NBER WORKING PAPER SERIES
FINANCIAL LITERACY AND RETIREMENT PLANNING IN CANADA
David Boisclair
Annamaria Lusardi
Pierre-Carl Michaud
Working Paper 20297
http://www.nber.org/papers/w20297
NATIONAL BUREAU OF ECONOMIC RESEARCH
1050 Massachusetts Avenue
Cambridge, MA 02138
July 2014
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.
The views expressed herein are those of the authors and do not necessarily reflect the views of the
National Bureau of Economic Research.
NBER working papers are circulated for discussion and comment purposes. They have not been peer-
reviewed or been subject to the review by the NBER Board of Directors that accompanies official
NBER publications.
© 2014 by David Boisclair, Annamaria Lusardi, and Pierre-Carl Michaud. All rights reserved. Short
sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided
that full credit, including © notice, is given to the source.
Financial Literacy and Retirement Planning in Canada
David Boisclair, Annamaria Lusardi, and Pierre-Carl Michaud
NBER Working Paper No. 20297
July 2014
JEL No. D14,D91
ABSTRACT
Financial literacy and Canadians’ capacity to plan for retirement is of primary importance for the policy
debate over pension system reform in Canada. 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 who does plan for retirement. We find that 42 percent 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 to 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.
David Boisclair
Université du Québec à Montréal
Département des sciences économiques
Case postale 8888, Succ. Centre-Ville
Montréal (Québec)
CANADA H3C 3P8
[email protected]
Annamaria Lusardi
The George Washington University
School of Business
2201 G Street, NW
Duques Hall, Suite 450E
Washington, DC 20052
and NBER
[email protected]
Pierre-Carl Michaud
Université du Québec à Montréal
Département des sciences économiques
Case postale 8888, Succ. Centre-Ville
Montréal, (Québec)
CANADA H3C 3P8
[email protected]
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1. Introduction
Researchfrommanycountriesaroundtheworldshowsnotonlythatindividualsdisplay
lowlevelsoffinancialliteracybutalsothatfinancialilliteracycanbelinkedtolackof
financialplanningandinsufficientresourcesinretirement(LusardiandMitchell,2011a,
2014).Usingdatarecentlycollectedviaaquestionnaireespeciallydesignedtobe
comparabletosurveysadministeredinanumberofothercountries(Australia,France,
Germany,Italy,Japan,theNetherlands,NewZealand,Romania,Russia,Sweden,
Switzerland,andtheUnitedStates),thispaperaimstoassesshowCanadiansfareinterms
offinancialliteracyandretirementplanning.
TheCanadiancaseisimportantformanyreasons.Fordecades,Canadahashadsomeof
thelowestlevelsofpovertyamongseniors(see,e.g.,OECD,2011).Althoughold‐agepoverty
seemstobechangingaccordingtorecentandforecastedtrends(Fréchet,2012;OECD,
2013;Clavetetal.,2013),publicretirementprogramsprovideahighincomereplacement
ratio,typicallyfrom60percentto90percentormore,forworkerswithearningsbelowthe
median.
4
Forthoseindividuals,retirementplanningmayberelativelysimple.
5

Ontheotherhand,retirementplanningcanbeparticularlyimportantforCanadians
earningabovethemedianincome.Incomefloorprograms(theso‐called1
st
pillar)in
combinationwithcompulsorypublicsavingsplans(the2
nd
pillar)donotguaranteea
sufficientlyhighreplacementratio.Indeed,theseprogramsprovideretirementincome

4
MedianearningswereaboutCA$30,000in2011,orCA$48,000forfull‐yearfull‐timeworkers(Statistics
Canada,2014).
5
Thereare,however,exceptionstothisstatement.Suchexceptionsrelateforinstancetohouseholdsbreaking
uppriortoretirement,andtothefactthatmeans‐testedprogramsfortheelderlyinteractindifferingways
withvarioussavingsvehicles(e.g.,theGuaranteedIncomeSupplementandtheTax‐FreeSavingsAccountvs.
theRegisteredRetirementSavingsPlan).
3
cappedatapproximatelyCA$19,000peryearin2014,meaningthatreplacementratios
declinetowellbelow50percentforthoseearningabovethemedian.Hence,workersin
theseearningsbracketsneedtoputasideadditionalsavings(theso‐called3
rd
pillar)to
ensurethattheirretirementincomeadequatelyreplacesearnings,forexamplethroughan
employer‐sponsoredpensionplanortax‐shelteredvehicles.Inrecentyears,muchofthe
policydebatehasevolvedaroundthequestionofwhetherornotmiddle‐andhigh‐income
Canadiansaresavingenoughforretirement.Otherimportanttrendsarealsotakingplace,
includingashiftfromdefined‐benefit(DB)todefined‐contribution(DC)pensionplans,
thoughthishasbeenmorelimitedinCanadathanelsewhere(Gougeon,2009),
6
anda
declineinthecoverageofprivate‐sectoremployer‐sponsoredplans,whichmayhave
stabilized(MilliganandSchirle,2014).
Proposedreformshavefollowedtwostrands.Thefirststrandhasfocusedonexpanding
the2
nd
pillar(thecontributoryCanadaPensionPlananditssisterQuebecPensionPlan;see
forinstanceWolfson,2011and2013,andMilliganandSchirle,2014,foranoverview),and
sometimesthe1
st
and3
rd
pillars(see,respectively,Townson,2009,andAmbachtsheer,
2008,forexamples).OneargumentoftenmadeisthatCanadianshavelowlevelsof
financialliteracyandthusexpansionofrelativelysimplemandatoryprogramsmaybe
advantageous.
Thesecondstrandfocusesonvoluntarysavingsplans.Onechangetothe3
rd
pillaris
currentlybeinggraduallyimplementedatthefederallevelandinsomeprovinces:Pooled
RetirementPensionPlans(PRPPs),whicharebeinglegislatedundervariousnamesineach
province.PRPPsareindividualaccountswith“groupinvestmentoptions,”offeredby

