November is financial literacy month. In this issue, we share results of recent survey findings about Canadians being overconfident about their financial knowledge. We discuss our continued advocacy efforts urging the government to make the Ombudsman for Banking Services and Investments (OBSI) the only ombuds organization for banks and dealer firms. We also highlight a crypto fraud case that used social media for promotion and things you can do to protect yourself.
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Are We Too Confident For Our Own Good? |
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How well do you understand investing? Do you have an emergency fund? Would you be able to come up with $2,500 in a pinch? These are some of the questions explored in two recent surveys of Canadians by the Chartered Professional Accountants of Canada (CPA) and the Ontario Securities Commission (OSC).
Both surveys revealed that many Canadians overestimate their financial knowledge and skills.
Seventy-eight percent of CPA survey respondents felt confident they could make the right financial choices. Similarly, the OSC survey found that investors are more likely to rate themselves as “above average” in their financial knowledge. However, when quizzed on their level of financial literacy and asked what they actually practice, a different picture emerges:
- When asked about investment-related topics, on average, investors only answered 53% of the questions correctly.
- 50% would not be able to come up with $2,500 during an emergency without borrowing or selling something.
- 26% couldn’t produce $500 without borrowing money or selling something they own.
- Only 54% have an emergency fund and another one-third were not saving anything after taxes.
- Overall, investors had the least knowledge of investment costs and investor protections. This is worrying given that costs can add up over time, resulting in lower overall returns.
These survey results are consistent with other research on this topic, indicating that people think they know more than they do about finances.
This “overconfidence bias” could lead to risky financial decisions and poor outcomes. Someone who thinks they already know enough is unlikely to look for more information. Overconfident investors may make poor financial decisions by overlooking research or could even be more susceptible to fraud.
The findings also suggest pride can get in the way of improving your financial literacy, as many people do not like to admit they may be less knowledgeable than they really are. Financial literacy is important because it is a key factor in financial resilience—the ability to weather the ups and downs in your financial life. This contributes to a better sense of financial well-being, including less stress and better health.
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Assess and Boost Your Financial Literacy
To determine whether you have an accurate picture of your financial knowledge, here are a couple of quizzes by the Financial Consumer Agency of Canada (FCAC):
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Help improve your financial knowledge and skills by reviewing these resources:
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- The FCAC’s Financial Literacy Database allows you to search for resources, events, tools and information on various financial matters from several Canadian organizations.
- The OSC’s Get Smarter About Money website covers a host of topics, such as investing basics, planning for retirement, crypto assets and fraud.
The next time you’re making a financial decision, remember the overconfidence bias and ask yourself: How much do I really know or understand?
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Alleged Crypto Fraud Raised Millions From Investors |
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After raising millions from investors around the world, an individual marketing a crypto token that offered “limited risks and maximum potential” was charged with fraud by the Ontario Securities Commission (OSC).
According to the allegations, the individual and his companies behind the promotion (Cryptobontix Inc., Arbitrade Exchange Inc. and Arbitrade Ltd.) defrauded investors by falsely claiming gold bullion supported the value of the crypto token (called “Dignity tokens”).
Allegedly, a significant amount of the investors’ funds were also used for purposes unrelated to the crypto tokens, such as purchasing real estate and making payments to companies controlled by the individual. In addition, the individual violated securities law by failing to provide investors with the required disclosures, or to properly register with the OSC before engaging in trading activities.
Lessons to Keep in Mind
The case is a good reminder that you need to be careful and find out who you’re dealing with before investing in crypto:
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Do your research: Take time to do your own research or ask an independent financial professional whether an investment would be suitable for you. This is particularly true when investing in something you may not fully understand, such as crypto assets. According to a recent survey by the OSC, only half of Canadians know what crypto assets are and most do not really understand what it means to own crypto assets. You can assess your crypto knowledge by taking the OSC’s crypto quiz.
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Dig deeper than social media posts: The crypto token promotion was allegedly partly carried out by posting on Bitcointalk.org, an online forum. It was also promoted on social media platforms, such as Twitter and Telegram. When doing your research, make sure you look beyond reading online forums and social media posts.
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Check if the promotor is registered or licensed: Individuals and companies providing investment-related advice need to be registered in each province and territory where they do business. To find out whether the promotor you are dealing with is registered, check the Canadian Securities Administrators' National Registration Search database.
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Learn more about crypto: Watch this series of videos from the Nova Scotia Securities Commission:
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Canada Lags International Peers in Complaint Handling |
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Did you know?
If you bring a complaint against a bank or investment firm, they can ignore recommendations on how to resolve your complaint fairly.
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Unfortunately, some financial institutions choose to walk away from the process when they do not agree with OBSI’s decisions. This is a serious gap in Canada’s investor protection system. This has led to some clients receiving nothing, despite placing their trust in Canada’s complaint system. It also means that in many cases, financial institutions have offered to settle a complaint for a lower amount than OBSI recommended because they know OBSI can’t force them to follow its decisions.
For well over a decade, FAIR Canada has been calling on governments and regulators to protect Canadians by strengthening complaint-handling for financial services. More recently, we repeated our call for action with a coalition of other concerned consumer advocates. We asked that OBSI be made the sole ombudsman for banks and dealer firms, and that it finally be given the power to make binding decisions.
Despite the slow response by decision-makers, we welcome the October 7 announcement from the Canadian Securities Administrators (CSA) that they intend to publish a proposal next year to make OBSI’s decisions binding. FAIR Canada has also called on the federal government to do the same. We will continue our advocacy efforts until OBSI is granted the tools it needs to ensure Canadians are treated fairly.
If you have a complaint, view these resources to help you better understand the process:
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What’s New at FAIR Canada
FAIR Canada will be publishing a new plain-language Complaint Guide to help financial consumers understand their rights when they have a complaint about banking, or an investment service, or product. The guide will be designed to make it easier to understand and navigate the complaint process. We think the guide is necessary to remove confusion and to clarify what your legal rights really are when you have a complaint. Stay tuned!
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