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Financial Literacy

Canadians lack basic financial know-how Add to ...

Less than a year after the massive global financial crisis, a vast majority of Canadians do not understand the basic principles of financial risk and even fewer are taking steps to educate themselves.

A global survey released Thursday found that only 13 per cent of Canadians could answer three basic questions about financial risk, results that match the average across the other countries studied.

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When divided by gender, 16 per cent of men and just 9 per cent of women surveyed answered all questions correctly. Education also played a role in people's ability to answer correctly, with 8 per cent of high school graduates getting all the questions right, compared to 20 per cent of those with a university degree.

Gary Rabbior, the president of the Canadian Foundation for Economic Education, says many Canadians believe they need to have a lot of money in order to get educated on financial matters when, in fact, the opposite is true.

"Higher costs are often imposed on the people who can least afford them," he said in an interview. "These are the people who end up paying higher rates on credit cards and higher fees because they don't have the knowledge to make these decisions."



It's a possibility that even the most well-educated consumers may just disengage because they are too afraid to invest in products they can not understand. Rhonda Grunier, vice-president of TNS Canadian Facts


TNS, a U.K.-based research firm, asked consumers in 13 countries to assess the relative payout of two lotteries, the relative risk and returns from two investment funds, and the relative risk of investing in a single stock as against a basket of stocks.

Respondents in The Netherlands were most capable of answering all three questions correctly at 21 per cent, followed by Hong Kong and Luxembourg at 18 per cent. Argentina scored lowest at 5 per cent, while Portugal scored 6 per cent and Mexico scored 7 per cent.

Among the 13 countries polled for financial risk awareness, Canada came in 9th.

"It's a possibility that even the most well-educated consumers may just disengage because they are too afraid to invest in products they can not understand," said Rhonda Grunier, vice-president of TNS Canadian Facts, the Canadian arm of the research firm.

"We think these study results speak to a real need for financial services providers to help their customers learn more about financial risk," she added.

Canadians, however, are doing little to improve their financial knowledge. Just 10 per cent said they have increased their efforts to educate themselves on financial matters since the start of the global economic crisis, compared with 19 per cent of consumers surveyed across all countries.

. Weigh in on whether you would stash some extra money into an RRSP, RESP or a TFSA.

Mr. Rabbior believes that, as a country, Canada needs to understand why people are reluctant to get educated on financial matters and to come up with some firm incentives.

"The recent crisis has dramatically heightened the awareness of companies, governments and financial institutions on the importance of financial education," he said. "It has yet to be seen what impact it has had on Canadians. By and large, people are afraid and distrustful of anyone who try to help them in this field."

The TNS survey, which was developed in association with professors from Harvard Business School and Dartmouth College, was conducted between June and September of 2009. The total sample size among all countries was 14,693, with 1,132 people surveyed in Canada.

Roma Luciw is a writer and web editor of the Globeinvestor.com personal finance site. Please send any comments and story ideas to rluciw@globeandmail.ca.

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