Financial literacy in Canada: How savvy are Canadians when it comes to personal finances?
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Updated: October 17, 2024
Financial literacy impacts almost all aspects of our lives. However, recent studies indicate that many Canadians lack the information they need to effectively manage their finances. Improving financial literacy is vital for individuals and Canadian society. People with the tools and knowledge to make informed financial decisions can avoid debt traps, scams and other issues that pop up during tough economic times.
What is financial literacy?
Financial literacy may seem confusing, but it really isn't. The term financial literacy refers to the ability to understand and use financial skills, such as personal financial management, budgeting, and investing.
Being financially literate empowers individuals to make informed and effective decisions with their finances. But financial education isn’t a one-time thing. Rather, it’s an ongoing process of learning and adapting to changing financial landscapes like recessions or pandemics.
Financial literacy in Canada is growing, but is it improving fast enough?
Being financially knowledgeable empowers people to make informed financial decisions, achieve stability and avoid debt traps. But in Canada, the story of how many Canadians have this knowledge is a shifting narrative.
While financial literacy numbers are rising, they’re still down from the pre-pandemic period. International surveys show that previously, Canadians had some of the highest financial literacy levels in the world. In 2017, the Organization for Economic Cooperation and Development (OECD) ranked Canada third in financial literacy, for instance.
But that reality has shifted significantly due to the COVID-19 pandemic. The triple whammy of runaway inflation, deteriorating job prospects and a lack of budgeting caused global financial havoc, with Canadians hit hard.
Pandemic hits Canadian confidence in finances
Even before COVID, many Canadians did not have a budget, and their personal debt levels were high. Worse, they had limited or no retirement savings for down the line.
And, the official figures from Statistics Canada reflect this decline. From a high of 61% in 2018, how Canadians perceived their financial literacy dropped sharply, with the figure currently resting at just 47% as of 2024. That’s roughly on par with the United States and much of Europe but lagging behind countries like Sweden, Norway, Germany and Australia.
But how can a pandemic or rampant inflation impact financial literacy? People don’t just lose financial knowledge when times are rough. Instead, they lose their confidence in their financial skills and make ill-informed and rash decisions while leaning on credit cards to help make ends meet. These common errors can include:
- Panicking with finances: Tough financial times can force people into making rash decisions with money or investments.
- Over-relying on credit: Rampant inflation can quickly undermine a family budget, forcing parents to rely on credit cards and personal loans.
- Missing payments: Paying bills on time is essential for maintaining a good credit score, but sometimes it might seem easier to avoid paying a bill to save money for other needs. However, missing payments or defaulting on loans can seriously damage your credit health.
- Missing opportunities to boost financial knowledge: Education never ends, especially in personal finance. Hard economic times can hurt your personal confidence in finances. This can also limit your financial awareness.
Overall, Canadians are better off with financial literacy in 2024. However, the numbers are still a bit lower than in 2021 and much lower than in 2018. Some of these differences may be due to changes in how questions were asked.
What are the biggest hurdles to financial literacy?
So, what’s keeping Canadians from achieving financial literacy? Several factors hinder progress, from cultural and behavioral issues to access to professionals.
Cultural and behavior factors
Cultural attitudes towards money may also be harming financial literacy efforts in Canada. Some people may feel uncomfortable discussing money matters, which hinders open conversations about financial topics. This cultural barrier prevents individuals from seeking the knowledge and guidance to make informed financial decisions.
Behavioral biases also come into play when it comes to financial literacy. Cognitive biases, such as overconfidence or present bias, can interfere with sound financial decision-making and hinder individuals' ability to learn and grow financially.
Limited access to professional advice
Finally, limited access to professional advice is another significant hurdle for some Canadians. High-quality financial advice can be expensive, making it inaccessible to many individuals, especially those who need it the most. This lack of access to professional guidance leaves many Canadians without the necessary support to make informed financial decisions.
Canadian students are gaining in financial literacy, but there’s still work to do
The lack of mandatory financial literacy education in Canadian classrooms is a major hurdle for students. This can leave many young adults without the foundation in managing finances they’ll need to succeed.
Research shows that secondary students struggle to access reliable financial education materials. The Canadian government's National Research Plan for Financial Literacy identifies three key areas where young adults in Canada struggle with finances.
- Access: Many students simply don’t know where (or what) to ask. Helping them to locate resources (and giving them the confidence to use them) is vital.
- Quality: Many students turn to social media sites or inexperienced friends or family for financial tips, which can be dangerous.
