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<\/figure>\n\n\n\nRelated content<\/p>
Download the full Zolo: Financial Literacy vs Sufficiency 2021 Report<\/a><\/p><\/section>\n\n\n\n In comparison, the 6,551 respondents surveyed in 2020, reported: <\/p>\n\n\n\n Related content<\/p> Download the full Zolo: Financial Literacy vs Sufficiency 2020 Report<\/a><\/p><\/section>\n\n\n\n Managing your money can seem complicated, but a surprising number of people are pretty comfortable with it\u2014at least according to a recent financial confidence survey conducted by Zolo Homebase. <\/p>\n\n\n\n Tracking financial confidence, knowledge, and the application of money management skills is essential. Poor money management can lead to severe budget crunches and current and future lifestyle consequences.<\/p>\n\n\n\n Using a 60+ question quiz that included true\/false statements, agree\/disagree statements and select the \u2018right response\u2019 questions, respondents were tested on integral components to financial literacy. In general, the questions focused on: <\/p>\n\n\n\n Despite our high confidence in money matters, we still have a lot to learn. Overall, Canadians failed the financial literacy test with an average score of 44%<\/strong>.<\/p>\n\n\n\n The survey on financial literacy provided insight into the areas where we were most confident and knowledgeable, along with areas where more education is required. <\/p>\n\n\n\n For instance, only 3% of respondents correctly defined a credit card, and only 6% of respondents knew that conventional fixed-rate mortgages are charged interest semi-annually in Canada. However, 91% of respondents correctly identified the behaviours that would hurt your credit rating, and another 88% understood the importance of a household budget. <\/p>\n\n\n\n If we examine the questions that were hardest for Canadians to answer in the 2021 Financial Literacy Quiz, we can get a better idea on where we should focus educational efforts and strengthen practical skills.<\/p>\n\n\n\n Here are two examples. <\/p>\n\n\n\n A: <\/strong>For many, there’s an almost innate desire to tackle our largest debt first. This can often mean aggressively paying off a mortgage loan. In general, paying down your mortgage using prepayments is smart; however, if you’re neglecting other potentially more expensive debts, than tackling a large debt first isn’t always the best strategy. <\/p>\n\n\n\n In general, when it comes to choosing what debt to pay down first, the answer lies beyond how much you owe. You also need to factor in the percentage of your income that goes towards repaying this debt, current interest rates and future interest rates or inflationary pressures. Debts costs can skyrocket, in absolute terms, when compounding occurs over longer periods!<\/p>\n\n\n\n Still, a general rule of thumb is to pay down the debt with the highest rate of interest first<\/em>\u2014this is true whether you owe $1 or $1,000 or $100,000. <\/p>\n\n\n\n As you pay down the highest (or largest) debt, your costs to carry this debt are reduced and this frees up more money you can use to pay other loans with lower interest rates. <\/p>\n\n\n\n The only time you should reconsider this plan is when the interest on the loan is tax-deductible. For example, investors can claim the interest paid on money borrowed to buy stocks or a rental property.<\/p>\n\n\n\n To illustrates, let’s examine the current average mortgage debt versus the average credit card debt. <\/p>\n\n\n\n A: <\/strong>You may have heard that carrying a balance on your credit card can help you build positive history but, in fact, carrying a balance on your credit card is not necessary to build a positive credit history. <\/p>\n\n\n\n In fact, carrying a balance just means you’re paying needless interest charges and your inability to pay down the debt (and reduce the overall amount you are borrowing) might actually hurt your credit score. <\/p>\n\n\n\n Why should we be concerned about weak money management skills and low financial literacy? Because this undeveloped skill can lead to severe budget crunches as well as current and future lifestyle consequences.<\/p>\n\n\n\n In general, data shows that lower financial literacy tends to lead to higher levels of debt\u2014and a lack of awareness on the impact debt and the cost of debt has on short and long-term goals. <\/p>\n\n\n\n Another dilemma is that poor financial literacy led to a lack of emergency planning, and this had a further negative impact on a person’s current and future emotional and financial well-being. <\/p>\n\n\n\n When it came to protecting ourselves from future financial pain, most Canadians report that they understand the importance of an emergency fund (in 2020, 82% reported knowing the importance of an emergency fund). As a general rule of thumb, an emergency fund should hold approximately six month’s worth of bill payments in easily accessible assets. (Think: TFSA, high-interest savings account or a low-interest Home Equity Line of Credit.)