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financial literacy

Financial literacy skills are important for all Canadians to ensure they manage their finances wisely. And financial literacy is equally helpful for newcomers. Each November, Canada recognizes financial literacy month to help Canadians better manage their money.

Financial literacy can be beneficial for newcomers, especially when first arriving in Canada.  For newcomers, sometimes it can be challenging to find a job: 

  • immediately after arriving in Canada
  • in your profession, or
  • at the level you worked in a previous role.

This can contribute to financial stress. As a result, you may find yourself stretching your finances and budget.

It’s also important to avoid taking on debt when you first arrive in Canada. This is where financial literacy can help you to preserve and save money for your future.

As a newcomer, you may rely on members of your community for financial advice.  However, you may not receive the best advice and this could lead you to make poor financial choices. That’s not to say that you shouldn’t accept advice from others. But, with strong financial literacy skills, you’ll be in a better position to assess the advice before you follow it.

About Financial Literacy in Canada

While financial literacy is important for individuals, it’s also helpful to the Canadian economy. So an important objective of financial literacy month is to raise the financial skills of all Canadians. In addition, it’s especially important this year to help people manage their finances during COVID-19.

With financial literacy skills, people are better able to:

  • manage finances
  • reduce financial stress
  • make the right financial choices, and
  • enhance financial health.

Importantly, financial literacy can set you for a comfortable retirement without worry about your finances.

To learn more about Financial Literacy Month, click here.

What is Financial Literacy?

Simply put, financial literacy is the ability to understand and use financial skills such as:

  • budgeting
  • lowering debt, and
  • investing.

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Why Financial Literacy is Important for Newcomers

Financial literacy is more important than ever because of the increasingly complicated financial world. For every good financial opportunity created, many more financial scams are being designed. This means that you can never be too careful about your finances. 

In addition, research shows that 6 out of 10 Canadians don’t know how much money they should save for their retirement. This can result in:

  • overspending
  • acquiring debt, and
  • reducing savings.

So financial literacy can help newcomers to prepare for their retirement years successfully.

Smart Financial Literacy Actions

Make a Budget

Making and sticking to a budget is probably the most important thing you can do when it comes to financial literacy. A monthly budget will help you determine how much you can realistically spend on expenses such as:

  • rent
  • utilities
  • home furnishings
  • food
  • clothing
  • entertainment, and
  • other discretionary expenses.

Our Rentals for Newcomers site can help you to find housing in Canada. And you can also use the site to determine the average cost of rentals in Canada. This can help you to understand the housing market and budget accordingly.

Budgeting is a crucial skill that will prevent you from overspending and ensure you save each month. Not only will you be able to spend your money wisely and with 100% control over how it’s spent, but you will also have money in your savings account.

Budgeting lets you keep track of your financial goals. And, you’ll be surprised how much more money you will have with the same paycheck to invest and pay off debt.

Apply the 50/30/20 Budget Rule

The 50-30-20 Budget Rule has become a widely accepted way of dividing your paycheck. This budget rule is a good way to spend your earnings and have enough savings at the end of the month.

Of course, budgeting will be different for every family but your budget should look something like this:

  • 50% of your paycheck for fixed expenses (rent, insurance, bills, etc.)
  • 30% for entertainment and other wants, and
  • 20% should go towards savings, investing, or paying off debt. 

Keep in mind that not every family shares the same circumstances and your financial condition will change over time. So it may be necessary to adjust your budget from time to time.  For example, if you earn more than you need, maybe 30% of your paycheck can go to savings and only 40% will be used up for fixed expenses. 

Conversely, someone that earns less than an average person might have to cut entertainment costs to 20% to have enough money to meet their fixed expenses. 

To create your budget, you can start with this budget planner from the Financial Consumer Agency of Canada.

Build an Emergency Fund

Building an emergency fund is another wise financial literacy activity. Emergency funds are similar to savings except you set aside funds specifically for a financial crisis such as a job loss. So emergency funds need to be fluid and easy to access.

A strong emergency fund should have enough money to cover expenses for three to six months in case you lose your job or have a money shortfall. If your monthly salary is $5,000, you should probably have at least $15,000 in your emergency fund.  Emergency funds are important because you don’t know what the future has in store for you.

Be Aware of Financial Frauds and Scams

Financial frauds and scams have always been around but they are now more advanced than ever due to the internet and there is no such thing as too careful when it comes to your finances. One hasty decision can make you lose thousands of dollars and that is exactly what scammers will try to do. They will try to put you into a panicked condition and then tell you to pay them.

You can receive scam messages through email, mail in your mailbox, phone calls, and text messages that are pretending to be Canada Revenue Agency (CRA) employees. Right off the bat, if you receive a text message, you should know it is fake because the CRA never sends any text messages.

It is possible you will receive either a phone call, email, or mail in your mailbox from the CRA but even then there are ways to figure out if it is a legitimate call from the CRA or a scam. First of all, the CRA will never ask for immediate online payment through an e-transfer or any other currency such as bitcoin, or gift cards. If you get any type of message from the CRA demanding immediate payment, it is a scam.

The CRA Will Never:

  • use aggressive language
  • threaten to arrest you
  • threaten to send the police.

Scammers will try to make you panic by threatening you and demanding you to make an immediate online payment.

This is a typical scam that many people fall for. If you get such a message from the CRA it is definitely a financial scam. For newcomers, this can create panic and anxiety if you are unaware that this activity is not legal.

To learn more about how the CRA might contact you, how to recognize if it’s a scam, and what to do if you think you have been scammed, click here.

Building your financial literacy skills is a smart way to reduce stress, save for your future, and plan for your comfortable retirement.

For more information about your financial first steps in Canada, visit our banking in Canada resource page. Get the essential information you need to manage your finances in Canada!