Overview
This lecture is a beginner’s guide to financial literacy, covering how to manage, save, invest, spend, and protect your money to achieve financial goals.
What is Financial Literacy?
- Financial literacy means understanding how to make smart financial decisions to reach your desired lifestyle.
- It covers earning income, budgeting, saving, investing, managing debt, and protecting your finances.
Importance of Financial Literacy
- Good financial literacy leads to better money management and achieving financial goals.
- Poor financial literacy can result in wasted money, more work, less wealth, and increased financial stress.
How Money Works
- Money is exchanged for goods and services, and most people trade their time for money.
- Effective money management transforms earned income into wealth, not just higher earnings.
Income Streams
- There are seven main types: earned income, profit income, interest income, dividend income, rental income, capital gains, and royalty income.
- Active income requires your effort; passive income earns money with less ongoing work.
- Diversifying income sources reduces financial risk and increases earning potential.
Basics of Investing
- Investing is essential for building wealth, with the stock market as a common entry point.
- Investment options: self-directed accounts (cash, TFSA, RRSP), robo-advisors, real estate, and private businesses.
- Each investment type has its own risks, returns, and account rules.
Saving & Budgeting
- The key to saving is spending less than you earn; the difference is your savings.
- Budgeting divides spending into needs, wants, debts, and savings/investments.
- Tools and apps can help you track spending and increase savings.
- Pay yourself first by automating savings each payday.
- Build emergency funds and prioritize savings for short-term goals and investments for long-term goals.
Spending & Payment Tools
- Cash prevents debt but is hard to track and risky to carry.
- Debit cards are safer and help track spending but don’t build credit.
- Credit cards can build credit and offer rewards but risk debt if not managed properly.
- Prepaid cards help control spending but don’t build credit.
Managing Credit & Debt
- Credit is important for loans and better rates; good credit comes from responsible use.
- Good debt (education, business, mortgage) can build wealth; bad debt (credit cards, car loans) does not.
Financial Protection
- Insurance (car, home, life, business) shields against financial hardship.
- Protect your bank and investment accounts with CDIC and CIPF coverage.
Learning Financial Literacy
- Use free resources (videos, blogs, tools) and paid options (books, courses, mentors) to improve financial literacy.
- Experience and action are the best teachers; start practicing money management early.
Key Terms & Definitions
- Financial Literacy — Ability to make informed decisions about money.
- Active Income — Money earned from direct work (e.g., salary).
- Passive Income — Money earned with minimal ongoing effort (e.g., investments).
- TFSA — Tax-Free Savings Account with tax-free investment growth (Canada).
- RRSP — Registered Retirement Savings Plan with tax-deferral benefits (Canada).
- Budget — Plan for dividing income among spending, saving, and debts.
- Credit — Borrowed money to be repaid later.
- Good Debt — Debt that potentially increases wealth (e.g., student loans).
- Bad Debt — Debt that does not generate wealth (e.g., credit card debt).
Action Items / Next Steps
- Research and compare different income types and investment accounts.
- Create and track a personal budget.
- Set up automatic savings and start building an emergency fund.
- Learn about credit cards, their fees, and responsible usage.
- Explore free financial literacy resources or attend workshops.