<\/p>\n\n\n\n Despite this knowledge, data from Zolo\u2019s Financial Literacy & Sufficiency 2021<\/a><\/em> report shows that only 18.40% of respondents have an emergency fund with more than $10,000 saved. Worse, 4.35% don\u2019t know if they have an emergency fund and 9.48% report no savings to cover unexpected costs.<\/p>\n\n\n\n The results of this year\u2019s report show that more than half of Canadians consider money to be a concern, while less than 1 in 5 don\u2019t really worry about money throughout the year. <\/p>\n\n\n\n With so many moving parts that impact our financial wellness, it\u2019s no surprise that many Canadians continued to feel the pinch over the last year. Still, it was a bit of a surprise to learn that more respondents (56%) reported seeking out financial assistance in 2021, compared to 42% in 2020. <\/p>\n\n\n\n Our ability to meet our financial obligations also suffered in 2021, although this perceived difficulty was similar to how we felt and behaved in 2020. <\/p>\n\n\n\n Given the uncertainty of today\u2019s economic markets, it appears our financial beliefs and money habits are more important than ever. <\/p>\n\n\n\n To put a fine point on this, most Canadians now realize that it\u2019s virtually impossible to secure a comfortable retirement without saving and investing without an employer-sponsored pension plan. Yet, the headwinds to saving and investing can be significant given the impact of other financial decisions we must make, including whether or not to buy a home. It\u2019s never been more clear: Money management, financial decision-making and lifestyle goals do not exist in a vacuum.<\/p>\n\n\n\n To help, a great deal of focus has been placed on increasing the availability of financial knowledge. As a component of financial literacy, money knowledge gives us the ability to understand the money tools available to us. When knowledge is given the opportunity for practical use, we then stretch our money management muscles and gain the confidence necessary to take bigger decisions and create better choices. <\/p>\n\n\n\n In this way, all aspects of financial education are essential, including learning how to use credit, understanding the benefits and impact of debt, appreciating the value of insurance and good health and the critical need to build on the basics, like budgeting and the power of compound interest. <\/p>\n\n\n\n A cause for celebration is how confident Canadians felt about their financial knowledge in 2021. <\/p>\n\n\n\n To help illustrate where this confidence comes from, Canadians assessed their money management skills based on the following:<\/p>\n\n\n\n “Keeping track of money”<\/strong><\/p>\n\n\n\n “Making ends meet”<\/strong><\/p>\n\n\n\n The good news is that we appear to be more confident about selecting suitable investments to help grow our overall net worth. This year, 83% of respondents agreed with the statement: \u201cI know enough about investments to choose ones that are suitable to my circumstances.\u201d<\/p>\n\n\n\n It turns out, most of us are still communicating with our spouses about these critical financial decisions. But, unfortunately, the overall percentage of Canadians willing to discuss financial decisions with a spouse dropped in 2021 compared to last year.<\/p>\n\n\n\n It turns out there are some distinct differences in financial literacy, confidence and the application of tools, depending on where you live in Canada. <\/p>\n\n\n\n For instance, while the quiz score national average was 44%, residents in Ontario and Quebec came out with higher average scores at 52% and 56%, respectively. <\/p>\n\n\n\n There were also distinct regional differences in our levels of confidence and knowledge on financial matters. <\/p>\n\n\n\n On a national level, 39% of Canadians felt \u201cvery\u201d confident about their \u201clevel of financial knowledge\u201d and another 51% felt confident. However, on a regional level, this confidence varied dramatically. <\/p>\n\n\n\n Regional differences were also present when it came to assessing our confidence in managing our finances.