23% and Counting, but Not ‘One Size Fits All’: Helping Canada’s Immigrants Strengthen Their Financial Knowledge

By: Avneet Bhabra 

Desautels Faculty of Management, McGill University  

© 2023 Avneet Bhabra. All rights reserved.

Acknowledgements: I would like to acknowledge and thank my supervisors, Dr. Antonia Gieschen and Dr. Laurette Dubé, who shared their valuable input with me throughout the research process.

Abstract

Immigration to Canada has been steadily increasing in recent years, with immigrants accounting for as much as 90% of Canadian labour force growth. However, data collected by the Financial Consumer Agency of Canada (FCAC) has demonstrated that this growing subpopulation tends to report lower levels of financial knowledge and higher levels of financial anxiety than Canadian-born individuals, most likely due to language barriers, and receiving financial information from friends and family. In this paper, a hierarchical clustering analysis was conducted on data collected in the FCAC’s 2019 Canadian Financial Capabilities Survey, in addition to a literature review. The results showed that one cluster in particular – which is representative of an immigrant who is younger, single, and has recently immigrated to Canada – is more likely to report poorer financial management and not have a plan for retirement saving. As such, this paper proposes that stakeholders adopt two solutions: first, the integration of multilingual chatbots on banking websites to support immigrants’ navigation of proper financial products, and second, the adoption of a goals-based financial literacy curriculum in currently existing language programs offered by the Government of Canada for new immigrants.

Introduction

According to Statistics Canada’s 2021 Census of Population, immigrants in Canada make up 23% of the total population, a number that has steadily increased in recent years (Statistics Canada, 2023). However, immigrants continue to face difficulties in engaging with the Canadian financial system, and are often excluded due to language barriers. In this paper, we will examine the current financial challenges faced by immigrants in Canada, specifically as it relates to acquiring financial information from reputable sources and adequately planning for long-term savings goals. After conducting both secondary research in the form of a literature review, and primary research through hierarchical clustering of data relating to immigrants’ financial wellbeing, we will propose two solutions to help immigrants understand which financial products and services are appropriate for their own situation and goals: the integration of multilingual chatbots on bank websites and the introduction of a goals-based financial literacy curriculum in currently offered language training programs. This will address Target Outcome 2 of Ecosystem Priority 1 (communicating in ways people understand). For the purposes of this paper, financial literacy may be defined as “having the knowledge, skills and confidence to make responsible financial decisions”, financial knowledge refers to “an understanding of personal and broader financial matters” (Financial Consumer Agency of Canada, 2021), and financial security may be defined as “the ability to meet current and ongoing commitments” (Global Centre of Financial Health, n.d.).

Background research

The economic importance of immigrants in Canada

As a growing proportion of the Canadian population, immigrants have become an important part of the Canadian economy. According to the Government of Canada, immigration accounts for as much as 90% of Canada’s labour force growth (Government of Canada, 2022). Most of these migrants are of working-age when they move to Canada (i.e., less than 65 years old), which means that they help to ease labour shortages in the country (Statistics Canada, 2022). In fact, the Government of Canada has aimed to increase the number of newcomers^{Footnote 1}  to this country, by setting a target to welcome 465,000 permanent residents in 2023 (Government of Canada, 2022). These immigration policies and economic indicators signify that immigrants are an integral part of the Canadian economy, and continue to become an increasingly impactful social group.

Financial services offered to newcomers to Canada

Given this influx of newcomers to Canada, there are many services that are currently offered to help immigrants adjust to their new life in this country, namely resettlement services and specialized financial offers from Canada’s largest banks. Resettlement services are provided by non-profits and social enterprises; these organizations assist newcomers by helping them with language instruction, finding employment, and securing housing and education for their families and children, among other services. Many of these services, like Canada for Me, also provide financial literacy programs to help newcomers familiarize themselves with the Canadian banking system. These programs can range from helping newcomers open bank accounts to assisting them with tax preparation (Canada for Me, n.d.). However, one-time financial literacy programs, which are offered by many of these non-profits, may not be as effective in the long run because researchers have found that the effectiveness of one-time interventions on financial knowledge can reduce significantly as more time passes (Barcellos et al., 2016).

