Financial Planning

IEF study outlines priority areas for financial literacy community

By IE Staff |

A new study released by the Investor Education fund highlights inroads in financial literacy while pointing out specific areas of financial education that need attention.

“We found that certain financial concepts are reasonably well understood by the majority of Ontarians,” says Tom Hamza, IEF President, “But this study is also an important signal for the financial literacy community to focus on the application of knowledge, which seems to be where the real problem is.”

Conducted late last year, the study reveals some positive signs in general investing knowledge of Ontarians. Almost 90% of survey participants could spot the signs of fraud and 79% knew the tax benefits of RRSPs. About two-thirds grasped basic financial and economic principles, such as the relationship between risk and return and the interest implications of borrowing money.

Hamza adds, “Literacy is partly about knowing the words and definitions, and that’s an important start. But we must focus on also inspiring the practical application of knowledge to help change behaviour. That’s what this study shows as missing from the lives of Ontarians.”

Despite understanding these important concepts, many were unable to solve practical problems that involve compound interest. “The conclusion is clear,” says Hamza. “Knowledge without real-life application is insufficient and we need to focus on educating people to use what they know.”

The warning signs in this study include a number of startling results. Only three out of 10 Ontarians are aware of typical priorities and strategies for long-term saving and even fewer know how financial priorities change with age.

Another important finding is that less than half of all respondents are knowledgeable about investment products, particularly in the prime investing group of 50- to 64-year-olds. At later ages, many people do not know which investments generate income or preserve capital, as opposed to those that grow capital.

Hamza says, “The Benchmarking Investor Knowledge study’s key takeaway is that a successful financial literacy program needs to educate Canadians in both concepts and the practical application of these concepts. Ultimately, Canadians need to be able to make decisions for and about themselves – financial information alone will not help them make better decisions.”

The study was conducted for IEF by The Brondesbury Group and reflects similar national trends found in a Canada-wide follow-up study. Of the 1,000 Ontarians who were interviewed at random, neither region nor mother tongue impacted their knowledge of investment.