Did you know?
This is Financial Literacy Month in Canada. Financial literacy is defined as having the knowledge, skills and confidence to make responsible financial decisions at any stage of your life. The Canada Revenue Agency (CRA) is proud to celebrate Financial Literacy Month and offers the following facts and helpful planning tips.
- 45% of Canadians make a regular monthly contribution to RRSPs. (Source)
- 40% of students have no idea how much they spent or earned last month. (Source)
- Only 47% of Canadians use a budget to plan their spending. (Source)
- In April 2014, the Task Force on Financial Literacy appointed Jane Rooney as Canada’s first Financial Literacy Leader.
- There are a number of free resources and events available for Canadians throughout the month of November to help increase financial awareness and literacy.
Financial Literacy Tips
One: Plan for the future – Help prepare for those unexpected moments in life by saving when you can. A good rule of thumb is to have enough savings to cover 3-6 months of living without an income. Small change adds up, whether it’s taking 10% from every paycheque and putting it into savings, or regularly contributing to an RSP.
By opening a Tax Free Savings Account (TFSA), Canadians who are 18 years of age or older and have a valid Canadian social insurance number can set money aside, tax-free, throughout their lifetime. Each calendar year, you can contribute up to the TFSA dollar limit for the year, plus any unused TFSA contribution room from the previous year, and the amount you withdrew the year before. The annual TFSA dollar limit for 2015 is $10,000.
You can also save by making regular contributions to a Registered Savings Plan, which allows you to save money long-term for:
- Your retirement — Registered Retirement Savings Plan (RRSP)/ Pooled Registered Pension Plan (PRPP)
- Your child’s education — Registered Education Savings Plan (RESP); or
- Disability — Registered Disability Savings Plan (RDSP).
Your contributions to your RRSP/PRPP can give you immediate tax benefits at a time when your income is generally highest and defer taxes to later years when your income is generally lower. The investment income earned in an RSP is not taxed until it is withdrawn allowing it to increase more quickly than it would outside of a RSP. The conditions vary for each savings plan, so learn which one is right for you.
Two: Make your budget work for you – A financial plan can help you keep track of your income and expenses to see where your money is going. By including a payment schedule, you can track your long and short-term financial status, and see if you are meeting your financial obligations and goals. Making a budget and sticking to it is one of the best ways to plan for your future. Like anything else in life, it’s about balance. If you’re having trouble cutting down your expenses or growing your savings, it may be time to re-evaluate your plan. In the end, your budget should be tailored to you and your situation, so make sure it works for you.
Three: Educate yourself and your family about finances – Taking the time to learn about financial planning is the best investment you can make. Financial literacy starts young, so make it a family priority to make sound financial decisions. The CRA offers the course, Learning about Taxes, which covers the importance and impact of taxes. It’s a great course to take with your kids so they can learn about Canada’s tax system. You can also educate yourself about financial planning options and resources with free financial literacy events this month. It pays to be well informed!
Four: Don’t live beyond your means – Learn the difference between luxury and necessity. Financial stability is measured on a long-term scale, so it’s important to make sure your lifestyle is sustainable. Be realistic with yourself and understand what you can’t afford. A suggested emergency savings fund for a household should be able to cover between 3-6 months of living expenses in case of unforeseen circumstances. Being realistic, consistent and honest will help prepare you for a more secure financial future.
Five: Prevent and protect against fraud and financial abuse – Fraud is a growing concern with the increased use of online technology for personal and professional use. Whether you’re banking online or shopping, it’s important to remember that you could be at risk. Ensure that you are taking steps to protect yourself from scams and fraud that could harm you.
- Ensure that you are using a secure and private connection when dealing with sensitive information, and to log off when you have finished.
- Do not open, click or respond to links or messages from unfamiliar or suspicious sources.
- Keep your access codes, user ID, passwords and PINs a secret.
- Report immediately lost or stolen credit or debit cards.
By staying vigilant and following practical tips, you can prevent potential financial and identity theft. For more information on how to recognize and protect yourself from tax scams and fraud, visit the CRA’s Fraud Prevention Page.
Financial Literacy Month offers an opportunity for individuals and families across Canada to strengthen their financial literacy and planning skills. The CRA is proud to support the Government of Canada’s initiative to help increase Canadians’ financial knowledge and to take advantage of the many positive and long-term benefits of being financially literate. Investing in your financial future is the best investment you will ever make, one that will pay off for the rest of your life.