In addition to these resettlement services, Canada’s largest banks (Scotiabank, RBC, TD, CIBC, BMO, and National Bank) also offer specialized programs designed to address immigrants’ needs (e.g., Scotiabank’s “StartRight™ Program offer for newcomers” and RBC’s “RBC Newcomer Advantage”). These programs include promotions relating to account fees, debit and credit limits, money transfers, and savings. According to a 2022 Globe and Mail article, the majority of banks’ new customers are immigrants, even more so than young adults or clients switching financial institutions (Bradshaw, 2022). As such, banks are keen on advertising to immigrants in order to encourage them to bank with their institution.^{Footnote 2}

With a number of services offered by nonprofits, social enterprises, and banks, it can be concluded that there is no lack of services available for immigrants to help them with their finances. And yet, immigrants are still more likely to report lower levels of financial knowledge as compared to those who were born in Canada, according to the 2009 and 2014 Canadian Financial Capability Survey (Khan et al., 2022). To understand why this may be the case, in the next section we will examine the potential reasons why immigrants face more financial challenges than those who were born in Canada.

Financial challenges faced by immigrants in Canada

There are three potential explanations as to why newcomers may face additional challenges when trying to participate in the Canadian financial system. First, immigrants face language barriers when accessing information relating to financial products and seeking employment (Prosper Canada Centre for Financial Literacy, 2015). One study assessing the financial knowledge and behaviour of immigrants in Canada found that there were lower levels of financial knowledge among individuals whose mother tongue was neither English nor French. The findings suggest that language barriers can “impede the learning process about financial institutions in the host country”, which can prevent immigrants from fully participating in the Canadian banking system (Rostamkalaei et al., 2020). Additionally, immigrants may face language barriers because the countries from which they immigrated may not have comparable financial products and services; as such, there may not be corresponding terminology to help immigrants understand the kinds of services offered in Canada (Prosper Canada Centre for Financial Literacy, 2015). Thus, these language barriers can hinder immigrants’ abilities to learn more about the financial products and services that are best suited to their needs.

Second, research suggests that the length of stay in Canada is correlated with immigrants’ level of financial knowledge. In the same report produced by the Prosper Canada, it was found that while immigrants’ financial knowledge is lower than those who are Canadian-born, immigrants who have more recently relocated to Canada tend to report even lower levels of financial knowledge than those who have been in the country for a longer period of time (Prosper Canada Centre for Financial Literacy, 2015). This finding may suggest that the longer newcomers stay in Canada, the better equipped they become to assess the effectiveness of financial services that serve their needs.

Third, older immigrants face challenges in having their educational and professional credentials recognized in Canada. One study that examined the lived experiences of older immigrants found that structural discriminatory policies can contribute to higher levels of unemployment and poverty among newcomers in Canada (Ferrer et al., 2020). These kinds of policies can result in financial exclusion, which the researchers describe as “a particular kind of socioeconomic exclusion that [creates] structural barriers that can then reinforce poverty” (Ferrer et al., 2020). In other words, older immigrants who are qualified in their home country for more skilled jobs (e.g., a medical professional, engineer, etc.) may not be qualified to work in that same field in Canada, unless they undergo additional training.

These three broad reasons why immigrants face financial challenges can contribute to financial insecurity among newcomers to Canada. Based on our review of the literature, there are two primary effects on immigrants. First, given the language barriers that can prevent immigrants from accessing reliable sources for financial information, newcomers to Canada are more likely to be exposed to financial misinformation coming from families and friends, or they may rely on fringe banking models whose proximity may be closer to immigrants than bank branches, like pawn shops and title lenders payday loans (Ferrer et al., 2020). Prosper Canada suggests that newcomers may rely on more established members within their community for financial advice upon their arrival, which could increase the risk of financial fraud or abuse (Prosper Canada Centre for Financial Literacy, 2015). Moreover, immigrants are less likely to plan for retirement or make long-term investments (Rostamkalaei et al., 2020). This can cause strain on Canadian welfare systems, because immigrants are therefore more likely to rely on government provided pension plans and social welfare systems when retired (Rostamkalaei et al., 2020).

