On a global scale, Canada ranks 5th when it comes to the financial literacy. Also ranking high are Norway, Denmark, Sweden and Israel, according to a new report that examines the findings of a recent S&P global financial literacy survey.
In all five of the countries listed above, between 68% and 71% of adults are considered financially literate. The study says, “On average, 55% of adults in major advanced economies, [including] Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States, are financially literate. But even across these countries, financial literacy rates range widely, from 37% in Italy to 68% in Canada.”
In contrast, many emerging countries have low financial literacy scores, adds the study. “In the major emerging economies—the so-called BRICS (Brazil, the Russian Federation, India, China, and South Africa)—28% of adults are financially literate, on average. [But] disparities exist among these countries, too, with rates ranging from 24% in India to 42% in South Africa.
The original S&P survey tested people’s literacy across the globe by asking four questions based on fundamental financial concepts. The goal was to gauge whether people can make informed decisions based on their understanding of concepts such as risk and diversification, inflation and interest (check out The Wall Street Journal’s consolidated list of how all 158 countries fared)
The study says, “A person is defined as financially literate when he or she correctly answers at least three out of four financial concepts. Based on this definition, 33% of adults worldwide are financially literate. This means that around 3.5 billion adults globally, most of them in developing economies, lack an understanding of basic financial concepts.”
That’s a problem because financial ignorance carries significant costs, the study notes. For example, “consumers who fail to understand the concept of interest compounding, spend more on transaction fees, run up bigger debts, and incur higher interest rates on loans […] They also end up borrowing more and saving less money.”
Read the below articles for tips on helping clients boost their financial knowledge.