Our financial systems are becoming increasingly complex. There are so many new terms, products, and solutions on offer. To navigate this complex landscape, financial literacy is becoming more important. It helps you understand what you’re considering or signing up for, and manage your finances well. Globally, financial literacy is crucial for economic well-being and stability, for individuals as well as the greater community, and indeed, entire countries.
Financial Literacy Month
November is Financial Literacy Month in Canada, emphasizing the importance of financial education. This year is the 14th edition of this program, led by the Financial Consumer Agency of Canada (FCAC).
Financial systems and processes are becoming increasingly complex on a global scale, and there is a growing need for financial education as well. People may not be aware of the tools and resources available to them, or even what guidance they could have access to.
The theme for this year’s Financial Literacy campaign is “Money on your Mind. Talk about it!” It encourages talking about money, which is still taboo for many Canadians. It can be difficult, especially if the financial matters may be negative or embarrassing. In reality, it’s the opposite: research shows that talking about money can build financial confidence and can lead to better financial outcomes.
Key Learnings
All data points used below are taken from three surveys: the OECD/INFE 2023 International Survey of Adult Financial Literacy, the OECD/INFE 2016 International Survey of Adult Financial Literacy competencies, and a TransUnion quarterly survey report on behaviours and attitudes regarding household budgets, spending, and debt in multiple countries.
Note that the 2023 report does not include Canada in its survey coverage, however, it covers 39 countries including 20 OECD member countries and 8 G20 members. The 2016 survey covers 30 countries and economies, including 17 OECD countries, and does include Canada in its research and findings. The TransUnion survey also includes Canada.
Financial Knowledge
Sixty-two percent of adults were able to answer financial questions correctly. Canada ranked 4th in terms of the highest global average. High-income countries often scored better in financial literacy than low and middle-income countries. Emerging economies are better in some specific areas of financial literacy, but not in all areas like high-income countries. The 2023 OECD survey also found a gender gap: men scored higher than women in terms of financial knowledge. The difference in terms of financial literacy is quite low otherwise, in terms of financial attitude and behaviour.
This shows that as a country’s wealth increases, the financial literacy of its citizens also starts to trend upwards. It may reflect in different areas of learning, development, and accessing the right resources and tools.
Consumer Optimism
Forty-three percent of Canadian respondents mentioned feeling optimistic about the next 12 months, compared to an average of 65% from 11 countries (TransUnion). Forty-four percent of Canadians are concerned about rising living expenses in terms of inflation for everyday goods. From a global perspective, less than half of the OECD 2023 respondents said they had a budget and showed a lack of confidence in financial decision-making. On the other hand, 63% of Canadians said they had a budget (OECD 2016).
Financial Wellbeing
The OECD 2023 average financial well-being comes to 47 out of 100 points, which is less than half across all countries surveyed. Higher-income countries once again scored higher than the average, with countries like Germany at 73 points, and Hong Kong at 61. Thirty-two percent of Canadians reported that their income was not always sufficient to cover living costs, compared to an OECD average of 27%. Thirteen percent also said they borrowed to make ends meet (OECD 2016).
In terms of financial resilience, less than half of the 2023 respondents said they had a budget, or that they could cover living expenses for at least three months without a main source of income.
Financial Priorities
Many survey respondents showed an interest in improving their financial health. People have goals like paying off debt faster (19% in Canada), saving more (11% in Canada as per the TransUnion survey, 49% in OECD 2023 survey), building an emergency fund (17% in Canada as per the TransUnion survey, 31% OECD 2023), and contributing to their retirement savings.
This shows a higher awareness of the importance of financial stability. However, surveys show that many adults prioritized short-term financial goals instead of long-term planning. In fact, the 2016 OECD survey found that over 60% of Canadians looked towards the long term when planning their finances, compared to 50% across all participating countries. This shows that Canadians are saving, but less than most people are able to save globally. Indeed, 15% of Canadian (TransUnion survey) respondents have cut back on their retirement savings, but 11% saved more. This highlights the income inequalities and is further compounded by the ongoing cost of living difficulties.
When it costs more to manage your day-to-day expenses and pay for the bare necessities, it is natural to not have much left over to save. Even still, Canadians seem to be trying their best to save more and build an emergency fund.
Concerns about Credit
Twenty-nine percent of Canadian respondents (TransUnion) had a pessimistic outlook about household finances. Many were concerned about their ability to pay bills, debt, or even be able to access credit. Many expect things to get worse, which can make it even harder to get out of debt or stay solvent in their finances. Fifteen percent of respondents also mentioned increasing their use of available credit. This is a worrying trend where more people could be living paycheck to paycheck, especially when people’s concerns are about not being able to pay their debts or even their current bills.
In recent times, there have been many stories on the news about Canadians going into credit card debt to cover their basic living expenses. Taking this into consideration, it shows why so many respondents believe things may get harder in the future.
Move towards Digital
Almost everything is moving towards digital now. Naturally, more people are using digital platforms to do their banking, apply for credit, check credit scores, and access financial information. To be able to navigate this space, digital financial literacy is becoming increasingly important.
The OECD 2023 survey shows that such services are growing, but adults lack confidence in usage. This seems to imply a gap between the available resources and services available on the market, and what people are actually looking for.
People are also wary of trusting all the information they come across, because the information may not be coming from a neutral source. To be able to differentiate requires a certain level of financial literacy already – making it even harder for people who are just starting out and trying to build their money management skills. People need neutral and trustworthy sources of relevant and helpful information.
Generational Changes
Gen Z and Millenials are considered digital natives and are more likely to apply for credit and use digital platforms. Since they are comfortable with accessing and learning things online, it is a good way to provide – and access – financial information for them. The 2023 OECD survey also shows a notable divide in digital financial literacy between generations.
There is a real need for providing this financial education in different ways across different age groups/generations. By reaching people where they are more likely to spend their time, you can more easily provide relevant financial information and access, whether digitally or otherwise.
Implications
Canadians, on the whole, seem to be doing okay financially, although there is a lower optimism for finances in the next year. This contrasts with a relatively positive global outlook. Canadians are more concerned about day-to-day expenses, like inflation affecting the cost of daily necessities. A positive indicator is that Canadians have a forward-looking focus, and do pay attention to financial literacy. This is also supported by data showing that Canadians focus on long-term financial growth while planning their finances and budgets.
High-income countries scored higher in terms of financial literacy, compared to middle and low-income countries. There is a continued need for personal finance education globally, and neutral, relevant resources can be very beneficial. Ideally, there could also be targeted programs to help bridge the generational, demographic, and gender divide in terms of literacy.
This financial education should also emphasize long-term planning over short-term planning. Depending on where people are along the learning curve for financial management, there is potential to create informative resources that teach how to manage money or create a budget. Whether you’ve got some idea of how to manage your money or you’re starting from scratch, there is potential to learn, improve, be debt-free and be in control of your finances. Asking the right questions and being open to learning go a long way in helping us learn. As the FCAC says, “Money on your Mind. Talk about it!”