Primary research

In order to further understand the challenges faced by immigrants in Canada, primary data analysis was conducted using the 2019 Canadian Financial Capabilities Survey (CFCS) dataset. The 2019 CFCS includes questions directly related to consumers’ general financial stress and habits relating to long-term saving. For example, some variables included demographic indicators (e.g., sex, age, marital status, etc.), financial indicators (e.g., household income before tax, types of debt held my respondent, etc.), and financial literacy/wellbeing indicators (e.g., sources of financial advice, how respondents feel about making ends meet and keeping track of money, etc.).

Methodology

First, some basic data visualization plots were produced to better understand the financial behaviours exhibited by immigrants in Canada. In the 2019 CFCS dataset, there were a total of 1,501 individuals who responded “no” to having been born in Canada, out of a total of 7,139 respondents; these individuals were therefore considered to be immigrants.

Next, a hierarchical clustering analysis was conducted on the immigrant subpopulation to extract patterns in the data, specifically to understand the characteristics exhibited by different groups within this subpopulation. Nine variables were used for the clustering analysis: sex, age range, province, marital status, having children, immigration year, education level, work situation, and household income. These variables were recoded into indicator (“dummy”) variables, and the clustering analysis was subsequently conducted using SPSS Statistics 28.0.1. The clusters were formed using between-group linkages as a cluster method, and distances between groups were measured at intervals using squared Euclidean distance. From this, an agglomeration schedule was produced in the output, which showed the clusters of data that were being combined at each stage of the clustering process. Figure 1 shows the stage of clustering plotted as a function of coefficients from the agglomeration schedule; a coefficient cutoff point of thirteen was chosen because after this threshold, the dissimilarity between clusters becomes very large, as seen in the sharp increase in the figure. With this cutoff point, we were left with four clusters that exhibit different characteristics, which are summarized in Table 1. Since the fourth cluster included only 3 data points, we determined that these data points in Cluster 4 were outliers. As such, we will focus on Clusters 1-3 for the subsequent analysis.

Findings

From the basic data visualization, we can observe that as a whole, immigrants exhibit similar kinds of financial behaviour to those who were born in Canada. For example, Figure 2 plots the total percentage of immigrants and Canadian-born individuals (i.e., “non-immigrants”) who use different sources for financial advice. We can see from this figure that there are minimal differences between the behaviours of these two subpopulations. These similarities suggest that currently available financial products and services are useful for both subpopulations, and that banks don’t need to significantly change their current offerings to attract immigrants as new customers.^{Footnote 3}

The results from the hierarchical clustering analysis are more nuanced. As seen in Table 1, three main clusters emerge. To generalize the experiences and behaviours exhibited by these clusters, we can attribute personas to each of them: “Ari” is representative of Cluster 1, “Bo” is representative of Cluster 2, and “Cam” is representative of Cluster 3. Referring back to Table 1, we see that Ari can be described as an older female (more than 65 years old) who is married with no children and who immigrated to Canada between 1960-1969. Having lived in Canada for many years, Ari receives financial advice from banks and professional advisors, feels very good about keeping track of their money, and has planned for retirement. Bo, on the other hand, is a male between the age of 45-54 who is married with children, and immigrated to Canada after 2000. Bo receives financial advice from banks and professional advisors, feels good about keeping track of money, and is almost equally as likely to plan for retirement as Ari. Lastly, Cam can be described as a male who is less than 34 years old and immigrated to Canada between 2010 and 2019. They get their financial advice from the internet as well and friends and family. In addition to this, they are more likely to feel not very good about keeping track of money, and not plan for retirement as compared to Ari and Bo. Three of these characteristics can be visualized in Figures 4-6: the year in which newcomers immigrated to Canada, sources from which immigrants receive their financial advice, and whether immigrants plan for retirement. Ari, Bo, and Cam can help us understand the challenges faced by immigrants at different stages in their life; we see that Ari – who has been in Canada for much longer – tends to feel more financially secure than Cam, who is younger and only recently immigrated to the country. Additionally, Cam is more likely to get their financial advice from sources that can be considered less reputable than financial institutions (i.e., friends and family or the internet); experts suggest that recipients of advice from friends, family, or the internet should consider the financial success of the source (Leidy, 2023). Moreover, Cam is less likely to plan for retirement as compared to Ari and Bo. As a result of these observations, we should focus our interventions towards Cam as they appear to need the most help acquiring financial knowledge; the interventions should ensure that they use reliable sources when gathering financial information, and that they plan for retirement given that they have many more years left before they retire.

