Editor’s note: This article has been updated with more information.
Canadians appear to be less financially literate than they think they are, according to a survey commissioned by LowestRates.ca.
When asked 15 true-or-false questions to test their knowledge, most respondents were unclear about terminology concerning mortgages, auto insurance or TFSAs. Fifty-seven per cent of respondents failed the test and, of those who passed, most attained a C or D grade, the survey found.
The failure rates included testing on questions such as:
- A mortgage term refers to the length of time you need to pay off your mortgage (false, with 70% of responses incorrect);
- You must pay for government insurance on mortgages when you have a down payment of less than 20%, unless the home is worth $1 million or more (true, with 67% of responses incorrect);
- A car that is more expensive always costs more to insure than a cheaper car (false, with 67% of responses incorrect);
- You never have to report interest and profits gained in your TFSA when filing taxes (false, with 36% of responses incorrect).
Read: Canadian youth rank second in financial literacy: OECD
Men were more likely than women to believe they were financially literate, with 84% rating themselves as excellent or good in financial literacy, compared to 73% for women. But, for those who rated their financial literacy as high, fewer than half of them passed the test.
Ipsos conducted the poll for LowestRates.ca, surveying 1,001 Canadians aged 18 and over from May 18 to 23. The results are considered accurate within a margin of error of plus or minus 3.5 percentage points, 19 times out of 20.
Read the complete survey results here.
Update, July 6: A few readers questioned the accuracy of the TFSA response noted above. It’s correct, thanks to the word “never.”
“There are still situations where you’re required to pay tax (and sadly, too many Canadians find out the hard way),” LowestRates.ca co-founder and CEO Justin Thouin explains in a statement to Advisor.ca. “For instance, if you hold U.S. stocks that pay dividends, you’ll be hit with a 15% withholding tax on profits imposed by the IRS. A former investment advisor of mine actually did not know this, and I was surprised when I received my statement. It shows how we have a long way to go when it comes to financial literacy in Canada — even among those working in finance.”
In the survey report, financial author Jonathan Chevreau notes he answered the TFSA question incorrectly.
CRA details when taxes must be paid on TFSAs (and a report filed) here. As Investment Executive reports, CRA has raised more than $75 million from TFSA audits thus far.
We also asked Thouin to address the difficulty of the survey questions themselves.
“Our questions were not designed to be basic questions,” he says. “These were meant to be intermediate questions. We polled adult Canadians and found many were confident in their knowledge about financial products. Unfortunately, that didn’t reveal itself in our results. For instance, nearly half of Canadians didn’t even know that some banks offer free chequing accounts. The goal of our report was to get Canadians talking about financial literacy.”
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