<\/p>\n\n\n\n “Making ends meet”<\/strong><\/p>\n\n\n\n “Enjoy dealing with finances”<\/strong><\/p>\n\n\n\n Regional differences also highlighted how different our money concerns were based on where we live. <\/p>\n\n\n\n While more than half of Canadians reported daily, weekly, monthly or annual money concerns on a national level, the level and frequency of these concerns differed by region. <\/p>\n\n\n\n Financial ignorance can be costly. Consumers who fail to understand interest compounding and those who don’t understand the credit cycle end up spending more on transaction fees, consistently run up bigger debts and incur higher interest rates for loans. <\/p>\n\n\n\n More than ever, financial literacy is critical for smart lifetime decisions, as well as day-to-day transactions. Gone are the days when the majority of Canadians could rely on an indexed employer-sponsored pension plan. Gone are the days when money in a savings account was sufficient to fund retirement plans. On the whole, we are living longer, dreaming bigger and pending more throughout our earning and retirement years\u2014and this larger budget requires better spending habits and money management skills. <\/p>\n\n\n\n If we want to grow our knowledge and our skills, we need to focus on four key concepts for financial decision-making:<\/p>\n\n\n\n This concept helps build foundation skills that help with daily life decisions<\/strong>. A strong understanding and the ability to apply basic numeracy skills allows a person to problem solve when it comes to finances. <\/p>\n\n\n\n An example of a question that tests our knowledge in this area: <\/p>\n\n\n\n Q: <\/strong>You need to borrow $100. Which is the lower amount to pay back: $105 or $100 + 3%? <\/p>\n\n\n\n A: <\/strong> $100 + 3%<\/p>\n\n\n\n If you answered this question correctly it means you’re capable of using basic math to make simple, comparative decisions when it comes to money. Without basic numeracy skills, you can end up paying hundreds of thousands in extra fees or interest over your lifetime. <\/p>\n\n\n\n This concept is essential to understand as it can help you earn more on money you save or invest and help you mininize the cost of borrowing money. As such, compound interest is a key tool when it comes to managing your finances<\/strong>. <\/p>\n\n\n\n An example of a question that tests our knowledge in this area:<\/p>\n\n\n\n Q: <\/strong>Suppose you had $100 in a savings account and the bank offers 10% per year in interest. How much money would you have in the account after five years if you did not remove any money? (Answer options: More than $150; exactly $150 or less than $150?)<\/p>\n\n\n\n A: <\/strong>More than $150<\/p>\n\n\n\n If you answered more than $150 than you realize that compound interest allows you to earn money on earned money. In the example above, simple interest calculations would mean earning $10 per year on the $100 saved. After five years, there would be $150 in your savings account; however, with compound interest, every dollar you earn also helps to grow your savings. In this example, at the end of five years, there should be more than $150 in your savings account (or $161.50). <\/p>\n\n\n\n Use the Get Smarter About Money compound interest calculator<\/a> to see how this calculation works. <\/p>\n\n\n\n This concept helps you understand how money can lose its purchasing power, over time. Inflation occurs when the price of a good or a service increases over time. This price increase results in a decrease of your purchasing power\u2014in other words, if you continue to earn $15 per hour, but the price of milk goes up from $1.50 to $2, then the money earned is effectively worth less. <\/p>\n\n\n\n Since inflation impacts everything, knowing how and when it will impact your finances can help you manage and minimize the negative consequences. <\/p>\n\n\n\n An example of a question that tests our knowledge in this area:<\/p>\n\n\n\n Q: <\/strong>Let’s assume that over the next 10 years the price of items you buy doubles. If your income also doubles, will you be able to buy less than you can buy today, the same as you can buy today, or more than you A: <\/strong>The same<\/p>\n\n\n\n If you answered “the same” then you understand that inflation only impacts your ability to purchase if your earnings (aka: income earned) doesn’t keep pace. As long as your earnings match or beat inflation then your purchasing power remains the same. <\/p>\n\n\n\n This concept helps minimize the impact of market downturns. In general, diversification is the ability to spread risk across different types of investments. The goal is to increase your earnings and to minimize your losses. <\/p>\n\n\n\n Diversification is important in investing because markets can be volatile and unpredictable.