Proposed solutions

In order to help newer and younger immigrants like Cam improve their financial knowledge, the interventions should be embedded in information channels that Cam is more likely to use. For this reason, two potential solutions can be introduced, which will be described in the following section.

Integration of multilingual chatbots on bank websites

Even though immigrants’ ability to speak different languages was not assessed in the 2019 CFCS, the secondary research demonstrates that this is a significant pain point for immigrants when trying to participate in the financial system. This, paired with the fact that immigrants like Cam are more likely to use the internet to receive financial advice, suggests that banks should develop a more multilingual online presence. One way in which this can be done is through the use of multilingual chatbots. Of the six banks that were mentioned earlier in the paper, most have basic chatbots on their websites, however it is unclear and unlikely that they are multilingual (as we would expect this to be advertised). In fact, one of the banks (BMO) specifically mentions that their chatbot is currently only offered in English.

The use of multilingual chatbots as a tool to facilitate better communication and customer service is supported by researchers who assessed the effectiveness of chatbots for multilingual conversations (Vanjani et al., 2019). These chatbots can make it easier for immigrants to understand how to search for financial products that are best suited to their needs, and may make them more likely to bank with financial institutions that employ this kind of technology.

As a first step, banks can officially translate their webpages into multiple languages to make information more easily accessible to non-English and non-French speaking immigrants. In particular, banks should focus on translating the webpages related to their products offered to newcomers. They can start by translating this information into the languages spoken in the top ten countries from which immigrants originate: India, the Philippines, China, Syria, among others (Statistics Canada, 2022).

Once information is translated, chatbot development can begin. The first phase of the chatbot integration would be planning and ideation. In this phase, banks should identify the cost of producing, implementing, and maintaining this technology. To incentivize the banks to use multilingual chatbots, the Government of Canada can provide small subsidies to financial institutions that adopt this technology. Banks can also create an internal committee to oversee the development of the chatbot – this committee would consolidate all costs and ideas (e.g., determining who would be contracted to design the chatbot, what features it should have, etc.) and develop an appropriate plan for the bank to include the technology on their websites.

The second phase is the development and launch. In this phase, banks can introduce a pilot program that would not yet be available to the public. Technicians can spend 4-8 months testing the quality of the chatbot and its accuracy in performing the two desired functions: redirecting customers to the correct webpages to access more information, and providing basic information about services (e.g., where branches are located, how to access credit and savings, etc.). In this phase, it is important to test the effectiveness in all selected languages because consistency across all of these languages needs to be ensured (e.g., if two people ask the same question in different languages, the chatbot should be able to interpret the questions in the same manner). During this development phase, technicians should also consider security and privacy risks. To protect users who interact with these chatbots to discuss financial matters, researchers suggest that banks should develop security precautions based on e-commerce and AI security strategies, continually monitor the chatbot to identify security deficiencies, and concretely protect the customer data security and personal privacy (Lai et al., 2019). After testing the accuracy and security of the chatbot, it can then be launched for public use.

The third and final phase involves iterating and improving. Every 8 months, the internal committee should revisit and test the performance of the chatbot. This testing can come in two forms: first, banks can use analytics to determine how the use of the chatbot changes over time (i.e., how many individuals are using it in general); how much time, on average, customers spend using the chatbot (i.e., did the customer find the information they were looking for, or give up in their search); and what common questions are being asked to the chatbot (this will help banks determine which webpages need additional information or maintenance). Second, new customers to the bank who are immigrants can be surveyed to determine how useful the chatbot has been for them. Based on the success of the multilingual chatbot in properly performing its functions and bringing new customers to the bank, the program can be scaled to include more languages. This scalability can involve the introduction of languages that are most commonly spoken by bank customers, as well as languages spoken in immigrants’ country of origin.

