Financial Literacy In Canada


Are Canadians Financially Literate?

The answer to this question depends on who you ask, as most Canadians overestimate their knowledge when it comes to financial literacy.  In a survey commissioned by 78% of Canadians surveyed stated that they were financially literate, but when these same individuals were tested nearly 60% Failed!, and even those that passed the basic financial quiz only managed to score C or D grade!  This is scary and explains a great deal about why so many Canadians are in debt and why so many Canadians are ill-prepared for retirement.  I am not a Millennial hater by any means but in this same survey baby boomers and gen xers had a pass rate of close to 50% while Millennials had a pass rate of approximately 30%.  This tells me that something has changed for the negative in the generations regarding financial education.  I encourage you to read more about the Canadian Financial Literacy Survey

To go back to the basic question are Canadians financially literate, in my opinion, the answer to that question is NO!  Sure there are some who are, but they are the exception and not the norm.  I feel the real question that people need to be asking is why are Canadians so financially illiterate?

Why Are Canadians Financially Illiterate?

I cannot say for sure but I have a few theories, and I am sure my theories are not completely accurate or the sole reasons, as I am sure it is more complex and is somewhat societal in nature also.

  • The first factor has to be the severe lack of any meaningful curriculum in the school system for educating our young people about basic financial literacy.  Why are we not teaching kids how to budget, do taxes, save & invest?  We need to teach kids how to make their money make them more money.
  • Broken record effect!  What I mean by this is people get stuck doing the same thing they have always done, or what they see or hear others doing.  A perfect example of this is the ever-popular RRSP contribution.  People mindlessly contribute to RRSP each year not because they understand it but because that is what the news talks about every year, or their parents did.  When you ask these people what financial vehicle they put their money in inside their RRSP they look at you like you have 2 heads.  Most people just stick money into RRSP and lock in it a GIC making currently nothing and losing money to inflation.  I think people are stuck in a mode from back in the 80s, 90s etc when there were double-digit interest rates and you could just mindlessly put money in RRSP and it would generate a good return and compound, but that strategy just does not work well with today’s interest rates.  also, people do not reinvest the tax return from the RRSP, they spend it! The other thing is RRSP is deferred taxes and if you end up in retirement in the same tax bracket then there are no real tax savings.  These people should be maxing out their TFSA first to give it as many years as possible to grow tax-free, the bigger you grow your tax free savings account the better, cause it is tax free!
  • Overconfidence.  As demonstrated by the financial literacy survey referenced above, Canadians think they understand finance and they, in reality, do not.  Why would someone seek out more knowledge if they already think they understand a subject?  A wise person knows where the edge of his or her competence is, but most Canadians do not know where their competence ends.
  • Over-reliance on Government.  I feel our society has grown too dependent on the government.  A lot of Canadians think the governments’ job is to take care of them and bail them out.
  • Ignorance is bliss!  I will just give an example for this.  I was talking to a lady in her early thirties and she was bragging about having 30 thousand in her RRSP account, so I naturally asked her the same question I ask everyone.  What financial vehicle is your money in?  She stated mutual funds.  Okay, she is doing better than most, so I asked her what her fees were for her mutual funds.  She could not answer this and did not know there were management fees etc.  her answer was “well my advisor handles all that”, so I asked what are your financial advisor’s fees?  She again got that confused look.  So I explained that if your return is 7% and inflation is 2% and your other fees are 3% you are left with a return of 2%.  I then recommend that she educate herself on TFSA, Stocks & Bonds.  I just quickly stated that a simple ETF could probably mimic her mutual funds and would have many fewer fees and she would not need an advisor, also explained that good paying dividend stock could yield safe 4% return.

How To Increase Canadians Financial Knowledge

This can not be done overnight, as it is a generational and societal issue, it is going to take time to fix.  The government needs to get its act together and stop pretending that Canadians will fix this themselves, cause they haven’t and they won’t.  the government needs to start by fixing the curriculum and start teaching financial topics in school.  Math classes need to have a focus on practical math, such as compounding interest, taxes, and how to grow money and make money grow and make more money.

The government puts out educational material for health topics to educate the population on health dangers such as drugs and smoking etc, but they do not put out any public campaigns for financial education.  We have a newly updated food guide, but do we have a financial health guide?  Hell NO!  Why don’t we have a national financial health campaign to educate the population, we could do it as a nation and it would have wide-ranging benefits for the individual Canadian, but also on the community and country level.  When people are wealthier they tend to have better health outcomes, which would benefit the government in terms of health care spending, and obviously, if more Canadians had more money there would be less demand and drain on social services, thus saving the government money.

The government has an obscure page on its website that provides some basic financial information, but it is not nearly enough and seems like an afterthought.  You can check it out here


Please remember this is not financial advice and all financial investments carry risks. Investors should seek financial advice from professionals before making any investment.  I wrote this article myself and it expresses my opinions.

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