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Financial literacy and retirement planning in Canada*

Published online by Cambridge University Press:  20 October 2015

DAVID BOISCLAIR
Affiliation:
Industrielle Alliance Research Chair on the Economics of Demographic Change, École des sciences de la gestion, Université du Québec à Montréal (UQAM), Montreal, QC, Canada (e-mail: boisclair.david@uqam.ca)
ANNAMARIA LUSARDI
Affiliation:
The George Washington University School of Business, Washington, DC, USA (e-mail: alusardi@gwu.edu)
PIERRE-CARL MICHAUD
Affiliation:
Industrielle Alliance Research Chair on the Economics of Demographic Change, École des sciences de la gestion, Université du Québec à Montréal (UQAM), Montreal, QC, Canada; and CIRANO (e-mail: michaud.pierre_carl@uqam.ca)

Abstract

In this paper, we draw on internationally comparable survey evidence on financial literacy and retirement planning in Canada to investigate how financially literate Canadians are and how financial literacy is linked to retirement planning. We find that 42% of respondents are able to correctly answer three simple questions measuring knowledge of interest compounding, inflation, and risk diversification. This is consistent with evidence from other countries, and Canadians perform relatively well in comparison with Americans but worse than individuals in other countries, such as Germany. Among Canadian respondents, the young and the old, women, minorities, and those with lower educational attainment do worse, a pattern that has been consistently found in other countries as well. Retirement planning is strongly associated with financial literacy; those who responded correctly to all three financial literacy questions are 10 percentage points more likely to have retirement savings.

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Copyright
Copyright © Cambridge University Press 2015 

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Footnotes

*

We thank the Canadian Securities Administrators and the Quebec Autorité des marchés financiers for granting access to the data, and Innovative Research for providing us with the data files and documentation. Michaud thanks the Fonds de recherche du Québec – Société et culture (NC 145848) for funding this research. We also thank Thomas Lalime for excellent research assistance and Audrey Brown for editorial assistance. Findings and conclusions do not necessarily represent the views of the organizations involved.

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