Creation of a goals-based financial literacy curriculum for existing language programs

Another solution to help immigrants improve their financial knowledge would be to integrate goals-based financial literacy training for individuals who are taking language lessons that are supported by the Government of Canada. Since immigrants like Cam have recently immigrated to Canada, it is likely that they will register for language training to help them secure employment. Such programs include Language Instruction for Newcomers to Canada (LINC) and Cours de langue pour les immigrants au Canada (CLIC) (Government of Canada, 2018). While these programs offer basic financial literacy training (e.g., how to speak to a teller, or how to fill out a check), the programs are currently more informational, which can lead to participants forgetting what they learned as more time passes, as we have shown in the literature review (Barcellos et al., 2016). Additionally, many researchers agree that financial literacy programs are more effective when tailored to the student’s needs and goals (Social and Enterprise Development, 2008). Goal setting theory further suggests that in order to be committed to a financial goal, financial literacy programs are “more effective when they are motivated by perceptions and concerns about financial well-being later in life” (Mandell et al., 2007). As such, the government can introduce GAP, a Goals-based Active Planning curriculum that focuses on long-term savings goals.

This program can be first introduced in Ontario and Quebec, the two most populous provinces in Canada, and those in which immigrants like Cam are likely to live based on the results from the primary data analysis. The government can begin by partnering with third party services that deliver language training in accordance with the Canadian Language Benchmarks (CLB) like non-profits or school boards for continuing education, and those that offer specialized services to newcomers to Canada. Importantly, the government should partner with organizations who have the resources and ability to financially support this program.

It is recommended that GAP be taught in partnership with a Financial Literacy Ambassador & Guide (FLAG)^{Footnote 4}  from the Financial Consumer Agency of Canada (FCAC). This FLAG would support immigrants as they make their way through the GAP curriculum, concurrent to their language training. GAP would include three main features. First, newcomers should identify and write down the goals and personal motivations for saving, now that they have relocated to Canada (e.g., for retirement, children’s education, remittances back to their home country, etc.). Second, the newcomers should identify the steps that need to be taken to achieve these goals (e.g., who in the family is involved in the decision making process, how much needs to be saved, etc.). Last, the newcomers should be asked to research which institutions could help them achieve these goals and better understand how much they should save. At this stage, it is important that the FLAG not encourage the newcomer to bank with a certain institution, but rather to help them understand differences in services offered. This reinforces the importance of looking at multiple sources of information to understand which institution can best serve their needs. At each stage, the FLAG should be available to verify the feasibility of the goals and the quality of information used to make financial decisions (e.g., using reputable sources, like looking directly at banks’ websites).

The effectiveness of the program can then be tested over the progression of one cohort through the language training program. Two measures can be used to test effectiveness: first, survey what percentage of participants involved in GAP began to actively save for their financial goals (as GAP provides a framework to begin saving rather than having participants actually save); and second, feedback should be provided at the end of the program to determine which elements of GAP were useful for the newcomers, and which elements could be improved. Once the effectiveness of the program is demonstrated, the organizations that deliver these programs can request that there be more funding for GAP and other basic financial literacy training in language programs, and GAP can be scaled nationally.

Conclusion

As Canada welcomes more newcomers than ever before, it is crucial that we build an inclusive financial system both at the government and industry level to support the 23% of our population that is made up of immigrants. These two targeted interventions – multilingual chatbots and goals-based financial literacy programs – can support immigrants by helping them better understand which financial products are best suited to their needs. As a result, we hope that the likelihood of immigrants like Cam falling victim to financial fraud and abuse will decrease; rather than relying on sources that may misinform them, newcomers can become self-sufficient and active members in Canada’s financial system. This 23% won’t be 23% for much longer, and as such, we have a duty to assist immigrants to improve their financial knowledge if we want to unlock greater labour potential, help drive Canada’s economy forward, and – most importantly – cultivate a society that holds equality at its core.

References

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Appendix 1

Appendix 2

Figure 1: Stage of clustering as a function of the agglomeration schedule coefficients

Figure 2: Sources from which immigrants and non-immigrants receive financial advice

Note: Each bar represents the total percentage of data points for each subpopulation in the dataset that selected that answer.

Figure 3: Whether or not immigrants and non-immigrants plan for retirement

Figure 4: Range of years in which members of each cluster immigrated to Canada

Figure 5: Sources from which members of each cluster receive financial advice

Note: Each bar represents the total percentage of data points in the cluster that selected that answer.

Figure 6: Whether or not members of each cluster plan for retirement