The ABCs of Financial Literacy

November 8, 2017

Financial literacy is a little bit like the weather: Everyone complains about it, but no one ever does anything to change it.

We all know people of all ages who routinely grumble about their own lack of understanding when it comes to investing or financial planning. They’ve typically got any number of excuses for failing to take responsibility for their own financial future. And rather than helping, the vast amounts of information and apps only seem to contribute to a general sense of stress and confusion.

In fact, an AGF investor survey has found that only 25% of Canadians consider themselves to be very knowledgeable about investing. These low financial literacy rates are of particular concern in light of record levels of personal and household debt in Canada.

Financial Literacy Month is a good time to review some of the basics for those who are looking to improve their level of financial literacy.

As with any subject, the best starting point is a willingness to learn and identify a trusted mentor.

At AGF, we’ve always been proponents of the value of advice – consider a financial advisor your financial coach and teacher. Our study also showed that many Canadian investors do rely on advisors at least some of the time when it comes to helping them with decisions about their portfolio; while nearly half said they rely on advisors to make most or all of their investment decisions yet many, as noted earlier, have limited knowledge when it comes to investing. So while investors may be highly satisfied with the relationship they have with their advisor – 70% said they were highly satisfied, while only 3% were dissatisfied — it would serve all investors well to become more financially literate.

What else should aspiring financial literati consider?

First, it’s important to understand that financial plans are as individual as the people they serve. Just because a certain approach worked for a family member or a friend, doesn’t mean it’s the right approach for you.

Every once in a while there will be a new book published by someone who espouses a sure-fire way to get a grip on your money and its management. There may be some helpful ideas embedded in there, but the only one who’s really getting rich quickly is the author. You have to use all your self-awareness to devise a plan that you can sustain over time.

Second, set some clear goals. You are never going to reach your destination – no matter how good your map – if you don’t know where you want to go. Understand that those goals will change, as will the route to get there. You cannot realistically just tick the box beside “financial plan” and expect to be done with it. That’s the beginning, not the end. An annual review and recalibration of that plan is a good idea.

Third, and maybe most important, resist the urge to be reactive. Capital markets can be turbulent, but if you’ve got a well-framed plan and clear goals, stick to them. Selling into a roiling market is seldom a good tactic. On the other hand, if you’ve got clear goals and targets on certain stock or sectors, that same turbulence may present well-priced buying opportunities.

As with any other form of literacy, you don’t learn how to read overnight. But commitment and practice go a long way to ensuring that people do more than just talk about the weather.