<\/p>\n\n\n\n An example of a question that tests our knowledge in this area:<\/p>\n\n\n\n Q: <\/strong>You must decide, is it safer to put your money into one business or investment, or to put your money into multiple businesses or investments? (Answer options: One business or investment; multiple A: <\/strong>Multiple businesses or investments<\/p>\n\n\n\n If you answered “multiple businesses or investments” then you understand that narrow investment strategies\u2014either in one company or one sector or one geographic region\u2014can introduce greater risk. By spreading your investments across various companies, sectors and geographic regions you minimize the impact a potential risk can have on your overall portfolio’s value. <\/p>\n\n\n\n In a 2016 report<\/a> for the Financial Consumer Agency of Canada, it was clearly demonstrated that confidence was an integral component of financial literacy. <\/p>\n\n\n\n \u201cFinancial confidence is a better predictor than financial knowledge when it comes to outcomes associated with day-to-day money and debt management.\u201d<\/p><\/blockquote><\/figure>\n\n\n\n As Canadians head into an uncertain future, the concept of financial literacy is more important than ever and increased access and prevalence of financial education is helping. Despite financial turmoil, we are becoming more confident in our capabilities to manage our financial lives and to make smart money decisions. This is great news. <\/p>\n\n\n\n While confidence is essential, still more needs to be done. <\/p>\n\n\n\n Ideally, basic financial literacy concepts would be taught in high school (although earlier is even better, according to a University of Minnesota study<\/a>). Studies show that teaching financial concepts to kids and young adults directly impacts students\u2019 ability to make wise financial decisions. Plus, students who have some personal finance classes under their belts are much more likely to save money successfully, budget wisely and invest smarter.<\/p>\n\n\n\n To increase financial literacy, we need to develop and strengthen our money management skills. <\/p><\/blockquote><\/figure>\n\n\n\n Despite a greater awareness of the importance of financial literacy, virtually every province continues to omit formal, standardized lessons on financial literacy topics. Until widespread change happens, the onus is on us to educate ourselves (and our children).<\/p>\n\n\n\nCanadians Feel Confident<\/strong> About Money Management<\/h2>\n\n\n\n
![\"\"](\"https:\/\/www.zolo.ca\/blog\/wp-content\/uploads\/2021\/11\/Zolo-Financial-Literacy-Quiz-Score-2021-1024x1024.png\")
<\/figure>\n\n\n\nSample Lessons Learned <\/h3>\n\n\n\n
Question 1: Should you pay down your largest debts first?<\/strong><\/h4>\n\n\n\n
Question 2: Should you carry a balance on your credit card? <\/h4>\n\n\n\n
Risks of Poor Financial Literacy<\/strong><\/h2>\n\n\n\n
Financial Concerns <\/strong>and Worries<\/h2>\n\n\n\n
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<\/figure>\n\n\n\n![\"\"](\"https:\/\/www.zolo.ca\/blog\/wp-content\/uploads\/2021\/11\/Zolo-2021-Financial-Literacy-2021-vs-2021-Financial-Impact-1024x888.png\")
<\/figure>\n\n\n\nFinancial Habits and Beliefs <\/strong><\/h2>\n\n\n\n
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<\/figure>\n\n\n\n![\"\"](\"https:\/\/www.zolo.ca\/blog\/wp-content\/uploads\/2021\/11\/Zolo-2021-Financial-Literacy-Keeping-Track-of-Money-1024x575.png\")
<\/figure>\n\n\n\n![\"\"](\"https:\/\/www.zolo.ca\/blog\/wp-content\/uploads\/2021\/11\/Zolo-2021-Financial-Literacy-Making-Ends-Meet-1024x574.png\")
<\/figure>\n\n\n\n![\"\"](\"https:\/\/www.zolo.ca\/blog\/wp-content\/uploads\/2021\/11\/Zolo-2021-Financial-Literacy-Always-Consult-Spouse-1024x673.png\")
<\/figure>\n\n\n\nGeographic Differences in 2021<\/strong><\/h2>\n\n\n\n
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<\/figure>\n\n\n\n![\"\"](\"https:\/\/www.zolo.ca\/blog\/wp-content\/uploads\/2021\/11\/Zolo-Geographical-Financial-Literacy-Confidence-Scores-2021-1024x1024.png\")
<\/figure>\n\n\n\n![\"\"](\"https:\/\/www.zolo.ca\/blog\/wp-content\/uploads\/2021\/11\/Zolo-2021-Financial-Literacy-Regional-Making-Ends-Meet-1024x698.png\")
<\/figure>\n\n\n\n![\"\"](\"https:\/\/www.zolo.ca\/blog\/wp-content\/uploads\/2021\/11\/Zolo-2021-Financial-Literacy-Regional-Enjoy-Dealing-with-Finances-1024x705.png\")
<\/figure>\n\n\n\n![\"\"](\"https:\/\/www.zolo.ca\/blog\/wp-content\/uploads\/2021\/11\/Zolo-Regional-Money-Concern-Frequency-2021-1024x1024.png\")
<\/figure>\n\n\n\n4 Key Concepts to Focus on to Increase Your Financial Literacy<\/h2>\n\n\n\n
Basic Numeracy<\/h3>\n\n\n\n
Compound Interest<\/h3>\n\n\n\n
Inflation<\/h3>\n\n\n\n
can buy today? (Answer options: Less; the same; more?)<\/p>\n\n\n\nRisk Diversification<\/h3>\n\n\n\n
businesses or investments?)<\/p>\n\n\n\nThe Takeaway<\/h2>\n\n\n\n