Q. Where does literacy end… and financial literacy begin?
A. It doesn’t matter; efforts to drive either also drive wealth development potential… so educate people… people!
Education and Wealth Are Related. Here’s Proof
Let’s start with this. Education is a driver of wealth, in case anyone forgot to mention it. If you need some proof, look at the analysis below in Exhibit 1.
Exhibit 1. Canadians’ investable assets cross-tabulated with their level of education.
What’s seen here is that, as Canadians’ education levels rise from a grade 12 education to a post-graduate level of education, so does the level money they control in terms of investable assets. Indeed, there is a great deal of variability. Not all people with graduate degrees have $500k or more in investable assets… but 23% of them do. A small percentage of Canadians with only a grade 12 education have managed to secure a nest-egg of $500k or more… but only 6% of this sub-set of the population. Just looking at the exhibit shows that wealth climbs with education. It’s pretty clear; there is a real and strong relationship between education and wealth and that relationship is a positive correlation — increases in education are a driver of opportunity to develop wealth.
So, if education is a driver of wealth, one might expect Canadian investors to be motivated to develop their education; certainly if they are motivated by the prospect of developing wealth.
Let’s change gears somewhat. The ongoing Financial Comfort Zone Study explores the level of importance Canadian investors attribute to various matters from a financial perspective. Education is one such matter. As a result, we’re able to isolate the subset of Canadian investors who feel education is particularly important and we can create a very detailed profile of this group of individuals. Similarly, we can create a profile of investors who don’t see education as a particularly important matter from a financial perspective.
Before presenting and analyzing these profiles, we will offer another layer to the overall analysis; the use of Registered Education Savings Plans (RESPs.) We’re going to look at the level of use of RESPs among investors who see Education as an important financial matter and we’ll compare this to the use of RESPs among investors who don’t see education as a particularly important financial matter. Credo has found that about 16% of investors, in general, have an RESP. This is seen clearly in Exhibit 2, below.
Exhibit 2. Penetration of RESP Use among Canadian Investors.
Of course, the need for funding for an education is affected by an individual’s age. So, it is informative to “slice” the data and explore the penetration of RESPs among different investor age groups. Exhibit 3 below shows that Investors under the age of 45 are most likely to have money in an RESP.
Exhibit 3. RESP Penetration by Age Groups among Canadian Investors
Exhibit 3 shows that 19% of relatively younger Canadian investors — those under 45 years of age — are likely to have an RESP while those between 45 and 64 have only a 16% probability of having an RESP. Investors older than this are significantly less likely to have money in an RESP; they have only a 6% probability of having an RESP.
So, among investors in general, there is considerable opportunity to build the use of RESPs among investors. Advisors should ensure that their clients appreciate the financial benefits of this government sponsored program. Moreover, they should impart an appreciation of the fact that education creates benefits that extend far beyond the realm of personal financial alone. Advisors who help their clients appreciate the real value of education — and the power of education to improve an individual’s lot in life — are positioning themselves apart from advisors who don’t help on this front.
Education as a Financial Priority for Canadians
Despite being a clear driver of wealth, education is not the top priority of most Canadian investors. In fact, it only just makes the Top 10 List of Financial Matters of Importance to Canadian Investors. It’s ninth on this list.
Exhibit 4. Top Ten Matters of Financial Importance to Canadian Investors
From a rating perspective, where our scale ranges from a completely unimportant zero to a maximal importance ten, among all investors, Education rates a 6.91. There are clearly many financial priorities that are of greater import to Canadian investors than Education, just as there are priorities that are of less importance. This becomes quite clear through an examination of Exhibit 4, above.
Consider those investors among whom Education is set as a true priority, however. We have, in Exhibit 5 below, isolated those investors who indicated that Education is a top financial priority. An impressive 26.6% of investors rate education as a top priority from a financial perspective.
Exhibit 5. What Other Matters are of Importance to Education-focused Canadian Investors?
When we isolate this subset of investors, we can explore among them the importance of other financial matters by producing an index of the importance of financial factors relative to other investors. Exhibit 6 shows how important other factors are to those investors who deem education a top priority.
Exhibit 6. Indexed scores: The importance of Financial Matters to investors who rate Education as being of highest importance.
Understandably, Exhibit 6 shows education as 73% more important to education-focused investors than it is to other investors. What’s also interesting here is the fact that child care, as a financial issue, indexes 50% more important to this group than it does to other investors. Further, we should note that every single financial matter indexed above 100 for this group of investors. From this we begin to infer that education-focused investors are more sensitive to financial matters than other investors. Though they are not among the top priorities with this group, elder care and weddings are seen by education-focused investors as important financial issues to a greater degree than among other investors, indexing and 24% and 22% above the scores of other investors respectively.
That education-focused investors are engaged in their personal finances is confirmed by a review of this investor segment’s indexed Financial Comfort Zone profile. This is shown in Exhibit 7, below.
Exhibit 7. Education-focused Investors: An Indexed Profile of the Segment
Highlighted in Exhibit 7 is the fact that education-focused investors are much less likely to agree with the statement, “Personal financial matters are of no interest to me.” They index at 0.754 — which is about 25% below scoring produced by other investors. (This actual score is, unfortunately, cut-off in our graphical analysis presented above.) The fact is, personal financial matters are of significantly MORE importance to education-focused investors than they are to others. This is further evidenced by the index score of 1.13… or 13% higher than the average investor… on the statement that reflects their regular vigilance with respect to financial goals.
Investors who Prioritize Education ARE Better Off
Credo has found that investors who prioritize education are better off than others. And, it’s far more than just a financial thing. Financial advisors do their clients tremendous service by educating them, certainly about financial matters, but also about the tremendous value of Education itself. Advisors can help their clients fundamentally by encouraging education in every respect.
Credo’s Wheel of Life exercise — a component of the ongoing Financial Comfort Zone Study — shows that investors who prioritize education are better off in every one of the ten critical dimensions within the wheel.
Exhibit 8. Indexed Wheel of Life Scores for investors who rate education as a top priority
The analysis presented in Exhibit 8 shows that on every dimension of life that is represented in Credo’s Wheel of Life, investors who are education-focused have, on average, higher scores than the rest of the investing population. With respect to financial literacy, the positive difference is only a 3% lift. But, with other dimensions — intellectual engagement and purposeful pursuits, for instance, the average difference in scoring is 12%. By extreme contrast, investors who view education as a non-issue, from a financial perspective are worse-off than many other investors.
Exhibit 9. Indexed Wheel of Life Scores for investors who rate education as an extremely low priority
Exhibit 9 shows that on many dimensions of Credo’s Wheel of Life, investors who place little or no importance on education as a financial matter are not as well-off as those who ascribe high importance to education. Accordingly, Credo believes that financial advisors can create value for their clients by influencing them to understand the relationship between education and both wealth and more holistic, greater life benefits. The value an advisor brings to a client certainly extends beyond the financial. Impressing on investors the value of education (and the need to save in order to fund education) is a clear case, for advisors, of creating value and proving their worth. It’s another strong strategy in building a loyal client base through the delivery of value.
Does every financial advisor have an appreciation of the financial importance of education to each of their clients? Credo would like to think so.
Note: The data used to produce this analysis were taken from The Financial Comfort Zone Study, a joint and ongoing research exercise between Credo and TC Media.