November is Financial Literacy Month in Canada.
Surging Housing Market
The COVID pandemic is still a controlling factor of our way of life, and even in that context the economy functions and within that, the housing market surges. There are enough people with wealth, credit, and leverage to buy not only the necessity of their personal housing, but investment properties, too. A recent survey revealed that more than half of real estate purchases last year were of second and third investment properties. It appears that this surging real estate market is certainly benefiting the wealthy.
Essential Building Blocks for Society
Literacy and fundamental education were, in the past, essential building blocks for a just society. Only with education were the underprivileged masses elevated to opportunity and improving their quality of life. Now, we basically take for granted that everybody can get an education, at least through high school.
But still, we live in a time of increasing wealth disparity. An increasing proportion of global wealth is held by a decreasing minority of the Uber rich. In so-called advanced economies such as Canada’s we see the “middle class” shrinking. “Middle Class” really means “financially self sufficient”, and therefore enjoying a relatively high standard of living.
Financial Literacy is Essential
The next frontier in spreading education and opportunity just may be financial literacy. It’s an area of education and essential life skills that our public education system seems to have difficulty covering.
We can teach basic math, but we’re not graduating students well versed in the workings of mortgages, the time value of money, and the principles of saving, investment, and wealth building. Too many people are struggling to make ends meet, and they see the weeks and months and paychecks go by, but without advancing their financial security.
Some level of financial literacy must be essential for those people to see the way to a better future and improved security, and through that, holistic Wellness.
We’ve long ago democratised basic education. It’s not only available to all as a right – it’s mandated, as an obligation, for all to partake. Everyone goes to school. If everyone had financial literacy, too, then everyone would see the value of saving and investing. It doesn’t get them to building wealth and financial security yet, but it makes them eligible to do so, if other opportunities align for them.
Financial Fundamental #1 – Leverage
For financial literacy month I want to put out what I believe is the most important single theory of finance that I wish everyone understood, so as to open up their path to better opportunity. It’s the simple reality of financial leverage coupled with rising asset value. If I buy an investment worth $100 but with only $20 of my own money, and $80 borrowed, and that investment gains 10% in value, it will have added 50% to my equity.
Fundamental #2 – Principle Residence
The second fundamental I believe to be most important for Canadians is based on our particular tax system, which permits the gains in value of our principal residences to be untaxed. It leads me to believe that the best place to apply that first principle of leverage in the presence of rising asset values is to promote principle residence ownership for as many of our family members as we can. I think principle residence ownership is the best investment any Canadian can make, and I offer that as a great lesson for financial literacy month.