Six Ways Young Women Can Learn Financial Literacy Skills

Empowering young women with financial literacy can positively shape their relationship with money and their confidence in their ability to manage it

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I recently participated in a one-on-one coaching session with FuturFund, a student non-profit organization that gives young women the financial knowledge they need as they enter the world of financial decisions.

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As I mentored each of the young women, I thought about what I would say to myself 20 years old about money if I could turn back time. There are many ways for a young woman to develop her financial literacy skills to gain and maintain control over her money. Here are six.

Establish a budget: Many young people start having an income in high school or university and it is important to make sure that your expenses do not exceed your income. You’ll need to track your day-to-day expenses — as the daily purchase of lunches and coffees add up over the year — and redirect some of those funds to a savings program. A well-designed budget lets you know how much you need to set aside each month for basic expenses and savings, as well as lifestyle expenses.

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Most banks provide online budgeting tools that analyze your monthly cash flow and categorize your expenses to show you exactly where your money is going. It’s a simple and smart way to help you make more informed financial decisions.

Create a savings habit: A good place to start is to allocate 10% of your paycheck to a savings program. You can also set up a pre-authorized contribution each month. The younger you are, the more time your savings and investments have to grow. Savings can also serve as an emergency fund, which comes in handy when unexpected events occur.

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Understanding Credit: A credit card can be a double-edged sword. It’s a valuable tool for building your credit score, but it can create problems if you don’t pay it back on time. Once you qualify for your first student credit card, remember to always pay off your balance in full when the bill comes in. This creates a healthy credit history.

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You should also research credit card fees, limits, and interest rates, as these will help you develop a good payment habit. By the time you graduate from college, you will find that you have an amazing credit score, which can help you secure a loan or mortgage from the bank.

Take control of taxes: Always keep in mind that your income does not belong entirely to you. You need to understand how taxes work before you earn your first paycheck or start investing, because after-tax money is your real income. You should use your actual income to supplement your budget and see if it meets your financial obligations.

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The two main sources of income for most young people are employment income and investment income. Your employment income is taxed at your marginal tax rate and your investment income is taxed according to the type of investment. Interest is taxed at your marginal tax rate, dividends are taxed at lower rates than any other type of investment, and only 50% of your capital gains are taxed at your marginal tax rate.

Develop a basic knowledge of different investment vehicles: I have seen many young people, and even middle-aged adults, throughout my career who have no idea of ​​the differences between registered and unregistered accounts. It is important to understand the tax benefits associated with registered accounts, so you don’t miss out on their benefits.

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Once you turn 18, a Tax-Free Savings Account (TFSA) is a great way to grow your savings. You can save tax-free for any goal, such as a car, vacation, house, etc. Registered Retirement Savings Plans (RRSPs) can be used as part of your savings to buy your first home through the Home Buyers’ Plan and save for retirement. For both accounts, young people can start with small and steady amounts, which can grow to a significant amount by the time you need the money.

Become an investor: If you have good budget habits, you have savings and you are not drowning in debt, it is time to make your money work by investing. You are never too young to invest. Time is on your side. The money you invest now has more time to grow before you need it. Plus, the magic of compound interest can help you grow your money even faster. Contact a financial planner and discuss your goals and risk tolerance. They will offer you the most suitable investment options.

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Financial literacy is an ongoing lifelong endeavor. Empowering young women with financial literacy can positively shape their relationship with money and, more importantly, their confidence in their ability to manage it. It will relieve a lot of pressure and give them a safer future.

Shuling Sun is an Investment Advisor at RBC Dominion Securities, RBC Wealth Management
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Sarah J. Greer