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Whether“groupRRSPs”aretakenintoaccountmayalterthisstatement,butexhaustivecoveragefiguresfor
theseDC‐typeplansaredifficulttoobtain.
4
privatefinancialinstitutions.Accountsincludeadditionalfeaturessuchasautomatic
enrollmentanddefaultoptions,andtheinclusionoftheseoptionscanbelinkedtothe
notionthatpurelyvoluntarysavingsprogramsareunlikelytobeeffectivedue,amongother
factors,tolackoffinancialknowledge.
TheTaskForceonFinancialLiteracyrecommendedinits2010report“thatemployers
offerautomaticsavingprogramsandtoolstofacilitateincreasedlifelongsavingby
Canadians,drawingoninternationalbestpracticesinthisarea”(TaskForceonFinancial
Literacy,2010).Thereportalsoemphasizedtheimportanceoffinancialliteracy—not
merelyforretirementplanningbutforotherreasonsaswell—andrecommended“the
appointmentofaFinancialLiteracyLeadertocoordinateeffortsintheimplementationofa
nationalstrategyforfinancialliteracyinCanada”(FCAC,2014).Legislationwasadoptedin
2013toappointsuchapersonwithintheFinancialConsumerAgencyofCanada(FCAC),
thusexpandingforthethirdtimesince2007themandateofthisfederalagency,which“was
createdin2001toprotectandeducateconsumersoffinancialservices”(ibid.).
7
ExistingevidencerevealedlowlevelsoffinancialliteracyinCanada(TaskForceon
FinancialLiteracy,2010;MacKay,2011;MullockandTurcotte,2012;LalimeandMichaud,
forthcoming).However,thisevidencedrewmostlyfromthe2009CanadianFinancial
CapabilitySurvey,whichdidnotusequestionscomparabletothoseusedinothercountries.
Comparisonscanbeusefulastheyhighlightsimilaritiesanddifferencesacrosscountries.
Theycanalsodrawattentiontoimportantfeaturesofthedata,forexamplethegroupsthat
consistentlydisplaythelowestlevelsoffinancialliteracy,irrespectiveofinstitutional
setting,andtheeffectsoffinancialilliteracy.

7
JaneRooneywasappointedtothepositiononApril15,2014.
5
Insection2,wediscussthesurveyanddatacollectionmethod.Insection3,wepresent
theempiricalevidenceontheleveloffinancialliteracyandretirementplanning.Wethen
compareresultstothoseobtainedfromothercountriesanddiscusstheimplicationsofour
findingsforpublicpolicy.
2. TheSurvey
InCanada,securitiesregulationandoversightisdoneattheprovinciallevel.Consequently,
thereare13provincialandterritorialsecuritiesadministrators,collectivelyknownasthe
CanadianSecuritiesAdministrators(CSA).In2012,theCSAsponsoredathirdeditionofa
surveythathadbeenfieldedin2006and2009,mainlyaimedatinvestigatingand
measuringvariousaspectsofinvestmentknowledgeandbehavioramongCanadians.
ThesurveywasconductedovertheInternetbetweenMay17andMay31,2012,inboth
FrenchandEnglish,usinganationalpanelrunbyInnovativeResearch.Respondentswere
drawnfromnationallyrepresentativesamplesandwereofferedachancetowinCA$1,000.
DatawereweightedtoensurethesamplewasrepresentativeoftheCanadianpopulation.
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Atotalof6,911Canadianswereinterviewed.Importantforourpurposeisthat2012was
thefirstyearinwhichthesurveyincludedthethreespecificquestionsdesignedtomeasure
financialliteracythathavebeenusedinmorethantwelveothercountries.
9

8
Weusedthe2008SurveyofHouseholdSpendingtoconstructweightsbasedonage,sex,regionofresidence,
andeducationlevel.DetailsontheconstructionoftheseweightsareprovidedinAppendixA.
9
Whilethequestionsarethesameorverysimilaracrosscountries,themodeofinterviewvariesacross
surveysfieldedindifferentcountries.Forexample,somecountriesusetelephone‐basedsurveys(U.S.),
whereassome(Germany)usedpaperandpencil.Also,somedifferencesexistintermsoftheyearinwhichthe
surveywasfielded.However,thefinancialliteracylandscapeisunlikelytohavechangedoverahorizonofa
fewyears.
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3. EmpiricalEvidence
3.1. HowfinanciallyliterateareCanadians?

