The Dangers of Consumer Financial Illiteracy and Ignorance

In a CGA-Canada survey, more than half of the people surveyed had no idea how much interest they were paying on their credit card balances, thinking it was 3-4% like prime rate!

How disappointing is that? Sure this may not be something that everyone of us know to the cent, but don’t people look at their statements to see what the percentage is or what they are paying on their balances? Such ignorance lead you to believe that people pay the interest on the balance without much thought.

This lack of basic financial knowledge is very worrying and could easily push Canada towards the same financial disaster that the US got trapped in during the 2008 economic melt-down.

The government of Canada recently introduced new rules for credit card companies that make it mandatory to include information about balance repayment. More specifically, on every credit card statement, you will find specific time details as to how long it will take you to pay the balance, assuming you keep on making minimum payments only.

It is astounding why our education system doesn’t pay more attention to this and offer more courses in basic finance and budgeting for students? I believe that giving high school students the basics of personal finance and budgeting will help them avoid the many costly mistakes that we make later in life.  Education and awareness about financial literacy is one huge step towards correcting our national dependence on debt and the problem of spending beyond our means.

It is best to teach something as important as this, early in life. We need our kids to pick up the right finance habits and attitude, so they are ready for the real world when they become adults and form their own families.

We have a whole new generation-falsely manipulated by banks and credit card companies-that has grown to almost believe that the money they use from credit cards is their own money. In other words “pay it now, and don’t worry about paying  it back later!”

One of the basic lessons that we have to teach every teen and young person, is the basic difference between a debit card and a credit card.  With the first one, the money you spend is your money. With the second one, the money you spend, isn’t your money, and you will have to pay it back with interest!
You knew that already? sure you do, but are you treating them as such? do you find yourself using your credit card more often to get points, only to forget to pay it back, thus accumulating interest?

Living beyond our means, aided by such things as credit cards and refinancing our mortgages, can only last for so long. Eventually, everything has to come down and every penny has to be paid back, with interest. So if having to pay back money that you didn’t have doesn’t bother you, how about adding accrued interest on top of that?

Of course, not everyone falling in the trap of debt is financially illiterate.  In fact, some know full well how the whole system of credit cards and the concept of borrowing works. The issue is with the whole notion of ‘instant gratification’, where we want everything now, regardless of whether we can afford it or not. And that could be even worse than being ‘financially illiterate!’

Enough being a kid when it comes to spending your money. Grow up and take charge of your finances, and while at it, help educate your family and friends too. They will thank you later in life!