A baseline for financial literacy research in Canada: the importance of confidence
May 3, 2018
By Jane Rooney, Canada’s Financial Literacy Leader
Confidence matters when it comes to financial literacy. That’s the takeaway of today’s post, in which I will highlight some of the exciting findings in the Progress Report: Canada’s National Research Plan on Financial Literacy 2016-2018, which we released last week.
First some background. The report describes several studies which relied on data from the 2014 Canadian Financial Capability Survey (CFCS) to examine certain psychosocial factors related to financial decision-making. This survey, which we first fielded in 2009, provides a portrait of Canadians’ knowledge, abilities and behaviours concerning personal financial management. It is fielded every five years, with the next survey taking place in 2019. In this way, it will continue to provide an important baseline for assessing how Canadians are doing over time when it comes to financial literacy.
One major finding of these studies is that financial confidence plays a key role in financial decision-making. The first study, Financial Literacy and Retirement Well-Being in Canada: An Analysis of the 2014 Canadian Financial Capability Survey, found that financial confidence and the ability to make use of advice on financial products were particularly important. Retirees who felt that they were knowledgeable and capable of managing finances (for example, making ends meet, choosing products) were more likely to report having a better standard of living. Similarly, near-retirees with higher levels of financial confidence were also more likely to exhibit financial well-being. In terms of the application of these findings, this study suggests that retirees and near-retirees may benefit from experiential learning approaches intended to increase financial confidence.
Another study in this group, The Link Between Financial Confidence and Financial Outcomes Among Working-Aged Canadians (PDF, 276 KB), found that financial confidence was more important that financial knowledge when it comes to day-to-day money and debt management. But it found that both confidence and knowledge were important when it comes to longer-term planning and saving behaviours.
A third related study, The role of financial literacy in financial decisions and retirement preparedness among seniors and near-seniors of retirement preparedness among seniors (PDF, 244 KB), found that overconfidence among seniors put them at greater risk of poor long-term financial outcomes. That is to say that those seniors who had high levels of financial confidence but relatively lower levels of financial knowledge didn’t do as well on long-term planning behaviours as their peers with high levels of both financial knowledge and financial confidence.
Taken together, these studies offer key lessons for planning financial literacy programs. First and foremost, programs should address the specific needs of people who lack financial confidence, and the decision-making processes that underlie their low levels of confidence. Experiential learning is critical to increase both knowledge and confidence. We learn by doing.
The results of these studies also underscore the importance of carefully designing and evaluating our financial literacy efforts, in order to determine what, if any, impact they have on financial decision-making.
Next week I will discuss another key research area outlined in our progress report: behavioural insights.
So stay tuned!
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