3.1.1. Measurementoffinancialliteracy
Wereportbelowthewordingofthethreequestions—takenfromthequestionnaire
originallydesignedbyLusardiandMitchell(2011b)—thatwereusedtomeasurefinancial
literacyamongCanadianrespondents.
UnderstandingofInterestRates
“Supposeyouhad$100inasavingsaccountandtheinterestratewas2%peryear.
After5years,howmuchdoyouthinkyouwouldhaveintheaccountifyouleftthe
moneytogrow?Morethan$102;Exactly$102;Lessthan$102;Don’tknow.”
UnderstandingofInflation
“Imaginethattheinterestrateonyoursavingsaccountwas1%peryearand
inflationwas2%peryear.After1year,howmuchwouldyoubeabletobuywiththe
moneyinthisaccount?Morethantoday;Exactlythesame;Lessthantoday;Don’t
know.”
UnderstandingofRiskandDiversification
“Isthefollowingstatementtrueorfalse?[...]Buyingasinglecompany’sstockusually
providesasaferreturnthanastockmutualfund.True;False;Don’tknow.”
The first question measures numeracy/interest compounding, or the capacity to do a
simplecalculationrelatedtointerestrates.Thesecondquestionmeasuresunderstandingof
inflation,againinthecontextofasimplefinancialdecision.Thethirdquestionisajointtest
7
ofknowledgeaboutstocksandstockmutualfundsandofriskdiversification,sinceknowing
theanswertothisquestionrequiresknowledgeofwhatastockisandthatamutualfundis
composedofmanystocks.
ThesequestionsarerelevantformostrespondentsinCanada,albeitwithdifferent
degreesofsaliencefordifferentagegroups.Forinstance,onlyolderindividuals(40or50
yearsandolderatthetimeofsurvey)arelikelytohaveexperiencedinflation,sincethelast
inflationaryepisodetookplaceintheearly1980s(duringthatperiod,inflationwasat10–
12percent).Since1991theBankofCanadahasfollowedamonetarypolicybasedona2
percentinflationtarget.Olderrespondentsmayalsohavethemostexperiencewiththe
powerofinterestcompounding,asindividualsover40—andevenmoreso,thoseover60—
willlikelyrememberthehighmortgageratesofthesameperiod.
Topicssuchascompoundinterest,inflation,andthestockmarkethavebeentaughtin
varyingwaysacrossCanadaovertheyears,andmanymiddle‐agedindividualsarelikelyto
havehadsomeexposuretothesetopicsinschool.InQuebec,forinstance,thesetopicswere
taughtforseveraldecadesaspartofamandatory12
th
gradeeconomicscourse;however,
thiscoursewasdroppedfromthecurriculumin2009,meaningthatindividualsunder20in
2012willnothavebeenexposedtoit.Ontheotherhand,anewoptionalcoursebeginning
in2015isbeingcontemplated;BritishColumbiaintroducedamandatorycoursein2004;
andOntariospecificallyintroducedfinancialliteracyelementsintoitscurriculain2011.
Moreover,sinceCanada—Quebecinparticular—performswellinmathematicsonPISA
(ProgrammeforInternationalStudentAssessment;seeKnightonetal.,2010),onemay
expectarelativelyhighleveloffinancialliteracyamongtheadultpopulation(Jappelli,
2010;JappelliandPadula,2013).
8
Fromtheearly1990sonwards,incentivesforindividualstocontributetoretirement
savingsplanshavebeenenhancedwiththeexpansionoftax‐deferredvehiclesandother
initiatives(forexample,indexationofthecontributionceilingfortheRegisteredRetirement
SavingsPlan,orRRSP,
10
andcreationoftheTax‐FreeSavingsAccount,orTFSA
11
).Asa
result,thevalueofhouseholds’directinvestmentsinfinancialmarkets—asopposedto
thoseheldthroughacollectivevehicle,suchasapensionplan—hasrisensignificantlyasa
multipleofearningsoverthelast30years(Horner,2009).Theproportionofhouseholds
owningdirectequityisnowamongthehighestintheworld(Groutetal.,2009),so
Canadiansshouldberatherfamiliarwithconceptsrelatedtoriskandportfolio
diversification.
3.1.2. Evidenceonfinancialliteracy
InTable1,wepresentthedistributionofanswerstoeachofthethreefinancialliteracy
questionsaswellasthedistributionofanswerstoallthreequestions.Overthree‐quarters
ofsurveyrespondentscorrectlyansweredthecompoundinterestquestionandmorethan
oneintengotthisquestionwrong.Abouttwo‐thirdscorrectlyansweredthequestionabout
inflationandmorethan17percentofrespondentsgotthisquestionwrong.Thequestion
thatelicitedthelowestnumberofcorrectanswerswasthequestionaboutrisk
diversification:59percentofrespondentsansweredthisquestioncorrectly.Moreover,the
patternofresponseschangeswhenlookingatriskdiversification;morethan30percentof

10
TheRRSPissimilartoanIRAintheU.S.“GroupRRSPs”areindividualaccountssetupbyemployers,usually
withmatchingcontributions,andaresimilarto401(k)plansintheU.S.RRSPcontributionsaretaxdeductible,
andwithdrawalsarefullytaxableatthebeneficiary’smarginalincometaxrate.Asmentionedabove,group
RRSPsalsohaveanew—andverysimilar—“competitor”savingsvehicle:PooledRegisteredPensionPlans,
whichQuebeclaunchedin2014underthenameVoluntaryRetirementSavingsPlans(VRSPs).
11
TheTFSAissimilartoaRothIRAintheU.S.“GroupTFSAs”areindividualaccountssetupbyemployers,
usuallywithmatchingcontributions,andaresimilartoRoth401(k)plansintheU.S.TFSAcontributionsare
nottaxdeductibleandwithdrawalsarenottaxable;likeRothplansintheU.S.,theTFSAisthereforesaidtobe
“taxprepaid”.
9
respondentsindicatedtheydidnotknowtheanswertothisquestion,whiletheproportion
of“donotknow”answerswasmuchlowerforthequestionsoninterestratesandinflation
(9and16percent,respectively).Resultsareverysimilarwhetherlookingatindividualsof
workingage(age25to64)oratthepopulationasawhole.Consideringallquestions
together,onlyabout42percentofrespondentscorrectlyansweredallthreequestionsand
morethan37percentofrespondentsansweredwithatleastone“donotknow”response.
Thesefindingsarestrikinglysimilartothosefromothercountries.Forexample,studies
fromtheU.S.,Germany,andJapan—tomentionbutafewcountriesthataregeographically
diversebuthavesimilarfinancialmarkets—reportsimilarfindings,withahigherrateof
correctresponsestotheinterestrateandinflationquestions,butaloweronefortherisk
diversificationquestion.Moreover,thequestionaboutriskdiversificationistheonethat
elicitsthehighestnumberof“donotknow”responsesacrosscountries.Forexample,“do
notknow”responsesare34and32percentintheU.S.andGermany,respectively,andas
highas56percentinJapan.Inmanycountries,thenumberofrespondentswhocan
correctlyanswerallquestionsisratherlow;forexample30percentintheU.S.and45
percentintheNetherlands.
12
PercentagesaresomewhathigherinGermany,with53
percentofrespondentsabletoanswerallthreequestionscorrectly.

