Ontario earns an A for its decision to require high school students to score 70 per cent or better on a financial literacy test in order to graduate.

Financial literacy is old-school labelling that should be purged in the branding shown to students. Let’s instead use personal finance for the time being – the term has well-served Globe readers and I over a good stretch of time.

High schools in Ontario and other provinces already teach some personal finance, and testing starting next year takes things to a welcome new level of seriousness. You cannot imprint a lifetime’s smart money management by making Grade 10s study for an exam. But if even two or three points are retained, the testing process is a big win.

A few thoughts on the test: First, let there be no involvement from banks or any other businesses that sell financial products or advice. Inviting input from financial planning groups is great, but on the condition they acknowledge they’ll be addressing a financially diverse audience with some people who are outside their usual affluence bubble.

Also, please reconsider the idea of teaching curriculum for the test in math class. Math is a tool in personal finance, but it’s far from the whole toolbox.

Now for some key questions to consider for the test, with some thoughts on why they’re relevant:

What is a credit score, and why is it important?

The score that sums up your history as a borrower is increasingly being used not just by people selling mortgages, credit card and loans, but also insurance companies, prospective employers and landlords. For better or worse, credit scores are considered an indicator of your ability to manage your life and not just pay your bills and make loan payments on time.

Name the biggest benefit and risk of owning a credit card

The biggest benefit is that using a card responsibly helps build a good credit score, while the big risk is that you overspend and end up paying 20 per cent interest. For context, the best savings accounts now pay 4 per cent and many pay less than 2 per cent.

How can you tell if you can afford to rent your own place?

An old rule says your rent should take up 30 per cent or less of your gross annual pay. In an expensive city, 40 per cent is a more practical threshold. At 50 per cent, you should consider roommates or moving back home with your parents.

How much money do you need to buy a home?

Way more than to rent. You have to cover a down payment of at least 5 to 20 per cent, depending on the cost of the home, plus monthly payments for your mortgage, property taxes, insurance, heat, electricity, water and internet. And then you need money for all the other costs of living your life, and for fixing things that break around your home. The average house in Canada cost $703,446 in April – that’s your starting point. But the average price in the big cities of Toronto and Vancouver, for example, was more than $1-million.

What’s the difference between saving and investing?

Saving is money you want to keep safe because you might need it within five or so years and you don’t want to run the risk of losing any of it. Use a savings account for savings. Investing is where you take on some risk of short-term losses in order to have a higher return in the end. You need five years at least to have the best chance of making money in the stock market, and a timeframe of 10-plus years is even better.

What’s the key to investing success?

Three boring things – adding money to your investment accounts regularly, committing to your investments for the long term and having a good mix of investments so that you can ride it out when one or more of your holdings disappoint. Picking hot stocks is basically gambling, and get-rich schemes offering huge returns are about making money for the people selling the plan.

How would you describe the role of banks?

Banks are retail stores selling financial products. They are not your friend, fam, bro or trusted adviser.

What’s the connection between social media and spending money?

Social media connects people, sometimes in ways that make them feel they are missing out or not measuring up to their friends. To feel better, people may spend money they can’t really afford. Spend however you want, but the key to success with money in life is consistently spending less than you have.

The Globe and Mail, June 3, 2024