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Financial literacy terms every Canadian needs to know
November 14, 2025
By Sun Life Staff
Want to feel more confident about saving, investing, and protecting your future? Learning these terms is a great place to start.
Understanding your money is the first step to making it work for you. Financial literacy is really just knowledge of key money terms and concepts. (It’s also known as financial education, money management, or financial skills.)
Financial literacy is something that everyone can learn – and this includes knowing how you earn, spend, save, and protect your money.
Why financial literacy matters in Canada
In 2025, a Financial Consumer Agency of Canada survey found that less than half of Canadians describe themselves as financially knowledgeable.
The good news? Learning a few essential terms and concepts can make a big difference.
Knowing the basics of money management, saving, and investing can help you:
- Feel more confident when making decisions about your everyday finances
- Support your life goals like paying for education, a home, or retirement
- Be less vulnerable to fraud
- Protect you during financial emergencies (like job loss or major unexpected expenses)
- Learn how to manage debt
Everyday terms to help you understand money
Think of your financial literacy as something you build over time. Before you can grow wealth or invest in the future, you need a solid knowledge foundation.
These everyday money terms are the building blocks that help you understand how money moves in and out of your life.
Basic banking terms
| Term | Definition |
|---|---|
| Bank | A financial institution that offers services such as bank accounts, loans, and credit cards to help you manage your money. |
| Bank account | A safe place to keep your money at a financial institution. You can deposit, withdraw, and transfer money when you need it. |
| ATM (Automated Teller Machine) | A machine that lets you take out or deposit cash and check your balance without going into a bank branch. |
| Debit card | A card linked to your bank account that lets you spend only the money you already have. |
| Credit card | A card that lets you borrow money (up to a limit) to make purchases. You’ll need to repay what you spend, often with interest if you don’t pay it off monthly. |
| Chequing account | Your everyday bank account for paying bills and everyday spending. |
| Savings account | An account for money you don’t plan to spend right away. It may earn interest. |
| E-Transfer | Sending or receiving money electronically between Canadian bank accounts using email or phone number – quick, secure, and available almost instantly. |
| Digital wallet | Stores your payment card information on your phone or device so you can make secure purchases online or in stores. |
Borrowing and credit basics
| Term | Definition |
|---|---|
| Credit | Money you borrow now with the promise to repay later, often with interest. It can come from a lender, credit card, or loan. |
| Interest | The cost of borrowing money or the reward for saving it. When you borrow, you pay interest to the lender. When you save or invest, you earn interest on your money. |
| Debt | The total amount of money you owe to others, such as credit cards, loans, or a mortgage. |
| Loan | Money you borrow from a lender that you repay with interest over time. |
| Mortgage | A long-term loan used that helps you buy a home. You agree to make regular payments to the lender, and the home itself is used as security until the loan is fully paid off. |
| Lease | A contract that allows you to use something, such as a car or apartment, for a set period in exchange for regular payments. |
| Rent | The amount you pay to live in or use someone else’s property, like an apartment or house. |
| Credit score | A number that sums up how you’ve managed credit in the past. Lenders use it to help decide if they’ll lend to you and at what rate. |
| Credit report | A record of your credit history (accounts, payments, balances). You can check it to make sure it’s accurate. |
| Credit limit | The maximum amount you can borrow on a credit card or line of credit. |
| Minimum payment | The smallest amount you must pay on a credit card bill by the due date to keep the account in good standing. |
| Grace period | The time between the end of your billing cycle and your payment due date when you may not be charged interest if you pay in full. |
| Overdraft / overdraft protection | When a transaction exceeds your chequing balance. Overdraft protection can cover the difference, usually with a fee. |
Income, spending, and budgeting
| Term | Definition |
|---|---|
| Income (gross, net, taxable) | Gross income is what you earn before taxes and deductions. Net income is what you take home after deductions. Taxable income is the amount used to calculate how much tax you owe. |
| Paycheque | The money you receive from your employer for your work. Your pay stub shows your earnings before and after taxes and deductions. |
| Disposable income | The money you have left after taxes and essential expenses. It’s what you can choose to spend or save. |
| Budget | A plan for how you’ll spend and save your money each month. It helps you see where your money goes and what you can adjust to reach your goals. Need help creating one? Start now with our budget calculator. |
| Cash flow | The movement of money into and out of your accounts. It’s your income minus your expenses. Positive cash flow means you’re living within your means. |
