Introduction: Canadians’ Financial Knowledge
According to a 2018 study conducted by Angus Reid, over 50% of Canadians have a low understanding of financial terms. This gap in knowledge is even more pronounced across different age groups and between genders. For instance, the study revealed that 78% of men over 55 feel they have a moderately high understanding of financial terms, compared to 58% of women in the same age group. The least financially literate group was found to be women between the ages of 18 and 34.
These statistics underscore a broader issue: this isn’t about age or gender—it’s about education and knowledge.
Furthermore, when combined with the fact that more than half of Canadians earn less than the median annual income of $37,899 (2019), it becomes evident that many Canadians may not fully understand how to maximize their financial opportunities or manage their banking relationships effectively.
The Link Between Banking and Financial Literacy
The Canadian banking system plays a significant role in this financial literacy gap. For the average Canadian to fully understand their financial options, they would need to sift through countless pages of fine print and legal jargon, drafted by the most seasoned legal professionals in the country.
Additionally, the people who have mastered the banking system—those working within the financial industry—tend to stay within the sector, benefitting from lucrative compensation and working conditions. This creates an information imbalance: critical knowledge of banking services and how to navigate them remains largely inaccessible to the general population.
Furthermore, financial knowledge is often passed down through family members. If parents have limited understanding or even distrust of financial institutions, their children are likely to inherit similar views and face the same struggles. This cycle can result in costly mistakes, such as:
• Years of unnecessary interest payments
• Damaged credit scores
• Avoidable bankruptcies
• Strain on personal relationships
No matter your role in society, your background, or your financial standing, at some point, you will interact with a financial institution. Your ability to make informed decisions depends heavily on your understanding of the banking system—a system that, unfortunately, does not make it easy to access or understand the necessary information.
A Path Toward Financial Empowerment
At Sierra Consultants, we believe the solution begins with equipping the youngest members of the workforce with the tools they need to make informed financial decisions. By offering practical knowledge and resources, we can help shift the trend toward better financial literacy, empowering the next generation to lead financially secure lives.
Key Concepts in Banking Literacy
- Universality
Whether you are a local mechanic or a global tech entrepreneur, the fundamental banking products available to you are essentially the same. While the level of service, support, and quality may differ, the core banking functions remain unchanged as long as you operate within the same currency framework.
Where things diverge is in how excess cash and debt are managed. These differences are further compounded when dealing with various currencies and territories, where different legal frameworks and tax regulations apply.
- The Bank’s Mission
Regardless of which financial institution you bank with, all banks share the same goal: to maximize profits. Banks accomplish this by leveraging deposits to fund loans and earning revenue on the difference between the interest paid on deposits and the interest earned on loans, a practice known as Funds Transfer Pricing.
While banks may market themselves as customer-centric, their primary mission is profit generation. This understanding is crucial when evaluating financial offers or services. Banks use strategic pricing to discourage customer migration, making it difficult to directly compare products across institutions.
By keeping this profit-driven motive in mind, consumers can approach banking offers with a critical eye.
- Traps & Bad Habits
It’s important to recognize that banks are not malicious, but they do have their own interests at heart. For example, when a bank offers a credit limit increase, it is not a gesture of goodwill—it’s an opportunity for them to generate more revenue through interest payments.
Here’s a personal story to illustrate this: When I turned 18, I was offered my first credit card with a $2,000 limit. Excited by the newfound purchasing power, I immediately maxed it out on a high-end guitar, not realizing the consequences of carrying such a balance. Months later, as I struggled to pay down the debt, the bank offered me another credit limit increase to $3,500. I found myself trapped in a cycle of debt, constantly paying high interest on purchases I could barely afford.
By the time I was in my mid-twenties, I had accumulated nearly $25,000 in credit card debt while earning approximately $60,000 per year. Fortunately, I was able to get my finances under control, but the experience taught me an important lesson: credit is not money, it is short-term borrowing. Many Canadians fall into this same trap, mistaking credit cards for financing tools rather than what they truly are—spending tools that come with significant costs if misused.
The Financial Post echoed this concern in a September 2023 report, citing a study by Equifax Canada showing that Canadian consumer debt continues to climb, particularly among younger generations. The lesson here is that credit, when used correctly, can offer benefits, but without proper education, it becomes a dangerous tool.
Financial Literacy: Rich or Wealthy?
These terms are often used interchangeably, but there’s a distinct difference. Being “rich” means having a higher income than your expenses. Over time, this allows a person to accumulate money. Being “wealthy,” on the other hand, means having enough assets that the income generated from them covers all fixed expenses.
Through prudent financial management and the effective use of banking services, Canadians can transition from simply being rich to becoming truly wealthy. A $70,000 annual income may support a comfortable lifestyle with a car, home, and vacation if managed properly. However, without proper discipline, even a $250,000 income can be consumed by high living expenses and debt.
Frequently Asked Questions
In my years in banking, I’ve heard countless questions, such as:
• What’s the ideal limit for a credit card?
• How much should I save for a down payment on a house?
• Should I invest in non-bank assets?
• How can I avoid paying bank fees?
• How many accounts should I have?
The reality is that the answer to most of these questions depends on the individual’s circumstances. Financial and banking literacy isn’t about offering one-size-fits-all answers—it’s about equipping people with the knowledge to make informed decisions that fit their personal situations.
The Role of Sierra Consultants
At Sierra Consultants, we are dedicated to improving financial literacy in Canada. While our most prestigious mandates come from large corporate clients, we are equally passionate about helping young people, especially in times of economic uncertainty.
We believe that with just 90 minutes of education, young Canadians can acquire the functional knowledge they need to navigate their financial futures confidently. We humanize the technical information provided by the Financial Consumer Agency of Canada (FCAC), making it accessible through anecdotes and practical conversations. This approach empowers individuals to avoid common financial pitfalls and fosters long-term financial health.
Call to Action
The time to act is now. Sierra Consultants is committed to partnering with educational institutions to bring banking literacy to students and young professionals across the country. By equipping the next generation with the financial tools they need, we can foster a future where Canadians are financially empowered, knowledgeable, and capable of making informed decisions.
To learn more about how Sierra Consultants can support your institution’s financial literacy initiatives, contact us today.
Sources
Canadians paying billions of dollars in ‘excess’ bank fees: report
Banking Blues: Canadians say they lack confidence in understanding key financial terms
Fees, fraud and fairness: customer satisfaction slips with Canadian banks, survey says
Household Debt Statistics in Canada
Credit card debt in Canada just hit an all-time high
How much credit card debt does the average Canadian have?
Credit report and score basics
7 Key Reasons Why Financial Education Is Your Best Investment