12
Formoredetailanddiscussionabouttheinternationalcomparisonacrosstwelvecountries,seeLusardiand
Mitchell(2014).
10
Table1.Summarystatisticsonthethreefinancialliteracyquestions
Fullsample(%) Age25‐64(%)
(A)Interestquestion
>$102 77.92 79.04
=$102 7.04 7.12
<$102 6.20 6.10
DK 8.84 7.74
(B)Inflationquestion
More 8.14 8.10
Exactlythesame 9.55 9.91
Less 66.18 66.92
DK 16.13 15.07
(C)Riskquestion
Correct(false) 59.35 61.2
6
Incorrect(true) 9.36 8.13
DK 31.29 30.62
(D)Cross‐questionconsistency
Correct:InterestandInflation 58.12 58.83
Allcorrect 42.46 43.93
Nonecorrect 10.27 9.46
Atleast1DK 37.23 35.60
AllDK 5.96 5.60
Numberofobservations 6,805 4,950
Note:Distributionofresponsestothefinancialliteracyquestionsinfullsampleandforthoseage25–64.All
figuresareweighted.DKindicatesrespondentdoesnotknowtheanswer.Italicsindicatethecorrectanswer
toeachquestion.
3.2. Whoknowstheleast?
Table2showsthedistributionofresponsestothefinancialliteracyquestionsacross
demographicgroups.Tobeabletocomparewithothercountries,weconsideredthe
distributionofresponsesacrossage,sex,educationalattainment,andemploymentstatus.
Althoughinasinglecross‐sectionwecannotdistinguishbetweenageandcohorteffects,
11
thereisaninverseU‐shapedpatternofresponsesacrossage,withtheyoungnormally
havingthelowestpercentageofcorrectanswers,andtherateofcorrectanswersagain
showinga(small)declinewithage.Inallcases,however,individualsyoungerthan35
performedworsethanolderindividuals.
Womenperformedworsethanmenonallthreequestions.Notonlyistheproportionof
correctanswerslowerforwomen,butforeachquestion,womenweremorelikelythanmen
tohaveselectedthe“don’tknow”option,withtheproportionparticularlyhighfortherisk
diversificationquestion,towhichmorethan40percentofwomenreplied“donotknow.”
Thereisalsoastrongeducationgradient,withindividualswithgreatereducational
attainmentdisplayingahigherleveloffinancialliteracy.Theproportionofrespondents
answeringwith“donotknow”decreasesaseducationlevelincreases.
Retiredrespondentshadthehighestproportionofcorrectanswerstotheinflation
question.Butontheotherquestions,theself‐employedperformedbest.Thesetwogroups
performedsomewhatbetterthanemployedrespondentsoninflationandoverall,buton
interestandrisk,employedindividualsweremoreknowledgeablethanretirees.Individuals
whowerenotworking(students,homemakers,andtheunemployed)performedworston
allquestions.
Thesefindingsareagainveryconsistentwiththeevidencefromothercountries;the
young,women,thosewithloweducationalattainment,andindividualswhoarenot
workingareconsistentlyfoundtodisplaylowlevelsoffinancialliteracyinternationally.In
particular,therearestrikingsimilaritiesinthegenderdifferencesinfinancialliteracy;the
patternthatisfoundinCanadaverycloselymirrorstheevidencefromothercountries.
Thesepatternsareonereasonwhyinternationalcomparisonscanbequiteinformative.
12
Table2.Distributionofresponsestofinancialliteracyquestionsbyage,sex,educationlevel,
andemploymentstatus
Interest Inflation Risk Overall
Correct DK Correct DK Correct DK 3Correct >=1DK
Age 
<35 74.12 10.01 46.58 23.78 50.61 34.31 29.73 43.58
35‐54 79.80 7.59 66.84 14.86 61.84 29.58 45.06 34.27
55‐64 78.51 7.75 75.11 12.73 62.67 31.90 46.31 36.31
65+ 76.82 11.89 75.77 14.79 58.99 31.44 45.66 38.56
Se
x

Male 81.69 6.97 72.15 11.02 66.76 22.71 51.36 27.71
Female 73.85 10.86 59.72 21.65 51.34 40.56 32.85 47.52
Education 
<Highschool 63.21 16.21 54.28 26.48 40.24 49.32 23.50 57.45
Highschoolgraduate 71.29 12.36 53.50 22.25 50.84 36.71 30.33 45.20
Technical&vocational 79.34 7.69 65.62 15.81 58.80 31.70 40.50 37.07
CEGEPorSomecollege 82.40 6.26 69.70 12.91 64.57 26.35 48.00 31.50
CollegeGraduate 86.79 4.36 78.
66 8.3
7 73.68 19.83 58.70 23.89
PostGraduate 90.62 3.61 82.51 6.37 75.78 16.48 63.85 19.85
Employmentstatus 
Notworking 68.56 13.64 48.86 27.04 42.98 44.63 25.88 50.63
Employedforwage 80.93 6.74 65.82 13.76 63.26 27.64 44.90 33.39
Self‐employed 83.39 4.24 75.07 11.52 67.35 24.29 52.29 29.75
Retired 77.19 10.75 76.39 14.36 61.05 30.90 46.62 37.31
Note:Allfiguresareweighted.DKindicatesrespondentdoesnotknowtheanswer.“Notworking”includes
students,homemakers,andtheunemployed.
GiventheregionaldifferencesthathavebeenfoundinItaly,Russia,andtheUnitedStates,
welookedatfinancialliteracydifferencesbyCanadianprovince/region.
13
Wealsolookedat

13
Wereportstatisticsbyregioninsteadofindividualprovincemostlyforconvenience.Differencesbetween
provinceswithineachregion(NewfoundlandandLabrador,PrinceEdwardIsland,NovaScotiaandNew
BrunswickintheAtlantic;Manitoba,SaskatchewanandAlbertainthePrairies)werenotsignificant.
13
differencesbyself‐reportedvisibleminoritystatus,andaccordingtothelanguageinwhich
therespondenttookthesurvey.ResultsareshowninTable3.
Thereareslightdifferencesinfinancialliteracyacrossregions:respondentsinQuebec
andtheAtlanticprovincesperformedpoorlyontheinterestandinflationquestions,while
respondentsonthecoasts(BritishColumbiaandAtlantic)didworseonriskdiversification.
Overall,respondentsfromOntarioandthePrairiesperformedbest,whilethosefromthe
Atlanticprovincesdidtheworst.Differenceswerenotverylarge,however;therewasno
singlequestiononwhichthedifferencebetweenthe“mostliterate”andthe“leastliterate”
regionexceeded10percentagepoints.
Thepictureissomewhatdifferentwhenlookingattheresultsaccordingtolanguage
(i.e.,whetherthesurveywastakeninFrenchorEnglish).
14
FrenchrespondentsinQuebec
doworsethanEnglishrespondentsinQuebec.FrenchrespondentsintherestofCanadado
betterthanFrenchrespondentsinQuebecandeventhanEnglishrespondentsinQuebec
andtherestofCanada,apartfromthequestiononriskdiversification.Thepictureisalso
differentwhencomparinglanguageminorities(EnglishinQuebecvs.Frenchinother
provinces)andmajorities(FrenchinQuebecvs.Englishelsewhere).Amongtheminorities,
Englishrespondentsdobetteronriskandoverall,whiletheirresultsaresimilartoFrench
respondentsoninterestandinflation.EnglishrespondentsfromoutsideQuebecdobetter
thanFrenchrespondentsfromQuebec,exceptonrisk.Inallcasesexceptonrisk,English
respondentsfromQuebecfarebest,whileFrenchrespondentsfromQuebecfareworst.
Theseareonlyunivariatestatistics,notcontrollingfortheotherdifferencesthatare
mentionedearlierinthetable.Giventheimportanceofthisfinding,wealsoperforma

