The Chronicle Herald (Provincial)
The ABCS of financial literacy for newcomers
Becoming familiar with Canada’s financial system is important for a number of reasons
When you’re busy moving countries, the main things on your mind are work permits, permanent residency status, and finding a job and a place to live. If you’re a student, you’d also concern yourself with study permits and college applications.
It is not until you arrive on foreign shores and take your first trip to Walmart or Sobeys, that you first start thinking about credit cards and banking systems. Gradually, your concerns come to include budgeting, debt, saving, and investment, and all the other particulars that pertain to these four factors. For anyone who doesn’t know, this is what financial literacy is about – managing these four components.
According to founder and senior planner of Worthy Financial Inc. in Halifax, Nova Scotia, Timothy Maceachern, becoming familiar with Canada’s financial system is important for a number of reasons.
“Each country has its own unique banking system and in Canada, we primarily use bank accounts and debit or credit cards for personal transactions,” said Maceachern. “To receive your pay from your employer, you will need to have a chequing account set up with a bank. This may seem like basic information to someone born and raised in Canada, but to those coming from cash-based societies where credit cards are only used in emergencies, it may be a new experience. At times, this has been a topic of discussion with our clients who are new to Canada.”
In fact, Maceachern is of the opinion that researching these particulars prior to your arrival can be a best practice too. It helps mitigate any surprises, like pay deductions at work, for example.
“Some of my clients have been surprised by the Canada Pension Plan (CPP) and Employment Insurance deductions and taxes, so it is best to be aware of them. Knowing how much you will take home after taxes and deductions will help you determine how much you can afford for housing and your other living expenses,” said the financial planner.
ALL ABOUT CREDIT
Credit cards, lines of credit, loads, and investments, are another important part of financial literacy. “Building credit is necessary and it can help you in many ways, such as future homeownership, lower interest rates on loans, and even some employment opportunities,” he said.
Speaking of credit cards and loans, a resident of Atlantic Canada, Tony Gladstone said that one of the things he wishes he’d known was that your credit score doesn’t come with you when you arrive as a newcomer to Canada.
“The fact (that) you had a mortgage and credit cards in the U.K. means nothing when you apply for a mortgage straight away here. You start from credit score zero and need to build it up, which takes time,” said Gladstone.
Maceachern reiterated the same sentiment – that establishing healthy credit in Canada takes time.
“In Canada, we tie the score to your creditworthiness, which is issued by a third-party company like Equifax or Transunion.” For example, buying a home in Canada would necessitate having two pieces of credit open for at least two years, and at least one of them has to be a line of credit or credit card; the second can be a loan to qualify to purchase a home, said the planner.
“At times, mortgage companies can use international credit reports to confirm you paid your bills on time in your home country. However, not all countries use reports like ours, which can make it difficult. It is best to get started building credit right away and make sure your debt payments are made on time.”
Raquel Mcbean from Charlottetown, Prince Edward Island who’s originally from Spanish Town, Jamaica went as far as to say that “your credit score is more important than the amount of actual money you have.”
What are some other things newcomers to Atlantic Canada should be aware of?
SAVING AND BUDGETING
According to Maceachern, your monthly savings will have to also take into account your retirement fund.
“To ensure a comfortable retirement, it is generally recommended to aim for replacing 70 per cent of your working income. You can estimate the amount you will receive from government and company pensions and then save the remainder personally before retirement. It is essential to consider inflation and adjust your retirement savings accordingly to maintain your standard of living,” saidthe expert.
An emergency fund to meet unexpected expenses is also a good idea. This is part of the bigger picture of planning for short-term and long-term expenses. Per Maceachern, this could amount to at least six months of living expenses for those with less secure employment like self-employment or commission-based income. “For those in high-demand careers or government employees, a minimum of three months is recommended.”
RETIREMENT PLANNING
Although it might look daunting, retirement planning doesn’t have to be so, according to Maceachern.
In Canada, there are three primary sources of retirement income: government pensions and program, workplace pensions, and personal savings.
“To ensure that you get the most out of these program, it’s essential to understand if your country has a reciprocal agreement with Canada regarding government pensions and programmes. This agreement can boost the amount you receive when you retire, provided that you paid into these programmes in your country,” he said.
Learning about your workplace pension program (if you’re offered one) is also important. If you’re unsure, seek the help of a pension specialist or independent financial advisor on the topic.
“Keep in mind that not all pension plans automatically enroll you when you are eligible, so you may need to contact your human resources department to set up your pension. Otherwise, you could be leaving money in your employer’s pockets instead of yours,” said Maceachern.
Finally, it might be useful to learn about the different retirement savings accounts in Canada, such as the Registered Retirement Savings Plan or RRSP and Tax-free Savings Account or TFSA. “(These) can help boost your retirement savings.”
No two financial situations are going to be alike so it might be helpful to plan for your particular goals when it comes to using these accounts to your advantage, said the planner.
“Speaking with a professional who puts your interests first can also help determine how much you need to save for retirement.”
HOW TO IMPROVE YOUR FINANCIAL LITERACY AS A NEWCOMER TO ATLANTIC CANADA
There are many financial literacy seminars offered in English and other languages that you can attend, according to Maceachern.
Canada for Me’s financial literacy programmes, Scotiabank’s Startright programme, and RBC’S RBC Newcomer Advantage are some examples of helpful resources.
Asking lots of questions, doing your own research, and taking the time to fully comprehend something before making your decisions can go a long way, said Maceachern.
“There’s no need to feel embarrassed about what you don’t know. “If you’re ever unsure about a financial agreement, don’t hesitate to walk away and think it over before committing,” he said.