Toronto, ON, November 2012 - While more Ontarians achieve a passing grade on their basic financial literacy than in 2010, the wheels of progress are turning slowly, according to a new benchmark survey from Investor Education Fund (IEF). Only one-third (36 per cent) of Ontarians get a passing grade in their financial knowledge and its application to real-life scenarios, up seven percentage points in the past two years.
The 2012 Benchmarking Financial Knowledge Survey is a follow-up to a 2010 IEF study and highlights inroads in financial literacy and specific areas of financial education that need attention.
- Survey respondents were challenged in making the leap from knowledge to application. For example, of the 91 per cent who know that debt costs more the longer you carry it, only 48 per cent can correctly state that a mortgage with a 25-year amortization will cost more than a 20-year mortgage with the same interest rate. These figures are down from 95 per cent and 53 per cent respectively in 2010.
- Financial planning emerges as the weakest area of financial knowledge. This includes understanding of the mechanics of inflation, long-term savings strategies and retirement planning.
Saving and investing are key indicators of financial knowledge. Of those respondents who answered the majority of the survey’s 21 questions correctly, most were likely to be investors, saving for retirement or for their children’s education.
Most people know that high returns with low risk can indicate fraud. While 91 per cent recognize that promises of high returns with low risk are indicators of a fraud, the 9 per cent who don’t know still represent a fertile field for fraud.
People have a good understanding of the basic tax implications of RRSPs, but less so in the younger age groups. On average, 74% of respondents are aware of the tax implications; among 21-34 year olds this number drops to 64%.
Investor knowledge has considerable room for improvement. Only 36 per cent of respondents get a passing grade (answering at least 60 per cent of the questions correctly).
There is a lack of understanding of economic fundamentals. Only 39 per cent clearly understand the impact of compound interest. Even fewer understand that inflation erodes living standards (33 per cent) and when wages rise more slowly than inflation, your living standard is likely to decline (37 per cent).
About the survey:
The survey was developed in October 2012 by The Brondesbury Group via telephone survey of 1,000 households across Ontario. The accurate representation of households from seven regions within Ontario was part of the survey design, as was the balance between male and female respondents. A minimum quota was set for the 18-29 age grouping to ensure comparable accuracy. The final sample was weighted to reflect the most recent population estimates for Ontario prepared by Statistics Canada. Overall results are accurate within +/-3%, 19 times out of 20.
The Cranial Cash Clash
Pressing the Senate for action on financial literacy
RRSP savings calculator