14
Thesub‐sampleofFrenchrespondentsoutsideQuebecisverysmall.
14
multivariateanalysis.Interestingly,regionalandlanguagedifferencesapparentinTable3
allbutdisappearwhencontrollingforeducationalattainmentinaregressionframework.
15
Hence,thegapisalmostentirelyexplainedbydifferencesineducationacrossregions.
Table3.Distributionofresponsestofinancialliteracyquestionsbyregion,language,andself‐reported
visibleminoritystatus
Interest Inflation Risk Overall
Correct DK Correct DK Correct DK 3Correct >=1DK
Region(N=6,805) 
Atlantic 74.55 10.79 64.29 20.48 53.75 38.56 36.93 45.37
Quebec 74.68 9.19 62.76 16.87 60.17 30.48 39.43 37.91
Ontario 79.65 8.50 67.81 14.73 61.11 29.41 44.69 34.74
Prairies 78.83 8.83 67.66 16.06 58.86 31.43 45.06 36.73
BritishColumbiaand
Territories
79.97 8.05 67.30 16.36 56.55 33.93 41.79 39.07
Language(N=6,805) 
French(Quebec) 73.86 9.53 61.45 17.60 59.72 30.82 38.08 38.61
French(ROC) 79.23 0.00 78.69 3.57 70.57 12.95 53.43 15.65
English(Quebec) 85.
06 4.7
3 79.53 7.47 65.89 26.23 56.76 29.01
English(ROC) 79.03 8.76 67.28 15.94 59.01 31.66 43.45 37.11
Visibleminority
(N=6,198)

Yes 69.24 9.78 56.93 16.55 53.04 29.76 31.79 35.43
No 82.09 7.15 70.56 13.58 64.32 27.86 47.99 33.40
Note:Allfiguresareweighted.DKindicatesrespondentdoesnotknowtheanswer.ROCreferstoCanada
outsideQuebec(“restofCanada”).

15
Thisconclusionwasreachedbyregressingthevariableindicatingthatanindividualhadcorrectlyanswered
allthreefinancialliteracyquestionsonage,sex,regionofresidence,andaninteractiondummyindicating
Frenchsurvey‐takersfromQuebec,andsubsequentlyaddingeducationlevel(theseareOLSregressions).The
latteroperationwipedoutregionalandlanguagedifferences.Thesubsequentintroductionofincomeand
employmentstatusintotheregressionloweredtheeducationaleffect,butdidnotchangethestatistical
significanceofregion,languageandeducation’scoefficients.Resultsareavailableuponrequest.
15
Finally,self‐declared“visibleminoritystatus”seemstobestronglycorrelatedwithlower
financialliteracy.Respondentswhoidentifythemselvesasbelongingtoavisibleminority
faremuchworse,onaverage,thanthosewhodonot.Thesuccessrateismuchloweronall
questions(by11–15percentagepoints)aswellasoverall(16percentagepoints).Contrary
totheregional/languagedifferences,thisresultdoesnotgoawaywhencontrollingfor
income,employmentstatusand,mostimportantly,educationalattainment.
3.3. Doesfinancialliteracymatter?
Weturnnexttoexaminingthelinkbetweenfinancialliteracyandretirementplanning.
Plannersaredefinedasthosewhohaveanytypeofvoluntarysavings.Thisisabroad
measure,butthewordingofthesurveyquestionmakesitappropriateasfarasretirement
planningisconcerned(welabelasplannersrespondentswhoselectanswers#1,#2or#3
tothequestionbelow):
16
Doyoupersonallyhaveanysavingsorinvestmentssetasideforthefuture?This
couldbeeitherinoroutsideofanRRSP(RegisteredRetirementSavingsPlan),RRIF
(RegisteredRetirementIncomeFund)orTFSA(Tax‐FreeSavingsAccount).Checkall
thatapply.
1.SavingsorinvestmentsINanRRSP,RRIForpensionplan
2.SavingsorinvestmentsINaTFSA
3.SavingsorinvestmentsOUTSIDEanRRSP,RRIF,pensionplanorTFSA
4.Currentlydonothaveanysavingsorinvestmentssetasideforthefuture

16
Onemightarguethatonlyindividualswithsavingsintax‐shelteredvehiclesshouldbelabelled"planners”,
butitcanbesimilarlyarguedthatotherformsofsavingsarealsolinkedtoplanning—forretirementand
otherpurposes.About200individuals,outofmorethan4,000inourregressionsample,reporthavingsavings
onlyoutsideoftax‐shelteredvehicles,i.e.,answer#3.
16
Asdidthestudiesinothercountries,werestrictoursampletonon‐retiredrespondents
age25to64.
17
Table4showstherelationshipbetweenretirementplanningandfinancial
literacy.Resultsindicatethathigherlevelsoffinancialliteracyareassociatedwithahigher
likelihoodthattherespondentplansforretirement.Thefractionwhocorrectlyanswered
allquestionsismuchhigherat53.5percentamongplannersversus29.0percentamong
non‐planners,andthefractionwhoansweredwithatleastone“don’tknow”ismuchlower
amongplannersat26.0percentversus49.2percentamongnon‐planners.
Table4.Financialliteracyofplannersandnon‐planners
Planners Non‐planners
(A)Interestquestion
Correct 84.63 71.29
DK 4.96 11.40
(B)Inflationquestion
Correct 73.60 53.88
DK 9.01 24.11
(C)Riskquestion
Correct 71.08 46.53
DK 21.23 43.76
(D)Summary
Correct:InterestandInflation 67.11 44.52
Allcorrect 53.45 29.00
Nonecorrect 5.53 15.46
Atleast1DK 26.00 49.17
AllDK 2.8
6
9.20
Numberofobservations 2,368 1,713
Note:Sampleconsistsofnon‐retiredrespondentsage25–64.DKindicatesrespondentdoesnotknowthe
answer.Plannersareindividualswhohaveanyvoluntarysavings.

