Canadians are confident about financial literacy skills; investment still gap: poll Yahoo / Maru

Handwritten financial literacy on a notepad.

Less than half of the respondents to the new Yahoo / Maru poll said they feel very confident in their financial literacy of stocks and bonds.

A new survey shows that many Canadians feel they have a sufficient level of financial literacy despite recognizing that investing is still a major area they do not understand.

Seventy percent of respondents to a new Yahoo poll, conducted by Maru Public Opinion, reported feeling confident in their financial literacy skills and having a “thorough understanding” or knowing “a good deal” about how to properly manage their personal finances.

However, the poll also found less than half of respondents (43 per cent) said they were “very” or “somewhat” financially literate in investments such as stocks and bonds. Only one in 10 say they are “very” financially literate in this area.

Tony Salgado, founder and president of wealth advisory firm AMS Wealth, said he is not surprised many people are unsure about stocks and other investments considering the lack of education on this topic in the school system.

Roughly three in 10 respondents said they had taken additional education courses on personal finance.

Salgado also questions whether some Canadians may be overestimating their financial literacy skills.

“I think we need to redefine what it means to be financially literate,” he said. “I feel like there’s a false sense of security for people who believe they’re financially literate.”

The study found 60 percent of Canadians say they have a monthly budget, and the youngest and oldest cohorts are more likely to have one compared to the middle-aged.

“I think it’s because middle-aged people have the most variable costs,” Salgado said.

Young and old Canadians are more likely to have fixed incomes and expenses, making monthly budgets easier to map out, he explained. Middle-aged individuals are more vulnerable to having unpredictable expenses because they have children or have to potentially care for elderly parents.

The survey polled 1,524 Canadians between October 26 and 27, and has a margin of error of +/- 2.5 per cent, 19 times out of 20.

With so much pressure on household finances, one of the reasons why some Canadians don’t understand investing is because they don’t have money left over at the end of the month to spend on their portfolios.

It’s not timing the market, it’s timing the marketTony Salgado, AMS Wealth

“If there is not enough money, why would this person care to learn about investing?” said Salgado.

“So how do you make leftover money? You have to be really careful with your discretionary spending. One of two things has to happen. You have to spend less money or you have to make more money.”

Know your investment risk tolerance

It’s no secret that the combined effect of investments can significantly affect a person’s financial well-being and help them achieve their life goals. But knowing your risk tolerance is essential because it will drive every investment decision, Salgado said.

“As the old saying goes, it’s not timing the market, it’s timing the market,” he said.

“The psychology behind it is interesting because when people see things falling in value, everyone gets scared and sells. The basic rule of investing is to sell when it’s high and buy when it’s low. But psychology doesn’t allow you to do that because you’re too afraid to lose everything. Why is that? because you don’t realize your risk tolerance for it.”

The good news for risk-averse investors is that ultra-safe products such as guaranteed investment certificates have seen yields rise with interest rates. A quick scan of rate comparison website Ratehub.ca shows one- and three-year GIC rates of nearly five percent.

For older Canadians who can’t take significant market risk, Salgado recommends annuity products, which pay guaranteed regular income.

“Not only is market volatility a risk, another risk that people really don’t consider is longevity risk,” he said.

“Your life expectancy gives you more years to live which means more expenses, which means you have to have something that will guarantee your payments for the rest of your life. And I think people should look at annuities more. . I think the rate of return is coming up to the annuity product. And people should look at guaranteeing themselves a certain level of income for the rest of their lives, which is what the annuity will do.”

Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @m_zadikian.

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