presented by Andrea Poole An Educational Session sponsored by Chartered Professional Accountants of Canada (CPA Canada)

presented by Andrea Poole An Educational Session sponsored by Chartered Professional Accountants of Canada (CPA Canada)

Agenda Introduction What is Financial Literacy? Why is Financial Literacy important? Social Problems with Financial Roots Ten Healthy Habits of Financial Management Resources Q&A 2

What is Financial Literacy? Financial Literacy Knowledge, skills and confidence to make responsible financial decisions at every life stage. 3

Why Learning About Money is Important Financial literacy is critical to the prosperity and well-being of Canadians. It is more than a nice-to-have skill. It is a necessity in today s world and, moving forward, should be treated as such by policy-makers, educators, employers and other stakeholders across the country. The time for action is now. Canadians and Their Money Canada s Financial Literacy Task Force, Dec. 2010 4

Social Problem with Financial Roots 31% of Canadians who borrow money/carried a credit card balance are borrowing at premium rates of 8%+. 17% of adults borrowed to cover day-to-day expenses, and 42% still owe. 63% cut back on day-to-day spending e.g. eating out, shopping, vacations, groceries. More than 50% are saving less than 10% of income. I d like to be better with my money, but it s difficult. I don t know how or what to do. And it s no fun. I have a high credit limit. It s so easy too easy to spend. Statistics are from CPA Canada Harris/Decima Canadian Finance Study 2012 5

Social Problem with Financial Roots Only 22% grade their financial knowledge as A; average grade is B-. Although 77% have budget, only 32% stick to it. I make a budget. Sticking to it is a problem. Temptation is everywhere. 30% have been victims of financial fraud. 85% felt youth not prepared to deal with financial matters when entering workforce. 50%+ have not put aside enough funds for retirement main reason (39%) lack of funds. I know I should save for retirement. But if I do, I can t pay my bills, or go on vacation. 6

Healthy Financial Habits Financial Fitness Self-Assessment The Ten Healthy Habits of Financial Management Tips and resources to help get your financial house in order 7

Ten Healthy Habits 1. Know Where you Stand Financially Net worth Everything you own Everything you owe Cash flow All income/cash coming in all outflows Use a detailed budget to control outflows 8

Ten Healthy Habits 2. Live Within your Means Arguably, the most important lesson you can teach your kids. Walk the talk. Don t spend more than you make. 9

Ten Healthy Habits 3. Save/Pay Yourself First Automatic monthly transfer to a designated account (savings, RRSP, TFSA). Get used to living without this money. Spend only what remains. Cover your overhead expenses first (rent, mortgage payments, utilities, groceries). Remaining funds go towards discretionary spending (restaurant meals, entertainment, vacations, hobbies or additional savings). 10

Ten Healthy Habits 4. Credit Wonderful tool when used responsibly More convenient than cash or cheques. Credit history enables you to make big purchases at a reasonable interest rate. Even with good debt, never take on more than you can afford. Have a plan to repay any debt within a reasonable period of time 11

Ten Healthy Habits 4. Good Debt vs. Bad Debt GOOD DEBT Used to purchase an asset that adds to your net worth. Potential to go up in value (appreciate). e.g. Home mortgage, student loans. BAD DEBT Used to purchase consumption goods that decrease net worth No resale value goods lose value almost immediately. e.g. Furniture, appliances, TVs, clothing. Very expensive once you factor in interest expense. Best to save for these types of purchases. 12

Ten Healthy Habits 5. Set up a Financial Safety Net Protection in case of financial emergency. 3 6 months of living expenses in cash reserves. Insurance Life Disability Automobile Homeowners Critical illness 13

Ten Healthy Habits 6. Wants vs. Needs Needs are the overhead expenses in your budget Wants are the discretionary items Be media savvy: wants masquerading as needs Do I really need this, or would it just be nice to have? 14

Ten Healthy Habits 7. Delayed Gratification and Values-based Goal Setting Important life skill should be learned early Marshmallow Test Setting financial goals delays gratification Tie goals to your values 15

Goal Setting 1. Write down financial goals Review them with others Monitor progress Success is self-reinforcing 2. Use your values to set goals What are values? What are your values? Values Validator 16

Set SMART Goals S M A R T Specific Measurable Attainable Realistic Time-framed 17

Ten Healthy Habits 8. Track Your Spending Bring awareness to your spending habits Reality check: is your actual spending in line with how you think you spend your money? Powerful motivator to make better spending choices Tools: journal, spreadsheet, software, app Focus on problem areas, e.g., Latte factor Use feedback to tweak your budget 18

Ten Healthy Habits 9. Save for your Kids Education Registered Education Savings Plan (RESP) for post-secondary studies Tax-free compounding while funds remain in the plan No annual maximum contribution; lifetime max $50,000 Matched savings by federal government: grant of 20% on first $2500 of annual contributions Maximum grant of $500 per child per year; lifetime max of $7,200 19

Ten Healthy Habits 9. Save for your Kids Education Earnings and grants must be used to pay cost of post secondary and are taxable to the student in year paid out. Apprenticeships and programs offered by trade schools are included. No tax deduction on contributions Original contributions can be withdrawn tax-free What if your kid doesn t go to post secondary? Repay government grants Transfer accumulated income to RRSP subject to RRSP contribution limit New in 2011: transfer to sibling without triggering tax penalties or having to repay grants 20

Ten Healthy Habits 10.Present a United Money Front Show your kids it s possible to discuss and come to agreement about money matters. Kids, especially teens, will exploit the fact that you re not on the same page to get what they want. Create shared values in order to set meaningful family financial goals and make trade-offs. 21

Tools and Aids Budget calculator http://www.fcac-acfc.gc.ca/ eng/resources/toolcalculator/ budgeting/index-eng.asp Goal-Setting Worksheet Financial Fitness Self-Assessment Values Validator Worksheet 22

Resources A Parent s Guide to Raising Money-Smart Kids www.money-smartkids.ca Financial Decisions Matter site www.financialdecisionsmatter.ca The Investor Education Fund www.getsmarteraboutmoney.ca/educationprograms/pa ges/default.asp Financial Consumer Agency of Canada www.fcac-acfc.gc.ca 23

Q & A 24

Disclaimer This presentation was created by CPA Canada in conjunction with the Financial Decisions Matter program. Its purpose is to inform and educate the attendees on the presentation topic. While the information contained in this presentation is believed to be accurate, no action should be taken based on this presentation alone. It is available with the understanding that the publisher is not engaged in rendering legal, accounting or other professional services. 25