| Expenses | The money you spend to cover your needs and wants, like rent, groceries, bills, or entertainment. Tracking your expenses helps you see where your money goes each month. |
| Fixed vs variable expenses | Fixed expenses (like rent or car payments) stay the same each month. Variable expenses (like groceries or entertainment) can change. Tracking both helps you manage your budget. |
| Emergency fund | Money set aside to cover unexpected costs like car repairs or job loss. As a general rule, you should have three to six months’ worth of living expenses. |
| Subscription | A recurring payment for a product or service, such as streaming or software. Tracking subscriptions helps you manage monthly expenses and avoid surprise charges. |
Measuring your financial health
| Term | Definition |
|---|---|
| Savings | Saving means setting money aside regularly so it’s available when you need it (like for emergencies, big purchases, or future plans). |
| Investing | Investing is using your money to buy assets that can increase in value or generate income over time. |
| Asset | Something you own that has value, like cash, a car, a home, or investments. Assets can help you build wealth over time, because it can generate income or grow in value. |
| Liability | A form of debt. It’s money you owe, like a mortgage, car lease, student loan, or credit card balance. |
| Equity and net worth | Both show you what you own (assets) minus what you owe (liabilities). Equity usually refers to ownership in a single asset, like your home or business. Net worth shows your overall financial picture. The total of all your assets minus all your debts. |
Planning, protection, and fraud awareness
| Term | Definition |
|---|---|
| Financial goal | Something you want to achieve with your money, such as paying off debt, buying a home, saving for a trip, or building retirement savings. |
| Advisor | A trained professional who helps you understand your options and make decisions about your financial, insurance, or health needs. Sun Life advisors provide guidance across different areas depending on their qualifications. |
| Financial advisor | A type of advisor who focuses mainly on helping people with money matters (like saving, investing, and planning long-term goals). Some Sun Life advisors are financial advisors, while others specialize in insurance or health planning (or a combination of the areas depending on their qualifications). |
| Fraud | When someone deceives you to gain access to your personal, financial, or health information, or to steal money, benefits, or services. Fraud can happen through email, phone, text, browsing the web, or even in person. |
| Insurance | A way to protect yourself or your family from financial loss if something unexpected happens. You pay a regular amount (called a premium) to a company, and in return, you’re covered (protected) if certain events occur, like illness, injury, or death. |
| Interest rate | The percentage that determines how much interest you pay or earn on borrowed or saved money. |
When you know where your money comes from and where it’s going, saving becomes the bridge between managing your finances and building your future.
Basic savings terms
Saving is the next step toward building financial security. It’s how you turn careful money management into steady growth over time.
These basic saving terms will help you understand how to make your money work for you, and how government (registered) accounts can help you reach your goals.
| Term | Definition |
|---|---|
| Principal | The amount of money you initially deposit or invest. |
| Interest (simple vs. compound) | Simple interest is earned only on your original amount. Compound interest grows on both your original amount and the interest you’ve already earned. |
| ASP (automatic savings plan) | A way to save money regularly without having to think about it. You choose how much to set aside and how often, and the money automatically moves from your bank account into a savings or investment account. It’s an easy way to build your savings over time. |
| Inflation | The rise in prices over time. It reduces your money’s buying power, which is why earning interest (or investing) matters. Learn more: What is inflation and what can you do to protect your money? |
| Registered vs non-registered | Registered accounts are approved by the government and offer tax advantages, like RRSPs, TFSAs, and FHSAs. But these accounts have contribution limits and withdrawal limits. Non-registered accounts don't have the same limits or tax benefits, but you can invest any amount and access your money anytime. |
| Contribution room | The maximum you can contribute to registered accounts (like a TFSA or RRSP) without penalties. |
| TFSA (Tax-Free Savings Account) | A registered account that lets you save or invest money tax-free. You can use it for almost any goal. |
| RRSP (Registered Retirement Savings Plan) | A registered retirement savings plan (RRSP) is a type of savings account to help you save for retirement. |
| FHSA (First Home Savings Account) | A registered account that lets Canadians save up to $40,000 toward their first home, tax-free. |
| RESP (Registered Education Savings Plan) | A registered account designed to help parents save for a child’s education after high school. |
Saving helps build stability, but investing is what makes your money grow. Once you’ve built your foundation, the next step is learning how to put your savings to work through investing.
Basic investing terms
Investing is about helping your money grow steadily over time.
