Part I
Assessing Your Fitness and Setting Goals
In this part . . .
We discuss the concepts that underlie sensible personal financial management. You find out why you didn’t know all these concepts before now (and whom you can blame). Here, you undergo a (gentle) financial physical exam to diagnose your current fiscal health, and we show you how to identify where your hard-earned dollars are going. We also cover understanding and improving your credit report and scores and how to plan for and accomplish your financial goals.
Chapter 1
Improving Your Financial Literacy
In This Chapter
Looking at what your parents and others taught you about money
Questioning reliability and objectivity
Overcoming real and imagined financial hurdles
You don’t have to look very far to find what is at the root of Canadians’ financial woes: Study after study shows that we get a failing grade when it comes to financial literacy. Quite simply, many people lack even the most basic math and personal finance skills necessary to make critical financial decisions and informed choices about how to best save and spend their money. Consider the following:
Almost one-third of Canadians have not started saving for retirement.
Half of adult Canadians have difficulty carrying out simple math calculations.
Almost half of all Canadians think they can deduct the interest on a home mortgage (they can’t!), and that they reduce their risk by putting their money into only Canadian investments (they don’t!).
One survey found that almost 80 percent of people feel that the lowest-risk investments make the most sense when saving for retirement (they don’t — because most people need to make their money grow in order to be able to retire).
Just one-third of Canadians made a contribution (or planned to contribute) to an RRSP for the 2009 tax year. And just one in four was planning to contribute the maximum allowed.
Nearly 80 percent of consumers do not know how the grace period on a credit card works. An even greater percentage don’t understand that interest starts accumulating immediately for new purchases on credit cards with outstanding balances.
Fifty-three percent of people who took a multiple-choice investing quiz did not know that total return was the best measure of a mutual fund’s performance.
Forty-three percent didn’t know that owning a single stock was more risky than owning a basket of stocks.
Unfortunately, most Canadians don’t know how to manage their personal finances because they were never taught how to do so. Their parents may have avoided discussing money in front of them, and most high schools and universities lack sufficient courses that teach this vital, lifelong-needed skill.
Some people are fortunate enough to learn the financial keys to success at home, from knowledgeable friends, and from the best expert-written books like this one. Others either never discover the keys to success, or they learn them the hard way — by making lots of costly mistakes. People who lack knowledge make more mistakes, and the more financial errors you commit, the more money passes through your hands and out of your life. In addition to the enormous financial costs, you experience the emotional toll of not feeling in control of your finances. Increased stress and anxiety go hand in hand with not mastering your money. This chapter examines where people learn about finances and helps you decide whether your current knowledge is helping you or holding you back. You can find out how to improve your financial literacy and take responsibility for your finances, putting you in charge and reducing your anxiety about money. After all, you have more important things to worry about, like what’s for dinner.
Talking Money at Home
We were both fortunate — our parents instilled in us the importance of personal financial management. Our moms and dads taught us a lot of things that have been invaluable throughout our lives, and among those things were sound principles for earning, spending, and saving money. Our parents had to know how to do these things, because they were raising large families on (usually) one modest income. They knew the importance of making the most of what you have and of passing that vital skill on to your kids.
In many families money is a taboo subject — parents don’t level with their kids about the limitations, realities, and details of their budgets. Some parents we talk with believe that dealing with money is an adult issue and that kids should be insulated from it so that they can enjoy being kids. In many families, ki... 
