It’s Financial Literacy Month and studies confirm that the majority of Quebecers do not master the basic concepts of personal finance and economics. They would benefit from better education.
No wonder one in three Quebecers live paycheck to paycheck, that consumers have never been so deeply in debt that they are panicking about runaway inflation and fluctuations in financial markets. If their financial literacy were higher, things would be completely different.
According to a study by the Financial Markets Authority (AMF), the level of financial literacy among Quebecers is 54%. “And over the years progress has been slow, which represents a challenge,” comments Sylvain Théberge, spokesman for the AMF.
However, this rating varies. The less education or income people have, the less financial and economic knowledge they have and the less prudent they are with their finances.
“However, on average, Quebecers would be neither worse nor better than the level of financial literacy found elsewhere in Canada and even in the United States. These deficiencies can be observed almost everywhere in the world,” adds Mr. Théberge.
Take control
“With one in two people budgeting and saving for their education, the majority of people don’t understand much when we talk to them about RRSPs, TFSAs, mutual funds or GICs. That doesn’t surprise me,” analyzes Youcef Ghellache , finance professor at Montmorency College, founder of ÉducFinance.
According to him, only a portion of the population takes the time to learn about financial topics. “Many poorly educated people make poor consumption or saving decisions. They are not interested in finding out and remain consumers rather than investors.”
He recognizes that there is a financial literacy course in high school, but it is not enough to get us through adulthood, especially when we use a credit card, buying a first property, saving for retirement, paying your taxes , insure your property or your health.
On the other hand, these periods of life often represent a trigger to find out about financial matters, adds Sylvain Théberge.
“We also find that the more diverse the financial products you have early in life, the higher the level of literacy. “Financial literacy starts early and is a life’s work,” he emphasizes.
No Knowledge
“I regularly meet people who have no knowledge of economics or personal finance,” reveals Johanne Leblanc, budget consultant at Option Consommateurs. A large portion of consumers have limited concepts. There are of course several ways to learn online, but people need to be made aware of making the effort.”
Why are we interested in these questions? “The more literate you are, the more you think about these issues, the more your financial situation will improve,” she continues. We are more confident about what can be done to improve our situation. It’s difficult to use the right tools if you don’t know them.”
In life we cannot control certain things such as illness, death, job loss, separation or divorce. “The more we know about personal finance, the better equipped we are to deal with crises. Everyone can acquire basic knowledge to make the best possible life decisions,” says Johanne Leblanc.
In other words, the more financial knowledge you have, the more control you have over your destiny, concludes Youcef Ghellache.
Who is more careful with their personal finances?
A 2022 study “Access to Law and Justice” published by the Financial Markets Authority (AMF) makes it possible to measure the level of literacy of Quebecers and, above all, their prudence in making decisions.
• About every second person has a personal budget.
• One in three Quebecers do not compare interest rates on their large loans.
• One in four Quebecers complains about their level of debt.
• People who have a college or university degree and earn more than $80,000 per year are more financially prudent than those who do not have a degree, a secondary education, or a DEP.
• College graduates and workers earning more than $80,000 per year have the best financial knowledge.
• People who are unemployed, working full-time at home, students, retired, or working part-time are more likely to be careless or financially incompetent than those working full-time.
• Self-employed people are more financially competent than the rest of the population.
• Overall, homeowners and parents have greater financial literacy than renters and households without children.
• On average, couples are more financially cautious than singles.
• People who live “hand to mouth” are the least financially competent.
• Consumers with financial products (mortgage, card or line of credit) are more financially prudent and knowledgeable than those who have a personal loan or report having debt.
• The majority of Quebecers do not seem to understand the relationship between risk and return or their risk tolerance when investing.
• The majority of borrowers compare interest rates from different financial institutions and are more knowledgeable than those who have never taken a loan before.
• Consumers who own investments (mutual funds, stocks, employment funds, RRSPs) are more competent than those who do not.
• Those who are insured are more cautious than those who are not.
• Workers who have a private pension plan (in addition to public plans) say they are able to estimate their retirement income, unlike workers who do not.
• One in two consumers (45%) know how to react if they become a victim of financial fraud.
Source: AMF, ADAJ, University of Montreal