Financial literacy – The "True" North

Many of our efforts as Blacktivists focus on helping Black Canadians improve their economic situation. However, if Black folks aren’t financially literate, any money they get will go in one hand and out the other – and the hand it goes out to likely won’t be Black. Financial literacy is crucial to building inter-generational wealth. But what does it mean to be financially literate?

Well, in addition to basics like budgeting, financially literacy means knowing how to:

Break the cycle of falling prey to predatory lenders
Find out, and improve your credit score; and
Reduce your taxes.

Avoid payday loans

Predatory lenders like payday loan companies target working people on low incomes. “Their ads pop up on computer screens and phones, offering fast access to cash”, according to Cathy O’Neil in her 2016 book Weapons of Math Destruction. A payday loan is a short-term loan with high fees and interest rates that make it a very expensive way to borrow money. You can borrow up to $1,500. You must pay the loan back from your next pay cheque. If you can’t pay it back on time, you face more fees and interest charges that increase your debt. Payday loans are meant to cover a cash shortfall until your next pay.

The Government of Canada has information about pay day loans including the graphic below that starkly shows their high price compared to other forms of borrowing.

Learn your credit score

Credit lets you get goods or services before you pay for them, based on the trust that you’ll pay for them in the future. Credit cards let you buy relatively small things like groceries, and loans, lines of credit and mortgages let you get bigger things like cars or houses.

Your credit report is a summary of your credit history. It’s a record of when you’ve bought things on credit and how well you’ve done at paying things back. How well you’ve done is represented by your credit score, a three-digit number that comes from your credit report. It shows how well you manage credit and how risky it would be for a lender to lend you money.

Why your credit history matters

Financial institutions look at your credit report and credit score to decide if they will lend you money. They also use them to determine how much interest they will charge you to borrow money.

If you have no credit history or a poor credit history, it could be harder for you to get a credit card, loan or mortgage. It could even affect your ability to rent a house or apartment or get hired for a job. If you have good credit history, you may be able to get a lower interest rate on loans. This can save you a lot of money over time. (For more info see Credit report and score basics and Improving your credit score from the Government of Canada.)

Reducing your taxes

Two ways to reduce your taxes are to claim deductions and tax credits on your taxes. Deductions reduce the amount of income you get taxed on, called your taxable income. Tax credits then reduce how much tax you pay on your taxable income.

One of the most common deductions comes from putting money in things like a Registered Retirement Savings Plan (RRSP). You can deduct money you deposit in an RRSP, up to a limit based on, among other things, the income you earned in previous years.

Other deductions include:

child care expenses for children under 16 years old;
expenses a person with a disability paid to earn income or go to school; and
support payments to a spouse, common-law partner or child under a separation agreement or court order. (More info on federal deductions)

Tax credits reduce the tax you pay on your taxable income. The more tax credits that apply to you, the more you can reduce your income tax.

The best known tax credit is the Basic Personal Amount (BPA) which is used to ensure that people making a certain amount, or below, don’t have to pay any federal tax. In 2020, the BPA was $13,229 so anyone making $13,229 or less didn’t have to pay any tax. People earning above this amount were able to claim 15% of $13,229, or $1,984.35. (More info on Tax Credits.)

So increase your financial literacy and share what you learn with others in your community so that everyone can get better at achieving goals like buying a house or paying for their children’s education.

Together we grow stronger – and wealthier.

Ok. I admit that the title of this post isn’t entirely true – but it got your attention didn’t it?

What would seem to be true is that one thing keeping Black folks on the bottom on the Canadian economic ladder is lack of financial literacy. I say “seems” because I couldn’t find any data on financial literacy of Black Canadians. I did find a May 2019 article titled, The State of Financial Literacy in Canada: How Much Do We Know? that cited the 2015 Organisation for Economic Co-operation and Development (OECD) Survey on Measuring Financial Literacy and Financial Inclusion. The survey measured respondents’ financial knowledge, attitudes and behaviours and ranked Canadians’ overall financial literacy third out of 29 countries. The article also cited info from the Canadian Financial Capability Survey showing differences based on gender, age, and education level. However, neither of them mentioned race. So, we must work with anecdotal evidence and assumptions. The first assumption is that a key indicator of the financial literacy of average members of a community is the overall financial health of that community.

The headline of the August 2020 Summary Portrait of Ottawa’s Black Community in Comparison to the General Population, by the Social Planning Council of Ottawa stated the financial situation of Ottawa’s Black community in starkly clear terms, “The Black community has significantly higher rates of poverty and inequitable employment outcomes in comparison to the general population.” The chart below from the study gives more sobering details.

So, based on the data above, we can assume that many folks in Ottawa’s Black community could use better financial literacy. Yet, during Black history month 2020, I attended many events that were all well attended, except the one on financial literacy. About eight people showed up, about four of whom were members of the presenter’s family. Also, we had a Black Hub Freedom School meeting in September on financial literacy with guest speaker Duane Francis. Duane works with Canada’s only Black billionaire, Michael Lee-Chin, so we thought folks would turn out to hear what he had to say. One person showed up.

In 2003, comedian Dave Chappelle did a sketch called Reparations on his short lived but classic Chappelle Show. The sketch is a satirical news report about Black folks in the US getting their first reparations cheques. It shows Black people gleefully lining up at a liquor store and has a white correspondent reporting from Wall Street on sharp stock price increases for gold, diamonds and fried chicken. The correspondent ends his report with, “Cadillac said they sold 3000 Escalade trucks this afternoon. These people seem to be breaking their necks to give this money back to us.”

Like all good comedy, it’s funny because it reflects some truth. One truth the sketch reflects is that, when Black folks get money, they spend way more of it on short terms gains than they invest for the long term – if they invest any at all.

To be clear, there are many systemic barriers that hamper Black folks from getting money in the first place. But the continuing inter-generational economic challenges of Black communities suggest that, when Black folks overcome those barriers and get some money – they break their necks to give it back.

We need to stop doing this. We need to see financial literacy as essential as basic literacy. No Black parent would not teach their kids to read. So why do so many of us not teach our kids – or ourselves – how to grow wealth over the long term?

It’s time to start financial literacy groups where Black folks regularly meet to increase our financial literacy – together. We need to stop buying lottery tickets with the unrealistic and vague goal of “getting rich” and start setting specific goals, like buying a house, and helping each other create realistic plans to achieve them.

Talking with a financial advisor is good start. They charge for detailed personal advice but many would agree to share general advice with you or your financial literacy group (they might get some paying clients out of it). You can also use online investing tools, or “robo advisors”, like Wealthsimple or CI Direct Investing. I recently signed up with CI Direct Investing that asked me some basic questions about my investing goals and my risk tolerance. It then let me choose a conservative, moderate or aggressive portfolio (only 3 choices which made it easy). The fee is 0.6%, annually, of what you invest. So, if you invest $500, your fee for the year would be $3 – a lot more affordable than most financial advisors.

So what’s stopping you? Set up a group, get online and start learning – and earning.