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 benchmarkBenchmark A yardstick that you can use to measure the performance of an investment. Example: a stock market index may be a benchmark you can use to compare how well your own stocks are doing.+ read full definition 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 debtDebt Money that you have borrowed. You must repay the loan, with interest, by a set date.+ read full definition costs more the longer you carry it, only 48 per cent can correctly state that a mortgageMortgage A loan that you get to pay for a home or other property. Often the loan is for 20 years or more. You make a set number of payments for a set amount each year.+ read full definition with a 25-year amortization will cost more than a 20-year mortgage with the same interest rateInterest rate A fee you pay to borrow money. Or, a fee you get to lend it. Often shown as an annual percentage rate, like 5%. Examples: If you get a loan, you pay interest. If you buy a GIC, the bank pays you interest. It uses your money until you need it back.+ read full definition. 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 inflationInflation A rise in the cost of goods and services over a set period of time. This means a dollar can buy fewer goods over time. In most cases, inflation is measured by the Consumer Price Index.+ read full definition, long-termTerm The period of time that a contract covers. Also, the period of time that an investment pays a set rate of interest.+ read full definition 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 taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition 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).
Read the report.
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.