Despite exhaustive media coverage of the origins and consequences of the global financial crisis, Canadians—along with citizens of many nations—are still largely in the dark when it comes to financial risk, a recent survey reveals.
TNS Finance’s Personal Risk Assessment and Risk Literacy Survey of 14,693 people in 15 countries finds that only 13% of Canadians surveyed could correctly answer three basic risk literacy questions. The study suggests that consumers have only a light grasp of the basic principles of financial risk.
According to Annamaria Lusardi, professor of Economics at Dartmouth College and director of the Financial Literacy Center, “After a financial crisis where risk was such an enormous factor, it is important to know if consumers have any real understanding of the basic principles of financial risk. We have worked hard to understand financial and debt literacy, which is already quite poor. Now we find that consumers’ knowledge about risk is extremely low across all countries, and particularly low among women.”
TNS asked respondents about the relative payout of two lotteries, the relative risk and returns from two investment funds and the relative risk of investing in a single stock versus a basket of stocks. Dutch respondents were most capable of answering all three questions correctly (21%), followed by Hong Kong and Luxembourg (18%), while the lowest scores came from France (10%), Mexico (7%), Portugal (6%) and Argentina (5%).
In Canada, only 16% of men and 9% of women that were surveyed managed to answer all questions correctly. While financial literacy is generally tied to overall education, even those with a university degree fared poorly with only 20% able to answer the three questions correctly.
Not only are Canadians poorly educated when it comes to risk, very few are attempting to alleviate the situation by improve their financial knowledge. Only 10% of Canadians (compared to 19% across all nations surveyed) indicated that they have increased their efforts to educate themselves on financial matters since the global economic crisis began.
This is both a wake up call and an opportunity, explains Rhonda Grunier, vice-president of TNS Canadian Facts.
“We think these study results speak to a real need for financial services providers to help their customers learn more about financial risk,” she says. “In fact, we see many of our financial clients already developing educational materials to help their customers make more informed decisions about managing risk. Helping to create a well informed consumer makes good business sense for financial institutions. It’s a possibility that even the most well-educated consumers may just disengage because they are too afraid to invest in products they cannot understand.”
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