The Desjardins Personal Finance Index

The Desjardins Personal Finance Index

Skills, habits, motivation: Where Canadians stand financially

Desjardins Group has confirmed its leadership in the area of education by instituting the first Canadian index of responsible personal finances, an exhaustive and original yardstick for providing a global and integrated assessment of people's aptitudes for managing their personal finances. It covers 2 basic dimensions: knowledge and behaviour.

The Desjardins Personal Finance Index is a measuring instrument inspired by the definition of financial literacy developed by the Task Force on Financial Literacy created by the federal government in June 2009.

In addition to the total index, which stands at 70%, 2 sub-indices have been developed: the knowledge index, which is at 72%, and the behaviour index, at 68% for all Canadians surveyed.

A unique tool

"The Desjardins Personal Finance Index is a unique awareness tool that provides us with an initial reading of Canadians' strengths and weaknesses when it comes to the knowledge required to manage our finances properly. As this is the first calculation, there's nothing to compare the percentage with. However, it clearly shows there's room for improvement. This snapshot indicates where the gaps are, allowing us to develop more highly honed tools for coaching and educating people. We hope it will lead to lasting behavioural change," explained Monique F. Leroux, Chair of the Board, President and CEO of Desjardins Group.

Developed from a web survey of 3,000 Canadian respondents in all provinces, the Desjardins Personal Finance Index provides interesting data, particularly on savings and retirement planning.

If anything unfortunate happened (loss of a job, accident, illness), only 50% of all respondents would be able to take care of their needs and pay their bills without resorting to credit for over 3 months; 14% wouldn't last a month. The lack of a financial cushion shows how little consideration people are giving to savings.

Young people aged 18 to 24 show serious shortcomings

It's not surprising that young people aren't well versed in the features of RRSPs, don't have a retirement savings plan and are unfamiliar with returns on equities: these things are far from their thoughts. However, it's a little more worrisome to see that they don't have the basic skills required to understand and capitalize on the mechanics of savings:

• 49% of people aged 18 to 24 gave incorrect answers to a simple question on real returns (which factor in inflation).
• 45% of young people were unable to handle a simple question on the concept of compound interest.
• 70% of young people failed to answer a simple question on investment risk.

Deficient retirement planning

A number of respondents to the survey that led to the development of the Desjardins Personal Finance Index stated that they had no retirement savings plan. This is a very worrisome finding, especially in the context of an aging population:

• 40% of respondents aged 45 to 64 who were still in the workforce said that they hadn't estimated the revenue they'll need upon retirement and had no savings plan for retirement.
• Including the people who had estimated their retirement needs, nearly 60% of respondents hadn't set up a savings plan.

The study also showed that Canadians have a real lack of knowledge and skill when it comes to interest calculations. 49% of respondents were unaware that credit card interest charges are calculated as of the date on which the item or service was purchased. Moreover, 60% of respondents were unable to compare total interest paid on 2 loans with the same terms and different amounts extended at different interest rates.

Regarding these findings, Monique F. Leroux explained that Desjardins has developed an online self-evaluation tool for individuals to help them acquire the necessary knowledge and foster responsible behaviour in managing their personal finances.

"Desjardins wants to help prevent financial difficulties, equip people by giving them tools that foster responsible management of personal finances and, in particular, help them realize the dreams and projects they care about. Acquiring good financial habits and setting up a financial plan are key factors that usually ensure greater financial freedom. Awareness is a prerequisite for generating lasting behavioural change," she maintained.

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