17
Eighthundredandseventy‐threeretiredrespondentsareunderage65.
17
InTable5weshowtheresultsofregressionstoassesstheimpactoffinancialliteracyon
retirementplanning—thistimecontrollingforarichsetofdemographiccharacteristicsand
income.
18
Asinthestudiesinothercountries,weusethreedifferentspecificationsfor
financialliteracy:(1)whethertherespondentansweredallthreequestionscorrectly;(2)
thenumberofquestionstherespondentansweredcorrectly;and(3)dummiesforeachof
thequestionstherespondentsansweredcorrectly.
Incomeinformationisreportedusingeightbroadcategories,ratherthanasa
continuousvariable.Thesecategoriesarecodedusingdummyvariables(onedummyfor
eachincomecategory).
19
Thesameistrueforage,whichisrepresentedasasetofdummies
foragegroupsratherthanasacontinuousvariable.
Wedonotusevisibleminoritystatusasacontrolbecauseofthelargenumberof“don’t
know/prefernottosay”responses(almost10percent;i.e.,asmanyasthenumberof
individualswhoidentifythemselvesasbelongingtoavisibleminority).Thesurveydoesnot
provideinformationregardingmaritalstatusand,asaresult,wecannotusethisvariablein
ourregressions.
20
Evenaftercontrollingformanydemographiccharacteristics,includingincome,Table5
showstherecontinuestobeastronglinkbetweenfinancialliteracyandretirement
planning.Specifically,thosewhoansweredallthreequestionscorrectlyareabout10
percentagepointsmorelikelytohavesavings,includinginanRRSP,RRIF,pensionplan,or
TFSA.Similarly,thosewhocanansweroneextrafinancialliteracyquestionhavean

