Assessing Canadian Investor Knowledge

Our Investor Knowledge Study has new insights on Canadians’ understanding of investment costs, protections and their awareness of their own financial literacy.

Introduction

You can make more informed decisions if you know more about what you know, and don’t know. This is particularly true for investing. That’s why the Ontario Securities CommissionOntario Securities Commission An independent Crown corporation that is responsible for regulating the capital markets in Ontario. Its mandate is to provide protection to investors from unfair, improper or fraudulent practices, to foster fair and efficient capital markets and confidence in capital markets, and to contribute to the stability of the financial system and the reduction of systemic…+ read full definition conducted an Investor Knowledge Study to assess investors’ financial literacy across Canada.

It found valuable insights about what Canadians know, and don’t know, when it comes to investing.

Read the full report

Key findings

The Investor Knowledge Study analyzed the responses of more than 2,500 Canadians to financial literacy questions covering a range of investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition topics. The online survey was designed by the OSCOSC See Ontario Securities Commission.+ read full definition’s Investor Office.

Overall, the study found a broad range of investment knowledge among Canadian investors with investors answering 53% of questions correctly on average. But it also found knowledge gaps in a few areas, including:

  • Investors had the least knowledge when asked about investment costs and investor protections.
  • About 3-in-10 Canadian investors self-assessed their financial knowledge too highly.
  • Women were less financially literate than men.

The study also found the self-directed investors were the most financially literate. The average self-directed investor answered 59% of the questions correctly. This compared to 52% for investors with advisors and 49% for investors working with a robo-adviser.

Canada has one of the highest financial literacy rates in the world. The 2020 S&P Global Finlit survey found that 68% of Canadians are financially literate. Other countries with high financial literacy rates include Australia, Denmark, Finland, Germany, Israel, the Netherlands, Norway, Sweden and the United Kingdom.

This report provides a better understanding of the level of financial literacy among Canadians. Identifying knowledge gaps can help in the development of targeted investor education resources. The results of the study can also be used to enhance engagement and outreach efforts and policy development at the OSC’s Investor Office.

Survey outline

Survey participants answered 27 financial literacy questions covering a range of investment topics. The questions assessed the objective financial knowledge of survey participants. On average, respondents answered slightly more than half of the financial literacy questions correctly.

The survey focussed on questions from five key areas of importance for investors when making informed investment decisions:

  1. Registered accounts questions – key features of different registered accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition types (RRSPs, TFSAs, RESPs).
  2. Organization for Economic Co-operation and Development (OECD) core questions – seven widely-used financial knowledge questions currently used in the CSA Investor IndexIndex A benchmark or yardstick that lets you measure the performance of a stock market, part of a stock market or a single investment. Examples: S&P/TSX, S&P/TSX Canadian Bond Index.+ read full definition and used across OECD jurisdictions.
  3. Investing principles and concepts core questions – broad underlying principles and investing concepts.
  4. Protecting your portfolioPortfolio All the different investments that an individual or organization holds. May include stocks, bonds and mutual funds.+ read full definition questions – understanding investor rights and responsibilities.
  5. Investment costs questions – fee characteristics of different investment products and advisory relationships

Detailed results about Canadians’ investment knowledge

More Canadians are taking on more responsibility for their own investing. It is now more important than ever that people have the financial knowledge they need to effectively participate in Canada’s capital marketsCapital markets Where people buy and sell investments.+ read full definition.

The survey found interesting knowledge gaps that aspiring investors should be aware of in order to have a successful investing journey.

  1. About 3-in-10 Canadian investors self-assessed their financial knowledge too highly.
  2. A comparison of self-assessments before the survey to investors’ actual survey answers revealed about 3-in-10 (29%) underperformed their expectations. And about 14% exceeded their expectations. The most misaligned expectations were among investors under age 35 (38%), those using a robo-adviser (40%), and those low on cognitive reflection (35%).

  3. Investors have the least knowledge when it comes to investment costs and investor protections.
  4. The fewest correct responses were provided to questions about investment costs (36%) and portfolio protections (44%).

  5. On average, self-directed investors were the most financially literate.
  6. The average self-directed investor answered 59% of the questions correctly. This compares to 52% for investors with advisors and 49% for investors working with a robo-adviser.

  7. Women were less financially literate than men.
  8. The average woman answered 50% of the questions correctly compared to 56% for the average man.

  9. There are effective ways to reduce overconfidence in some investors (de-biasing).
  10. After completing the survey, 31% of participants lowered their self-assessment. Younger investors (aged 18-34) were more likely to do so (39%).

  11. Canada has one of the highest financial literacy rates when compared globally.
    The 2020 S&P Global Finlit survey found that 68% of Canadians are financially literate. The same percentage we found for the OECD questions (respondents answered 5/7 correctly (on average)). Other countries with the highest financial literacy rates were Australia, Denmark, Finland, Germany, Israel, the Netherlands, Norway, Sweden and the United Kingdom (55-75%).

Conclusion

Knowing your financial literacy level and where you have knowledge gaps can help you focus on where to improve your knowledge so that you can make more informed choices. The Investor Knowledge Study findings show the level of financial literacy among a broad group of Canadians. Insights from the study might help you better assess your investing knowledge.

Identifying knowledge gaps can help in the development of targeted investor education resources. The results of the study can also be used to enhance engagement and outreach efforts and policy development at the OSC’s Investor Office.

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