These investing terms will help you understand the fundamentals and build your wealth with confidence.
Common investing terms
| Term | Definition |
|---|---|
| Investment | Money you put into assets like stocks, bonds, or funds with the goal of earning a return. |
| Micro-investing | Automatically investing small amounts of money (like spare change from your everyday purchases) through an app or platform. |
| Risk tolerance | Your comfort level with how much your investments may rise or fall in value. |
| Diversification | Spreading your investments to reduce risk. Learn more: What’s diversification and how does it reduce risk? |
| Portfolio | The total collection of your investments. |
| ROI (return on investment) | The gain or loss you make from an investment compared to what you originally invested, usually expressed as a percentage. |
| Time horizon | The length of time you plan to hold an investment before needing the money. |
| MER (management expense ratio) | The annual cost of managing an investment fund, shown as a percentage of the fund’s total value. It includes fees for management, operations, and administration. |
Other common investment terms
| Term | Definition |
|---|---|
| Mutual fund | A professionally managed investment that pools money from many investors to buy a mix of assets. |
| ETF (Exchange-Traded Fund) | A fund that trades on a stock exchange, letting you invest in many companies or sectors at once. |
| Shareholder | Someone who owns a share (or a piece) of a company. Shareholders may earn money, when the company pays out parts of its profits as dividends. |
| Dividend | A payment some companies make to shareholders from their profits. |
| Capital gains | The profit you earn when you sell an investment for more than you paid. |
| Market volatility | How much investment values go up and down over time. Some movement is normal. Worried about market volatility? Here are a few ways to manage market up and downs. |
| Pension plan | A workplace plan that helps you save for retirement, usually as a defined benefit or defined contribution plan. |
Growing your wealth through investing is an important milestone. The next step is ensuring that the plans you worked hard for are protected, even if the unexpected happens.
Basic insurance terms
Insurance helps you prepare for the unexpected, so your financial goals - like paying your mortgage or growing your investments - stay on track.
These terms will help you understand the basics of insurance and how it fits into your overall financial goals.
| Term | Definition |
|---|---|
| Premium | The amount you pay for insurance coverage, usually monthly or annually. |
| Deductible | The amount you pay out of pocket before your insurance starts covering costs. |
| Claim | A request you make to your insurance company to receive payments or benefits after an event covered by your policy, like a medical expense, damage, or illness. |
| Coverage | The protection your insurance policy provides (the specific events or expenses it pays for). Are you already a Sun Life member? Find out how to check your coverage. |
| Benefit (insurance) | The payment or service you receive if your claim is approved under your insurance policy. |
| Beneficiary | The person or people who receive the payout from your insurance policy. |
| Term life insurance | Provides protection for a certain "term" of years. |
| Permanent life insurance | Permanent life insurance provides coverage for your entire life and pays your loved ones when you die. |
| Critical illness insurance | Critical illness insurance gives you money if you become seriously ill. That way, you can focus on your health and not your finances. |
| Disability insurance | Disability insurance replaces part of your income if an illness or injury prevents you from working. |
Once you’ve learned how to grow and protect your money, it’s just as important to understand how taxes affect what you keep.
Basic tax terms
From your paycheque to your investments, taxes touch almost every part of your financial life. Understanding how taxes work helps you make informed choices about saving and investing.
| Term | Definition |
|---|---|
| Taxable income | The portion of your income on which you pay tax. |
| Tax credit vs. deduction | A tax credit directly reduces the amount of tax you owe. A tax deduction lowers your taxable income. |
| Marginal tax rate | The percentage of tax you pay on your next dollar of income, not your entire income. |
| Withholding tax | The amount of tax deducted from your paycheque before you’re paid. |
| Capital gains tax | The tax you may owe when you sell an investment for more than you paid. |
Applying financial terms to everyday decisions
Building financial literacy isn’t just about memorizing definitions; it’s also about building new habits that help you reach your goals.
Understanding money terms is one part of the journey. Developing the behaviours that support your saving, investing, and protection goals is the next.
If you need ideas for where to start, here are a few habits and ideas to help build financial confidence.
You don’t have to build financial confidence on your own
You’ve taken the first steps by learning the basics. A Sun Life advisor can help you turn what you’ve learned into a plan that supports your goals.
This article is meant to provide general information only. Sun Life Assurance Company of Canada does not provide legal, accounting, taxation, or other professional advice. Please seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation.