18
LogitmarginaleffectswereverysimilartoOLSestimates.Hereweusethelinearprobabilitymodelto
compareresultswithothercountries
19
About15percentofrespondentsdidnotreporttheirincome.Tobeabletorelyonthefullsample,we
imputedthemissingobservationsonincomeasdescribedinAppendixB.
20
AppendixCprovidesdescriptivestatisticsforthefullsampleandthesampleusedintheregressions.
18
increasedprobability(5.3percentagepoints)ofhavingsavings.Theconceptthatmatters
themostforretirementplanningisriskdiversification:thosewhocorrectlyansweredthe
riskdiversificationquestionhavea10.2‐percentage‐point‐higherprobabilityofhaving
savings.
Table5.Linearprobabilitymodelsforretirementplanning
1 2 3
Financialliteracymeasures
Allthreecorrect 0.0977***
(0.0164)
Totalnumbercorrect 0.0530***
(0.0090)
Inflationcorrect 0.0332*
(0.0201)
Interestcorrect 0.0148
(0.0237)
Riskcorrect 0.1021***
(0.0186)
S
ocio‐demographiccontrols
Age(ref.25‐34)
35‐54 0.0202
(0.0189)
0.0183
(0.0188)
0.0196
(0.0188)
55‐64 0.1058***
(0.0252)
0.0990***
(0.0251)
0.0994***
(0.0251)
Sex(ref.Female)
Male(=1ifmale) ‐0.0468***
(0.0164)
‐0.0461***
(0.0163)
‐0.0466***
(0.0162)
Region(ref.Quebec)
Atlantic‐0.0937***
(0.0268)
‐0.0961***
(0.0267)
‐0.0934***
(0.0262)
Ontario‐0.0095
(0.0207)
‐0.0089
(0.0206)
‐0.00
68
(
0.0206)
Prairies‐0.0226
(0.0253)
‐0.0202
(0.0251)
‐0.0182
(0.0251)
19
BritishColumbiaandTerritories‐0.0258
(0.0274)
‐0.0261
(0.0275)
‐0.0214
(0.0277)
Education(ref.<HighSchool)
HighSchool 0.1221***
(0.0401)
0.1159***
(0.0401)
0.1138***
(0.0400)
Technical,VocationalPost‐SecondarySchool 0.1618***
(0.0401)
0.1530***
(0.0402)
0.1516***
(0.0401)
CEGEPorSomeUniversity 0.1878***
(0.0414)
0.1790***
(0.0416)
0.1774***
(0.0416)
CollegeandPostGraduate 0.2314
(0.0403)
0.2207***
(0.0407)
0.2187***
(0.0407)
Income(ref.un
der$
20,000)
$20,000tounder40,000 0.1472***
(0.0366)
0.1392***
(0.0363)
0.1404***
(0.0362)
$40,000tounder$60,000 0.2266***
(0.0371)
0.2162***
(0.0371)
0.2178***
(0.0368)
$60,000tounder$80,000 0.3423***
(0.0366)
0.3352***
(0.0366)
0.3358***
(0.0366)
$80,000tounder$100,000 0.3643***
(0.0368)
0.3555***
(0.0368)
0.3565***
(0.0368)
$100,000tounder$125,000 0.4087***
(0.0371)
0.4014***
(0.0370)
0.4017***
(0.0370)
$125,000tou
nder$1
50,000 0.3828***
(0.0452)
0.3707***
(0.0451)
0.3723***
(0.0453)
$150,000ormore 0.3929***
(0.0386)
0.3857***
(0.0386)
0.3881***
(0.0384)
Employmentstatus(ref.Empl.forwage)
Self‐employed ‐0.0770***
(0.0291)
‐0.0774***
(0.0289)
‐0.0774***
(0.0291)
Notworking ‐0.1841***
(0.0252)
‐0.1799***
(0.0251)
‐0.1780***
(0.0250)
Constant 0.2934***
(0.0491)
0.2431***
(0.0478)
0.2539***
(0.0485)
R
2
0.2434 0.2449 0.2480
Note:Robuststandarderrorsinparentheses;***P<0.01;**P<0.05;*P<0.10.Sampleconsistsof4,082non‐
retiredrespondentsage25–64.“Notworking”includesstudents,homemakersandtheunemployed.
20
Bothhigherincomeandhighereducationalattainmentareassociatedwithhigherlevelsof
planning.Thesevariableshavepositiveandgenerallylargeandsignificanteffectson
retirementplanning,whichisconsistentwiththefindingsofmanyothercountries(see,e.g.,
LusardiandMitchell,2009,2014).Agealsohasasignificanteffect,witholderindividuals
beingmorelikelytoholdretirementsavings.Whencontrollingforotherpersonal
characteristics,includingincome,educationandfinancialliteracy,wefindthatwomenare
morelikelytoplanforretirement.Thisfindingisconsistentwithevidencefromother
countries,suchasJapan(LusardiandMitchell,2011c).
Becauseofpossiblydifferingincentivestoplanforretirementaccordingtothelevelof
incomeinCanada,wehavesplitthesampleaccordingtoincome,atCA$60,000.Asan
alternativestrategy,wehaveincludedaninteractiontermbetweenfinancialliteracy(each
ofthethreemeasuresinturn)andadummyindicatingthatanindividualhasahighincome,
i.e.,overCA$60,000.Wereachthesamequalitativeconclusionusingbothmethods:allelse
equal,financialliteracyappearstohaveagreaterimpactonretirementplanningfor
individualswithlowerincome.Thismakessensetotheextentthathigher‐income
individualsaremorelikelytobeawareofthebasicfeaturesoftheretirementincome
system,andthusoftheirneedtosave,regardlessoftheirmeasuredleveloffinancial
literacy.Butthisfindingmaywarrantfurtherresearch.
Financialliteracycanitselfbeanendogenousvariable.Oneframeworkusedto
conceptualizefinancialliteracyisdescribedinLusardi,Michaud,andMitchell(2013).
Financialliteracyisaformofhumancapital,whichmayenhancereturnsonsavingsbut
whichiscostlytoacquire.Insuchamodel,financialliteracyaffectssavingsbyraisingthe
returnsonavailableassets,butbothareachoicevariable.Finally,thereisthepossibility
thatindividualsacquirefinancialliteracybyplanningforretirement,alearning‐by‐doing
21
mechanism.Onecommonstrategyusedtoaddresstheseissuesistorelyoninstrumental
variablesestimation.Unfortunately,wedonothaveinformationthatwouldenableusto
constructinstrumentsforfinancialliteracy,suchaswhetherrespondentshavebeen
exposedtofinancialeducation,eitherinschooloratwork(LusardiandMitchell,2014).
Nevertheless,inmostofthecountriescoveredintheinternationalcomparison,
instrumentalvariablesestimationhasyieldedconsistentlyhigherestimatesofthe
relationshipbetweenfinancialliteracyandplanningthanthosemeasuredbytheOLS
estimates(LusardiandMitchell,2014,Table4).
4. DiscussionandConclusions
Inthispaper,weexaminefinancialliteracyviaresponsestoquestionsthathavebeenused
insurveysinmanyothercountries.Wereportseveralimportantfindings.First,only42
percentofrespondentsinCanadacorrectlyanswerbasicquestionsrelevanttopersonal
financialdecisions.Thisislowbutnotverydifferentfromfindingsinothercountrieswhere
thesamequestionswereasked.Forexample,only30percentofAmericanrespondents
correctlyansweredthesamequestionswhile53percentofGermanrespondentsdidso.
Second,Canadaisnodifferentfromothercountrieswhenitcomestothegroupswho
knowtheleast:financialliteracyisloweramongtheyoungandtheold,women,minorities,
andthosewithlowereducationalattainment.ItisalsolowerinQuebecandAtlantic
provincesand,inparticular,lowamongthosespeakingFrenchinQuebec.However,these
differencesseemmostlyduetodifferencesineducationalattainmentamongregionsand
languagegroups.Financialliteracyincreaseswitheducation,butevenamongthosewith
highlevelsofeducation,forexamplecollege‐educatedrespondents,only60percentcould
22
answerallthreequestionscorrectly.Thisisparticularlyrelevantforthedebateoverhowto
reformtheretirementincomesysteminCanada.
Retirementplanningisstronglyassociatedwithfinancialliteracy.Thisresulthasbeen
foundinmanycountriesandtheestimatesinCanadaaresimilartothoseofothercountries.
ThisisrelevantintheCanadiancontextbecauseoftherelativelylowleveloffinancial
literacy,evenamongthemorefortunateCanadians(i.e.,thosewithhighereducationand
income),whomayneedtorelymoreandmoreonvoluntarysavingsprogramstofundtheir
accustomedlevelofconsumptioninretirement.
23
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26
AppendixA:Weightingprocedure
ToensurethatoursampleisrepresentativeoftheCanadianpopulation,wereweightedit
usingtheweightsoftheSurveyofHouseholdSpending(SHS)ascalculatedbyStatistics
Canada,andtheweightsoftheCSAInvestorIndex(CSAII)survey.Initially,thelatterwere
basedonthreecensusvariables:agegroup(3categories),sex(2),andprovinceof
residence(10).Becauseeducationisimportantforouranalysis,weaddedittothislist.To
implementthis,forthetwosurveyswefoundthedistributionbyage,sex,regionof
residence,andeducationalattainment.Weconsideredthreecategoriesforage:18–34,35–
54,and55+;fiveregionsofresidence:Quebec,Ontario,Prairies,BritishColumbiaand
Territories,andAtlantic;andtwolevelsofeducationalattainment:lessthanhighschool
andhighschoolandmore.LettingNc,csabethenumberofobservationsobtainedfromthe
CSAIIsurveyandNc,shsthoseobtainedfromtheSHSforeachofthe60groups,wecameup
withthenewweight:Wc=Nc,shs/Nc,csa,c=1,…,60.Usingthisnewweight,weobtained
column4ofTableA.
TableA:Distributionsdifferences
CSAIIsample
(%,weighted)
(1)
SHSsample
(%,weighted)
(2)
Difference
(%points)
(3)=(1)‐(2)
CSAIIrwsample
(%,reweighted)
(4)
Difference
(%points)
(5)=(4)‐(2)
(A)Age 
18‐24 10.28
(0.30)

