We are increasingly called upon to save for retirement, but do we possess sufficient knowledge to do so efficiently? How does financial literacy impact household savings?
Pierre-Carl Michaud, economic researcher at Université du Québec à Montréal, set out to assess financial literacy in Québec and Canada and evaluate its correlation to savings practices.
Less than half of the study participants truly understood the notions.
By asking three simple questions on basic financial concepts (interest, inflation and investment diversification), Pierre-Carl Michaud found that less than half of the study participants truly understood the notions, demonstrating a relatively low degree of financial literacy that appears to be even lower in Québec—an occurrence that the researcher partially attributes to the province’s poorer level of education as compared to the Canadian average.
Michaud then compared the respondents’ degree of financial literacy and retirement savings approach by analyzing their assets, such as their RRSPs.
The research results will most notably be used to raise awareness among public stakeholders of the risks of poor financial literacy, which serves to sustain social inequalities. The most educated, financially comfortable respondents showed a better understanding of the concepts and earned higher returns on their savings as compared to their less wealthy, less educated counterparts.