Financial Literacy

6 scales of financial capability: How do we measure up?

If you think education is expensive, try ignorance.

~ Attributed to both Andy McIntyre and Derek Bok

In April of 2009 Statistics, Canada conducted its first-ever survey on financial capability. You can imagine that it’s pretty hard to measure something as multidimensional (and to some degree subjective) as financial capability. Who’s to say what capable means?

Well, StatsCan chose 6 scales by which to judge our financial competence based on a similar study done in the U.K.:

1. Making ends meet

This measured the extent to which people were able to balance their home budgets – how often they’re overdrawn, saving and borrowing levels, etc.

2. Keeping track

This measured the extent to which people check their bank and credit card statements, check account balances before making a withdrawal, or know how much money they have until the next payday. In general, this is about knowledge of your current financial condition.

3. Choosing products

This scale measured the extent of knowledge about (and capability of) choosing suitable financial products.

4. Planning ahead

This was about how much and how well people planned for future purchases and retirement needs.

5. Staying informed

This measured how well people kept up with and sought out knowledge and information about personal finance.

6. Objective quiz

This factor was based on respondents’ answers to questions about specific financial knowledge on topics like stock markets, credit reports, and the effects of inflation.

So how did Canadians do?

The final report isn’t out yet, but the Task Force on Financial Literacy will post it to their website when it’s completed. They did, however, outline a few potential problem areas. These are quoted directly from the public consultation document we’ve been discussing over the past few days:

  • Nearly 25% of Canadians were found to be weak in 3 key areas of financial capability: keeping track, staying informed, and planning ahead. Another 8% were weak in those 3 areas as well as making ends meet.
  • More than 1/3 of Canadians said they were either struggling or unable to keep up with their finances.
  • 70% said they were preparing their finances for retirement and the other 30% admitted they were not.
  • About 1/3 of either didn’t know or answered incorrectly, a question about what happens to their buying power when the inflation rate is higher than the interest they are earning on an investment.
  • Only 35% of Canadians knew that their investments in the stock market are not insured. (Incidentally, the CIPF does insure you against the failure of your financial institution, but not against investment losses due to stock price declines.)
  • About 57% did not know, or answered incorrectly, a question about the content of a credit report.

So there is some room for improvement here, but in looking at these preliminary results, a few things occurred to me:

  1. The fact that 25% of Canadians are weak in 3 key areas means that 75% are not.
  2. I wonder how many of the 2/3 that said they were not struggling to keep up with their finances might be in the blissfully ignorant camp. Maybe some of them have high debt levels or other issues that have not caused problems yet but may come back to bite them later. Self-assessment scales need to be taken with a grain of salt. Most of us will report that we are good drivers. Not all of us are.
  3. I wonder how successful the 70% who say they are preparing for retirement are in their efforts. I can say that I would answer in the affirmative as well, but I also have to say that we really should be further ahead than we are right now. Preparing to the best of your ability and actually being prepared is not the same.
  4. Knowing what needs to be done and actually doing it are two very different things as well. I write about personal finance almost every day, and I know that I still need to improve in each of the areas mentioned above. The Task Force actually addresses this issue in the report as well. But that’s a post for another day.

How do you think you would do on these 6 scales? Where are your strengths and weaknesses?


  1. Ken

    My weakness is “choosing products.” I just don’t take time to research what product is best. In contrast, my wife is an avid couponer who seeks out great deals. Glad to have her 🙂

    • 2 Cents

      It’s nice to have a partner who’s great at the stuff you either don’t like or aren’t good at isn’t it?

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