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financial literacy

Financial Literacy in Canada: A Study

Now you can listen to our blog post, “Financial Literacy vs. Financial Well-Being” while on the go.

We can all agree that having financial literacy is having the knowledge necessary to manage your finances, especially when it comes to saving, spending, and borrowing. However, the respondents who rate themselves as financially literate (67%) don’t check their spending, save for emergencies, or fully pay off their credit cards.

Additionally, 66% of our respondents said they did not maintain a monthly budget. An vital tool for managing finances, keeping track of spending, achieving savings targets, and eliminating debt is a budget. The Financial Consumer Agency of Canada commissioned the 2019 Canadian Financial Capability Survey (CFCS), which found that budgeters had a higher degree of financial well-being than those without one because they were better able to handle bill payments, debt, and cash flow.

Budgeters were more likely to have emergency money and be able to pay for unforeseen expenses—a resource that many Canadians who are credit-constrained lack.Moreover, the answers to the three questions below demonstrate the discrepancy between confidence in financial literacy and real know-how when it comes to basic personal finance concepts:

Financial Literacy Questions by Age Group

We learned the following things about persons who claimed to be financially literate:

  • Of those surveyed, 40% were unaware that payday loans are the most expensive type of borrowing.
  • 30 percent were unaware that making the minimum payment on a credit card still entailed paying interest.
  • When taking out a loan, 44 percent believed that upfront payments were acceptable.

These findings demonstrate that although many people believe they are financially literate enough to make wise credit decisions, many still have a lot to learn. This is noteworthy in particular because the majority of respondents are individuals who are most at risk from the effects of a lack of thorough grasp of borrowing costs and the credit system in general.

Additionally, we found that the likelihood of an answer being correct increased with age, suggesting that older respondents are more financially literate than their younger counterparts. However, the overall findings highlight the gap between perceived financial literacy and real proficiency in the subject. However, there is a chance to address this problem: it is obvious that striving to educate young people about financial literacy might be a great long-term solution.

Cost of a Loan

Understanding the cost of a loan can help Canadians choose the best lending option for their needs, improve their borrowing decisions, and ultimately save money. The principal amount of a loan, interest rate, and loan period are the three key factors that influence the overall cost of a loan. The results of our inquiry into the elements that directly influence loan costs among the respondents appeared promising.

A closer examination of the results, however, revealed that only 44% of respondents actually provided accurate responses to every query.

This indicates that more than half (56%) of respondents are unsure of all the variables influencing the cost of a loan. This indicates that many survey participants might be taking out loans or accruing debt without fully comprehending the costs associated with borrowing.

Loan Stacking

Loan stacking, to put it simply, is when a borrower takes out a new personal loan before paying off a previous one. This typically entails borrowing from various suppliers. Consumers most frequently select loan stacking because they believe they have no other choice.

A few of the problems Canadians face on a daily basis include job loss, medical emergencies, car problems, and rising interest rates, yet they are not always financially prepared for them. According to our poll, 78% of respondents don’t have any emergency funds. Additionally, respondents cited emergency expenses as the second most frequent justification for stacking debts.

Respondents’ Loan Stack Reasons


People who loan stack have larger debt levels than those who do not, as you may have predicted. Surprisingly, our research revealed that debt levels among those who identified as financially knowledgeable were comparable to or higher than those among those who did not. In the graph below, for instance, respondents who strongly agree or agree that they are financially literate are more likely to have debt amounts between $5,000 and $10,000 than those who disagree.

In general, more than 50% of respondents had high-interest debt, such as credit cards and payday loans.

Credit Cards

Making healthy financial decisions requires financial literacy, yet as has been demonstrated, many people are not conscious of their own shortcomings in this area. This ignorance may result in errors. For instance, failing to recognise the significance of timely, complete payment of your credit card account each month.

One of the most crucial elements in establishing a strong credit score is paying your credit card in full or rather, paying your bills on time in general. A greater credit utilisation ratio, which has a negative effect on credit, can result from not using your credit card entirely each month.

68 percent of individuals surveyed admitted to having at least one credit card that was fully utilised. You are more likely to have to use the entire limit on your credit card in the event of an unforeseen expense if your credit card debt is larger, and your utilisation ratio is higher.

Furthermore, if you don’t pay off your credit card in full, you’ll have to pay more in interest down the road, which can result in bigger debt loads that are more difficult to repay.

It is not surprising that 59 percent of respondents have a bad credit score given that 67 percent of respondents do not pay off their credit cards in full and that 30% of those do not realise they will pay interest when simply making the minimum payment.


When making decisions, especially ones involving borrowing, research is an essential component. However, some customers are still asking for loans without first performing their research. Our study revealed:

The easiest approach to ensure that you are choosing the most competitive and suitable credit solution is to compare lenders and their services. This is crucial for Canadians with bad credit, who would gain from more favourable lending arrangements or cheaper monthly payments.

60% of those surveyed never or very infrequently phone a lender before submitting a loan application. Calling a lender might help you feel more confident working with the organisation. It can also assist in addressing any queries or worries a borrower may have and in revealing any unstated or concealed expenses.

Prior to taking out a loan, 70% of respondents never or infrequently seek professional financial guidance.

In a similar vein, 65% of respondents said they didn’t ask their friends and relatives for advice while making decisions. This is crucial since the Financial Consumer Agency of Canada’s 2019 Canadian Financial Capability Survey revealed that “young people who engage with their family about financial problems likely to have a greater degree of financial literacy,” which promotes wiser financial choices. As a result, we advise Canadians, especially young ones, to consult their families before making credit decisions.

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