Welcome to the first blog post in our financial literacy and wellness series!
Today, we’ll discuss what financial literacy and wellness mean, what the difference between the two are, why they are important, and how, together, they can help improve your mental, emotional, and physical health. We’ll also share some upcoming blog topics to keep an eye on our blog for.
What does financial literacy and wellness mean?
Defining financial literacy
Financial literacy, as defined by Investopedia, is the education, skills, and understanding of finance. This includes one’s knowledge of personal finances, money, investments, and expenses and the ability to make informed financial decisions. Just as literacy measures one’s ability to read and write, financial literacy helps determine and define our ability to manage our personal finances efficiently and make sound decisions on income, budgeting, investments, planning and so on.
According to the Canadian government’s task force on financial literacy, financial literacy is composed of four parts:
- Knowledge: understanding of personal and broader financial matters
- Skills: the ability to apply financial knowledge
- Confidence: the self-assurance to make important decisions
- Responsible financial decision: the ability to use the knowledge, skills, and confidence to make appropriate choices based on their situation
A past Forbes article discussed how millions of U.S. students are being educated on reading, writing, math, and science, but hardly ever in financial literacy. The same goes in Canada where many people struggle with basic financial rules. Lynne Santerre, a spokesperson for the Financial Consumer Agency of Canada (FCAC) told Global News that “there is still much room for improvement. For instance, the research points to gaps in awareness of financial rights and responsibilities particularly for youth, people over the age of 55, low-income Canadians and those without a university degree.”
Understanding financial wellness
Without basic financial literacy, financial wellness or well-being is less likely. Financial wellness is the ability to meet financial needs and feel good and secure about one’s personal finances and future. Financial wellness is knowing that you have the income, investments, and savings to support your lifestyle (and bills) now and in the future.
Unfortunately, in Canada, financial wellness isn’t a reality for many. According to the Canadian Payroll Association, 40% of working Canadians feel overwhelmed by their level of debt. Likewise, Financial Planning Standards Council states that 48% of Canadians have lost sleep because of financial worries. In fact, money (rather than work, personal health or relationships) is the greatest source of stress for many Canadians.
How financial literacy and financial wellness impact each other
Financial wellness and financial literacy go hand-in-hand. According to Toronto chiropractor Dr. Chris Oswald in Financial Planning for Canadians (CFP), “Financial stress has a profound effect on the human nervous system. In extreme cases, it can be comparable to the physical stress of losing a loved one.” In a three-year study of over 15,000 Canadians, CFP found that Canadians with comprehensive financial plans reported:
- 85% more financial wellbeing than those with limited planning
- 62% more emotional wellbeing than those with limited planning
- 45% more overall contentment than those with limited planning
In other words, those Canadians with greater financial literacy and plans have greater financial wellbeing, have greater emotional wellbeing and are overall happier than those who don’t.
What are the next steps? We believe that in order to improve one’s health, happiness, and physical, emotional, and spiritual wellbeing, one must start to understand—and educate themselves on—their finances. Having the knowledge, skills, and confidence to make informed decisions may be the key to your own wellness journey.
Over the next several months, we’ll begin to educate you on the following aspects of your financial literacy:
- Signs that you need help with your finances
- How to keep track of your expenses
- How to make a realistic, SMART budget
- How poor credit can affect your life
- What type of bank accounts should I have?
- How a line of credit could help you
- Tips for saving for retirement
The author Sam Milbrath
Sam Milbrath is a freelance copywriter and brand marketer. When she isn’t writing for brands or doing her own creative writing, she’s exploring, taking photographs, gardening and doing pottery. Check out her work at www.sammilbrath.com