3.75
(0.19)
6.53

7.25
(0.26)

3.50

25‐34 17.24
(0.38)

15.87
(0.37)
1.37

12.03
(0.33)

‐3.84

35‐44 15.31
(0.36)

20.19
(0.40)
‐4.88
16.99
(0.38)

‐3.20
45‐54 21.84
(0.41)

22.28
(0.42)
‐0.44
25.85
(0.44)

3.57

55‐64
20.
35
(0.40)

17.49
(0.38)
2.86

20.51
(0.40)

3.02

27
65+ 14.99
(0.36)
20.42
(0.40)
‐5.43
17.37
(0.38)
‐3.05
N 6,805 9,739 6,805
(B)Education 
<HighSchool 5.34
(0.22)
18.67
(0.39)
‐13.33
18.59
(0.39)

‐0.08

>=HighSchool 94.66
(0.22)
81.32
(0.82)
13.34
81.41
(0.39)
0.09
N 6,805 9,739 6,805
(C)Gender 
Male
48.23
(0.50)
51.75
(0.50)
‐3.52
51.94
(0.5)

0.19

Female 51.77
(0.50)
48.25
(0.50)
3.52
48.06
(0.5)
‐0.19
N 6,805 9,739 6,805
(D)Province 
Alberta 10.56
(0.31)

10.24
(0.10)
0.32
9.46
(0.29)

‐0.78

BritishColumbia 13.50
(0.34)

13.48
(0.34)
0.02
13.19
(0.34)

‐0.29
Manitoba 3.52
(0.18)

3.51
(0.18)
0.01

3.81
(0.19)

0.30

NewBrunswick 2.31
(0.15)

2.34
(0.15)
‐0.03

3.06

(0.1
7)

0.7
2

Newfoundlandand
Labrador
1.59
(0.13)

1.55
(0.12)
0.04
1.41
(0.12)

‐0.14

NovaScotia 2.87
(0.17)

2.95
(0.17)
‐0.08

1.71
(0.13)
‐1.24

Ontario 38.42
(0.49)
37.08
(0.48)
1.34

37.43
(0.48)
0.35

PrinceEdward
Island
0.42
(0.06)

0.42
(0.06)
0.00
1.1
0
(0.1
0)
0.68

Quebec 23.77
(0.43)

25.46
(0.44)
‐1.69
25.45
(0.44)
‐0.01
Saskatchewan 3.03
(0.17)
2.97
(0.17)
0.06
3.38
(0.18)
0.41
N 6,790 9,739 6,790
28
Note:Standarderrorsinparentheses.CSAIIsampleisthesampleasoriginallyweightedbyInnovative
Research;CSAIIrwsampleisthereweightedsample.Territoriesareexcluded,whichexplainswhythenumber
ofobservationsissmallerinthedistributionbyprovince.
AppendixB:Incomeimputation
About15percentofrespondentstotheCSAInvestorIndex(CSAII)surveydidnotreport
theirincome(i.e.,theysaidthattheydidnotknoworpreferrednottoanswer).Because
incomeisanimportantvariableinouranalyses,weimputedthemissingobservationstobe
abletorelyonthefullsample.Wedidsobyusinganorderedlogitestimationforthose
individualswhodidprovidetheirincome,wherethedependentvariablewasincomeas
reportedinthecategoriesoriginallyusedintheCSAIIsurvey.Theregressorsincludedage,
gender,surveylanguage,visibleminoritystatus,provinceofresidence,educational
attainment,andemploymentstatus—allwiththeiroriginalcategories,asprovidedbythe
surveyfirm.Usingthecoefficientsobtainedfromthisregression,wethenimputedan
incometorespondentswhohadanswered“don’tknow”or“prefernottosay”.Thusthese
individualswereattributedanincomecategorybasedontheirage,gender,survey
language,visibleminoritystatus,provinceofresidence,educationalattainment,and
employmentstatus.
AppendixC:Descriptivestatistics
TableCpresentsdescriptivestatisticsforthesurveyvariablesusedinthispaper.Statistics
areprovidedforboththefullsampleandourregressionsub‐sampleofnon‐retired
individualsage25–64.
TableC:Descriptivestatistics
Fullsample(%)
Age25‐64,non‐
retired(%)
Retirementplanning (N=6,805) (N=4,082)
Planner 69.51 69.88
29
Non‐planner 30.49
30.12
Age (N=6,805) (N=4,082)
<35 19.28 18.51
35‐54 42.84 63.02
55‐64 20.51 18.47
65+ 17.37
‐‐
Se
x
(N=6,805) (N=4,082)
Male 51.94 51.42
Female 48.06
48.58
Region (N=6,805) (N=4,082)
Atlantic 7.27 6.91
Quebec 25.38 25.12
Ontario 37.34 37.11
Prairies 16.60 17.40
BritishColumbiaandTerritories 13.40
13.46
Surveylanguage (N=6,805) (N=4,082)
French 23.92 23.75
English 76.08
76.25
Education (N=6,805) (N=4,082)
<Highschool 18.59 13.55
Highschoolgraduate 17.38 17.47
Technical&vocational 20.62 23.31
CEGEPorSom
ecollege 13.
96 13.45
CollegeGraduate 20.01 22.42
PostGraduate 9.44
9.80
Employmentstatus (N=6,805) (N=4,082)
Notworking 17.90 21.20
Employedforwage/Salary 49.09 69.06
Self‐employed 7.13 9.74
Retired 25.87
‐‐
Visibleminority (N=6,198) (N=3,721)
Yes 12.96 13.93
No 87.04 86.07
Note:Allfiguresareweighted.Distributionsofcharacteristicsinfullsampleandfornon‐retiredindividuals
age25–64(thisistheregressionsampleusedinthepaper).“Don’tknow”responsesarenotreported,which
explainsthevaryingsamplesize.“Notworking”includesstudents,homemakersandtheunemployed.
Individualsare“planners”iftheyreporthavinganysavingsorinvestments“setasideforthefuture”(savings
orinvestmentsinanRRSP,RRIForpensionplan;inaTFSA;oroutsideanRRSP,RRIF,pensionplanorTFSA).