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This project undertakes an analysis of the 2014 Canadian Financial Capability Survey (CFCS) with the aim of understanding the role of cognitive biases in the financial decision-making of Canadians, with a particular focus on youth, aboriginals, and those with low incomes

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This study puts forward options for the design of pension plans that can enable higher participation and better decision-making by changing the ways the decision to participate in the employer-sponsored plan is presented to eligible employees, building from ample empirical evidence to suggest that low saving rates stem, at least in part, from the way choices are offered and presented.

The study provides details for the implementation of a randomized field experiment to rigorously assess the effectiveness of two schemes — one that combines simplified enrolment procedures with default contribution rate and investment options and another that requires eligible employees to make an active decision about contribution rate. The results of the proposed experiment would be extremely informative for governments and also employers and service providers who are considering offering Pooled Registered Pension Plans when they become available.

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Using data from the 2009 Canadian Financial Capability Survey (CFCS), the study reveals that couples’ financial management strategies have a significant impact on families’ financial health. Compared to households with shared responsibility for financial decisions, households where financial decisions are mainly the responsibility of the man are more likely to hold assets and have higher levels of asset holdings.

Those with the woman in control are more likely to have debt and to have liabilities exceeding assets. The results of this study suggest that policy-makers need to be aware of gender dynamics when planning policy interventions.

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As a rigorous evaluation of a Web-based financial education tool, the experiment proposed in the study would represent an important contribution to our understanding of the role that Web-based technologies can play in assisting Canadians in achieving their retirement savings goals. Given the significant public and private resources that are currently being devoted to developing such tools and resources, it would provide important lessons on the design and delivery of future Web-based policies and programs to enhance the financial capabilities of Canadians.

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Are Canadians well prepared for retirement?

SRDC publishes three studies that suggest ways to improve savings

Nudging high school students towards post-secondary education

Helping people with disability and intermittent work capacity integrate the labour market

Promoting physical activity and healthy eating in after-school care

From e-government to citizen-centric information systems

SRDC well represented at the CEA annual conference

Economists and the impact of government programs Sip Smart!

BC on the Web Career Development Services and skills training: gaps, innovations, and opportunities

Why don’t small and medium-size enterprises invest more in training?

Group-based initiatives: A promising approach to providing support to job seekers

Recent publications

New staff

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1) The role of financial literacy in financial decisions and retirement preparedness among seniors and older adults

2) The link between self-confidence and financial outcomes among working-aged Canadians with different levels of financial knowledge.

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As highlighted in the National Strategy for Financial Literacy, Canadians are living longer and leading more active lives than ever before. It is estimated that the average Canadian currently approaching retirement age can expect to live until the age of 86. People who retire at the age of 65, will have to live on their pensions and savings for an average of 21 years, and possibly longer.

With the decline in coverage of workers through employer-sponsored pension plans, Canadians face an increasing personal responsibility to plan for their own retirement. In spite of this, one in three Canadian adults is not financially preparing for retirement, according to findings from the 2014 Canadian Financial Capability Survey. Furthermore, when compared to youth and prime-age adults, seniors score the lowest on objective assessments of financial knowledge, yet they rate their financial confidence as the highest of any age group.

This study seeks to determine the impact that this difference between financial knowledge and financial confidence has on seniors and their ability to meet their financial needs in retirement. This study makes use of microdata from the 2014 Canadian Financial Capability Survey to examine financial knowledge and financial confidence among seniors (aged 65 and over) and near-seniors (aged 55 to 64).

The study considers how knowledge and confidence are related to three domains of financial behaviour that are critical for retirement preparedness: money and debt management, future planning and savings, and best financial practices and protection measures. The study also compares individuals’ financial knowledge levels with their financial confidence assessments. People are classified as either under-confident, confident or over-confident according to their financial confidence relative to their financial knowledge.

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“Knowledge” refers to an understanding of personal and broader financial matters; “skills” refer to the ability to apply that financial knowledge in everyday life; and “confidence” means having the self-assurance to make important decisions. Findings show that many people lack the financial literacy to make sound financial decisions. This points to an urgent need to improve the delivery of financial literacy programs and enhance the financial well being of Canadians. We define financial well-being as “a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow enjoyment of life” (CFPB, 2015).

Knowledge is certainly a critical aspect of the financial literacy equation. However, interventions may under-deliver when they target only financial knowledge and neglect to consider other factors in people’s ability to apply knowledge appropriately in decision-making. While knowledge is clearly important, emerging evidence from behavioural economics shows that an array of interconnected psychological factors frequently result in systematic errors in financial decision-making, in which people act contrary to their own knowledge and intentions. These kinds of self-defeating decisions may in turn reduce confidence in people’s ability to manage their own finances.

In an effort to add to the existing literature and begin to more clearly understand these psychological underpinnings of financial behaviour, this study makes use of microdata from the 2014 Canadian Financial Capability Survey to examine the links between an objective measure of financial knowledge, a subjective measure of financial confidence, and a range of financial outcomes among working-aged (25-to 64-year-old) Canadians. The results highlight the central importance of confidence in financial decision-making, behaviours, and outcomes of working-aged Canadians.

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