DIY Investor? You Could Be Among the Most Financially Literate Canadians

Do you know how bond prices relate to borrowing costs? Kudos if you do. But if you find yourself scratching your head over the question, you're not alone.

In a new survey by the Ontario Securities Commission, Canadian self-directed investors have emerged as the most financially savvy group, but a number of knowledge gaps and areas for improvement remain.

When asked 27 questions on various financial concepts underpinning investment decisions, self-directed investors answered 59 per cent of them correctly. That's better than the accuracy rate of investors who rely on financial advisors (52 per cent) and those who use robo-advisors (49 per cent). On average, the 2,591 respondents scored 53 per cent.

While an accuracy rate below 60 per cent may not seem like a stellar score, the OSC points out that Canada has one of the highest financial literacy rates in the world.

Canadian investors appear to understand some concepts better than others, the new survey shows.

For example, the vast majority of survey participants possess strong knowledge of registered accounts; close to 70 per cent answered related questions accurately. However, questions about investment costs, including management expense ratio (MER), stumped many, with only 36 per cent giving correct answers.

The questions are wide-ranging. One asks about the correlation between surging interest rates and bond prices. Another probes people on how time horizon may impact an investor's risk tolerance.

Before completing the survey, respondents were asked to rate their overall knowledge. Most (56 per cent) ranked themselves as "average," while 30 per cent considered themselves as having a “high" or “very high" level of knowledge. Turns out, 29 per cent of participants overestimated their financial literacy, while 14 per cent underrated their knowledge in finances and investing.

Investors aged 18-34 and those who use a robo-advisor displayed the most overconfidence. Women and investors with an advisor, on the other hand, tended to underestimate their knowledge. Despite younger investors' higher levels of overconfidence, the survey finds that “investors 18-34 were more likely than other age cohorts to revise their performance on the quiz downwards from their stated financial knowledge at the outset of the survey."

Similarly, the 2022 RBC Direct Investing Young Investor Insights Poll finds that investors aged 18-34 reported enjoying the challenge of research and acting accordingly. Known for their independent streak, young self-directed investors are inquisitive and adaptable. They may not know everything, but they're always hungry for knowledge.

Hoping to learn more? We've got you covered. Check out our Guide to Investing in Stocks , find out Where to Get Started With Your Research and learn about common account types.