Sellery, author of the bestselling series Moolala. “The first is what most people think of, which is: what do financial terms mean and how do things work? The second level, which is even more important, is: what is going on in your own life?”
According to a 2009 Statistics Canada test, Canadians scored an average of 67 percent on their financial knowledge. Within this, questions such as “who insures your stocks in the stock market?” (Answer: no one) only 38 percent of the respondents answered correctly. On average, Canadians with a household annual income of less than $67,000 scored far worse on the test than those with household incomes greater than $67,000. In order for Canadians to prepare for their financial future, they must first develop a better understanding of the types of investments available to them.
When evaluating the financial options available to you, understanding the differences between different investment vehicles, such as mutual funds and exchange traded funds (ETFs), is an important first. For those who aren’t sure where to invest their money, and lack the time to do it themselves, seeking guidance from a financial professional may be the right option for them.
According to the BlackRock survey, only 29 percent of Canadians currently use a financial advisor, but of those, 96 percent are satisfied or very satisfied with the results.
Taking stock of your future goals and present situation
In truth, much of financial literacy comes down to simply having a solid understanding of your own financial goals and a comprehensive knowledge of your current financial situation. According to BlackRock’s survey, more than a fifth of Canadians say they spend no time at all reviewing their savings and investments. Just as vitally, most Canadians do not have a clear picture of their retirement savings goals or how to accomplish them.
“If your goal is fuzzy, then your understanding of the short term steps to get there will be equally fuzzy,” says Noel Archard, head of BlackRock Canada, emphasizing the need for very specific goals. “If you decide in your head, however, that you want a certain monthly income when you retire, then with a few relatively simple assumptions you can walk backwards and determine how much you need to be setting aside each paycheque.”
Having a clear retirement savings goal and investing those savings in a mix of growth vehicles that match their risk tolerance is the most impactful step Canadians can take to secure their financial future. It is also important to separate retirement savings from other savings. The survey showed that Canadians are holding a large percentage of their savings in cash (62 percent). Ultimately, these undifferentiated savings are quickly eroded by rising cost of living and unforeseen life events. Everybody needs some cash savings, but the bulk of your retirement savings should be working for you to ensure you maximize growth and wealth over time.
You can’t save for tomorrow tomorrow. Develop a plan, and begin the process of saving and investing early to ensure you reach your retirement goals. Financial literacy is an integral step in this process.