- Social anxieties: Students and children might avoid asking for financial help. This might be a family issue, a fear of finances, or other social fears and anxieties that keep kids from accessing a strong financial education.
Classrooms are a key to financial literacy success
Perhaps the greatest opportunity for improving financial literacy lies in the classroom. A 2023 survey by Edward Jones found that most Canadians believe the classroom is the best place for financial education. Additionally, 95% of respondents believe the current economic climate makes teaching finances more important than ever. A further 80% agree that the best place to learn about financial literacy is in the classroom, with 83% of respondents believing teachers were most trustworthy with financial education (second to financial professionals at 84%).
But schools need to be doing more.
Just 46% of those surveyed say they had enough knowledge to navigate their finances successfully when they graduated high school. Worse, Canadians aged 18 to 34 are the least prepared for managing finances after graduation, with just 40% believing that schools had given them the tools they need to succeed financially.
Canadian schools continue to roll out financial literacy courses
That said, progress is being made in Canadian classrooms.
Newfoundland and Labrador introduced an economic education course for Grade 10 students in 2019. Similarly, the Saskatchewan government introduced changes to its high school graduation requirements, including a mandatory financial literacy course, effective at the start of the 2024 school year. Financial literacy was previously offered as an elective in the province.
British Columbia and Alberta have also made strides in including financial educational materials in the school curriculum, with millions of dollars earmarked for these plans.
The province of Ontario announced a major overhaul of its Ontario Secondary School Diploma (OSSD) requirements, the first such change in a quarter of a century. The changes, set to begin in 2025, will require Ontario students to complete a new financial literacy graduation requirement as part of their Grade 10 math course to demonstrate practical skills and proficient application of knowledge in financial literacy.
All told, it’s estimated that over 2,000 students have successfully completed the financial literacy training across Alberta, British Columbia, Manitoba, Ontario and as of earlier this year.
Here's where financial literacy courses are required by law for secondary students:
These changes are part of the Canadian government's broader system of reforms developed by the Financial Consumer Agency of Canada (FCAC). This on-going, comprehensive financial literacy programme is based on four key components:
- Managing debt involves borrowing and repaying money. Many consumers are unaware of the long-term costs of mortgages, credit cards, and other loans, and too few have a plan in place for paying them back.
- Navigating the financial marketplace speaks to the growing complexity of the financial marketplace and to the consumer’s ability to find the most suitable financial products and services.
- Building savings involves putting money aside for the future, with some of the most common uses being to pay for emergency expenses, education, and retirement.
- Budgeting is a fundamental component of financial planning and involves tracking income vs. expenses. As Canadians incur debt, the financial marketplace becomes more complex and harder to navigate, and with people saving less money overall, budgeting can help consumers meet their personal needs today and into the future.
Educational policy backed up by science
And these changes are backed by science. A 2022 article in the Journal of Consumer Affairs found that subjective knowledge had stronger relationships with financial behavior and well-being than objective knowledge. In plain English, it found that how much people think they know about finance (subjective knowledge) has a stronger impact on their financial decisions and overall financial well-being than what they actually know (objective, hands-on knowledge).
A similar study in 2023 by Elisabeth Sinnewe of Queensland University of Technology in Brisbane, Australia, found that hands-on experience and exposure to difficult financial decisions are critical for establishing financial literacy and a stronger engagement with personal finances.
In short, the science says that effective financial literacy goes beyond just knowing facts about money management. Instead, it involves a holistic approach of building confidence, gaining practical experience with finances and understanding how life events can directly impact financial decisions.
Students lacking in personal finance knowledge are more likely to struggle with making sound decisions about money later in life. They’re also much more likely to turn to other sources for financial advice — - some less reputable than others.
Social media and financial literacy
Social media is a major force in Canadian society and has become something of a one-stop shop for financial advice (both good or bad). Younger Canadians are especially prone to a reliance on social media, with a 2023 study finding that 38.8% of respondents between 18 and 24 said that social media is their primary source for financial information, compared with less than a quarter (22.7%) reliant on family for financial tips and info.
A similar study by Intuit Canada in July 2024 found that just 17% of students rely on social media sites like TikTok, Instagram, YouTube or Reddit for personal finance info. However, a huge 89% of those respondents stated that they rely on social media for financial information. This worrying trend was also identified by a 2023 Nationwide Financial report that found 41% of Gen Z and 34% of Millennial investors have used incorrect financial advice found online.
The dangers of social media
While social media can be a helpful source for news and advice, these platforms are often overrun with fake “financial experts” who can cause serious financial harm. A 2023 US study by the National Financial Educators Council (NFEC) found that, on average, respondents lost $1,506 (USD) per year due to financial mistakes and misleading advice that they found on social media.
