Whether you're saving for post-secondary education, moving out on your own for the first time, getting married, having children or planning for retirement, it pays to be financially literate.
Though financial literacy may be hard to measure, people who fit the bill typically share a number of effective characteristics and habits, according to Tom Hamza, president of the Investor Education Fund.
1. LONG-TERM PLAN
People who are financially literate have a long-term view of their financial future and a plan that outlines where they are now and how they will get there. "You can have student or consumer debt and be financially literate, knowing you'll pay it off according to a strict plan and are not stressing about it," says Hamza.
2. TOMORROW BEGINS TODAY
This refers to the power of compounding -- the ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. But compound interest also refers to the accumulation of interest charges on debt, which can dramatically boost money owed. "Time is a critical element and a financially literate person understands how it works for them or hurts them," Hamza says.
3. SKEPTICAL CONSUMER
"They shop, compare and haggle," he says. When they walk into a financial institution they don't assume the adviser they meet automatically knows the product right for them. Hold your adviser accountable for their recommendations by regularly monitoring how your investments fare compared to benchmarks and the market in general.
4. NO SURPRISES
"What happens at the end of the month and at the end of the year is not a mystery," he says. "They have a very good understanding of their inflows and outflows so there are no surprises."
5. AUTOMATIC SAVINGS
Paying yourself first is the oldest and most valuable trick in the book, Hamza says. Regardless of the amount you automatically transfer into your savings account, this habit makes it easier to stick to a budget. "When the money comes out of your account, you don't see it and never miss it," Hamza says.
Being financially literate means having the knowledge, skills and confidence to make responsible financial decisions, says Julie Hauser, spokesman with the Financial Consumer Agency of Canada.
"One of the things we consider to be an important component of financial literacy is having a budget because that shows you where your money is going."