Hostname: page-component-8448b6f56d-mp689 Total loading time: 0 Render date: 2024-04-23T15:33:10.571Z Has data issue: false hasContentIssue false
  • English
  • Français

Financial literacy and retirement planning in Canada*

Published online by Cambridge University Press:  20 October 2015

DAVID BOISCLAIR ,
ANNAMARIA LUSARDI  and
PIERRE-CARL MICHAUD
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)
Get access Rights & Permissions [Opens in a new window]

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.

Keywords

D91D14Financial literacyretirement planninginternational comparisons
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 16 , Special Issue 3: Financial Knowledge and Key Retirement Outcomes , July 2017 , pp. 277 - 296
Copyright
Copyright © Cambridge University Press 2015 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

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.

References

Ambachtsheer, K. (2008) The Canada supplementary pension plan (CSPP). Commentary 265, C.D. Howe Pension Series Working Paper.CrossRefGoogle Scholar
Clavet, N.-J., Duclos, J.-Y., Fortin, B. and Marchand, S. (2013) Réformer la sécurité de la vieillesse: effets et alternatives. CIRANO Working Paper 2013s-05, March, available online at http://www.cirano.qc.ca/pdf/publication/2013s-05.pdf Google Scholar
Financial Consumer Agency of Canada (2014) Financial literacy mandate (accessed 25 March 2014). Available online at http://www.fcac-acfc.gc.ca/Eng/financialLiteracy/financialLiteracyCanada/mandate/Pages/home-accueil.aspx Google Scholar
Fréchet, G. (2012) Un portrait équivoque : la pauvreté chez les personnes âgées au Québec. In Rheault, S. and Poirier, J. (eds), Le vieillissement démographique : de nombreux enjeux à déchiffrer. Québec: Institut de la statistique du Québec, pp. 113–126.Google Scholar
Gougeon, P. (2009) Shifting Pensions. Perspectives, Statistics Canada, publication no. 75-001-X, May.Google Scholar
Grout, P. A., Megginson, W. L. and Zalewska, A. (2009) One half-billion shareholders and counting – determinants of individual share ownership around the world. Working paper. Available online at http://ssrn.com/abstract=1364765 Google Scholar
Horner, K. (2009) Retirement Saving by Canadian Households. Report prepared for the Research Working Group on retirement income adequacy, Department of Finance Canada. Available online at http://www.fin.gc.ca/activty/pubs/pension/ref-bib/horner-eng.asp Google Scholar
Jappelli, T. (2010) Economic literacy: an international comparison. Economic Journal, 120(548): F429–F451.CrossRefGoogle Scholar
Jappelli, T. and Padula, M. (2013) Investment in financial literacy and saving decisions. Journal of Banking and Finance, 37(2013): 2779–2792.CrossRefGoogle Scholar
Knighton, T., Brochu, P. and Gluszynski, T. (2010) Measuring up: Canadian results of the OECD PISA Study: The performance of Canada's youth in reading, mathematics and science – 2009 first results for Canadians aged 15. Statistics Canada, Publication no. 81–590, no. 4, December.Google Scholar
Lalime, T. and Michaud, P.-C. (2014) Littératie financière et préparation à la retraite au Québec et dans le reste du Canada. L'Actualité économique, 90(1): 23–45.CrossRefGoogle Scholar
Lusardi, A. and Mitchell, O. S. (2011 a) Financial literacy around the world: an overview. Journal of Pension Economics and Finance, 10(4): 497–508.CrossRefGoogle ScholarPubMed
Lusardi, A. and Mitchell, O. S. (2011 b) Financial literacy and planning: implications for retirement well-being. In Lusardi, A. and Mitchell, O. (eds), Financial Literacy. Implications for Retirement Security and the Financial Marketplace. Oxford: Oxford University Press, pp. 17–39.Google Scholar
Lusardi, A. and Mitchell, O. S. (2011 c) Financial literacy and retirement planning in the United States. Journal of Pension Economics and Finance, 10(4): 509–525.CrossRefGoogle Scholar
Lusardi, A. and Mitchell, O. S. (2014) The economic importance of financial literacy: theory and evidence. Journal of Economic Literature, 52(1): 5–44.CrossRefGoogle ScholarPubMed
Lusardi, A., Michaud, P.-C. and Mitchell, O. S. (2013) Optimal financial knowledge and wealth inequality. NBER Working Paper, No. 18669.CrossRefGoogle Scholar
MacKay, S. (2011) Comprendre la capacité financière au Canada. Analyse des résultats de l'Enquête canadienne sur les capacités financières. Document de travail préparé pour le Groupe de travail sur la littératie financière.Google Scholar
Milligan, K. and Schirle, T. (2014) Simulated replacement rates for CPP reform options. University of Calgary School of Public Policy Research Papers, 7.Google Scholar
Mullock, K. and Turcotte, J. (2012) Financial literacy and retirement saving. Working Paper 2012–01, Department of Finance Canada. Available online at http://www.fin.gc.ca/pub/pdfs/wp2012-01e.pdf Google Scholar
Organisation for Economic Co-operation and Development (2011) Old-age poverty. In Pensions at a Glance 2011: Retirement-income Systems in OECD and G20 Countries. OECD Publishing. Available online at http://dx.doi.org/10.1787/pension_glance-2011-en Google Scholar
Organisation for Economic Co-operation and Development (2013) Pensions at a Glance 2013: OECD and G20 Indicators. OECD Publishing.Google Scholar
Statistics Canada (2014) Distribution of earnings, by sex, 2011 constant dollars, annual – Table 202-0101, CANSIM (database) (accessed 21 March 2014).Google Scholar
Task Force on Financial Literacy (2010) Canadians and their money: building a brighter financial future. Report of recommendations on financial literacy, Ottawa. Available online at http://financialliteracyincanada.com/ Google Scholar
Townson, M. (2009) A stronger foundation: pension reform and old age security. Policy Brief, Canadian Centre for Policy Alternatives, November.Google Scholar
Wolfson, M. C. (2011) Projecting the adequacy of Canadians’ retirement incomes: current prospects and possible reform options. IRPP Study 17, Institute for Research on Public Policy, May.Google Scholar
Wolfson, M. C. (2013) Not-so-modest options for expanding the CPP/QPP. IRPP Study 40, Institute for Research on Public Policy, July.Google Scholar