So, why are students and other Canadians turning to social media?
- Confirmation biases abound: The algorithms of social media platforms are designed to serve users a mixture of posts from contacts and recommendations from similar accounts and posts they’ve liked or favourited. These algorithms, while helpful, can create echo chambers, reinforcing existing false beliefs and limiting exposure to diverse financial viewpoints.
- Fear of missing out (FOMO): Social media thrives on trends, and when that trend is money, the fear of missing out is very real. The fear of missing out can lead to impulsive investments or poor credit decisions that can haunt you for years to come.
- Scams: While social media sites show a user’s name and profile picture, there really isn’t a whole lot you can do to 100% protect yourself from scams or fraud. Social media financial scams are everywhere, ranging from pump-and-dump crypto scams to unregulated banking products. Meme coins, NFTs, and good old-fashioned scams are everywhere – beware.
Immigrants and new arrivals are finding success with Canada’s financial education resources
One area where the FCAC is seeing tremendous success is with the financial education of recent arrivals to the country. Money.ca’s recent survey into the financial challenges of new arrivals into Canada found that the overwhelming majority of immigrants found the country’s financial literacy and education courses effective at preparing them for life in Canada.
Recent arrivals also praise the country’s robust financial protection against fraud, with 90% of respondents indicating they have never encountered any trust issues with banks and financial institutions in Canada.
It’s not all smooth sailing, however. The survey revealed significant differences regarding age groups and their confidence in financial matters. Gen X respondents were overwhelmingly confident in their financial skills, with 79% of respondents indicating that they had a solid understanding of the Canadian financial system, followed by Gen Z (60%) and millennials (55%). Just 22% of older respondents in the baby boomer generation believed they had a solid grasp of personal finances.
What else can be done?
Financial literacy is growing in Canada, but plenty more can be done:
More collaboration
Financial literacy is critical to successful budgeting and long term financial planning. It’s not just a “me” problem, it’s a “we” problem.
Improving cross-collaboration with external groups can help the Canadian government further bolster financial education by improving data collection and sharing, fostering alternative opinions and designing educational resources that can make a bigger difference in Canadian communities. This may include encouraging the sharing of research between academics, educators and local leaders to encourage consistent messaging and a streamlined approach to policy.
Improved collaboration also means a more inclusive approach to financial literacy programmes. This process would ensure that financial literacy programmes are accessible and relevant to diverse populations, such as indigenous communities, recent immigrants, senior citizens and low-income households.
Targeted interventions
Improving financial literacy means ensuring that failsafes exist within the general education programmes to allow for targeted interventions for underserved or underperforming groups. These interventions should seek to address potential economic, cultural or behavioral barriers that keep certain segments of the population from accessing financial literacy education, including looking at the larger systems and structures that contribute to these challenges.
Curriculum enhancements
Canadian schools are rising to the challenge of financial literacy, but there’s more to be done. Financial literacy is still not a requirement in all parts of the country. Ensuring all provinces and territories integrate financial education into their mandatory secondary curriculum is essential for success.
But beyond that, schools can do more to increase educational efforts for younger students as well. Developing age-appropriate financial education materials for different age groups can supercharge official efforts to bolster financial literacy by giving students the hands-on education they’ll need earlier in life. Incorporating practical, real-world financial scenarios into lessons can help students understand the relevance and use of practical financial concepts like budgeting in their daily lives.
Bottom line
Canada’s journey towards financial literacy has faced a string of major hurdles in recent years. The coronavirus pandemic was devastating to the finances of millions of Canadians; with runaway inflation and poor budgeting combining to drive down savings balances and drive up personal debt.
Despite these roadblocks, financial literacy rates in Canada are rebounding, though they still remain lower than pre-pandemic levels. The country’s National Strategy for Financial Literacy has made great strides in incorporating financial literacy courses into secondary education curricula, hoping to tackle one of the biggest challenges facing the Canadian economy: the younger generations and a lack of financial planning and budgeting skills.
While the road ahead remains challenging, these initiatives represent important steps towards building a more financially literate and resilient Canadian population. But more can be done, including taking the initiative and locating helpful, accurate and trustworthy resources on your own.
Cory Santos is a finance writer, editor and credit card expert with nearly a decade of experience in personal finance. Cory joined Wise Publishing from BestCards, with bylines in numerous print and digital publications across North America, including the Miami Herald, St. Louis Post-Dispatch, Debt.ca, AOL, MSN and Medium as well as financial podcasts like KOFE Talk.
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