Consumer Trends Report – Chapter 4: Consumer Literacy and Education

Chapter 4 – Consumer Literacy and Education


As levels of formal education in Canada have continued to rise over time, the knowledge and literacy consumers require to successfully navigate the marketplace have become more complex. Nevertheless, both as members of the labour force and as consumers, some Canadians are just keeping up with a marketplace that is becoming more sophisticated, while others are clearly being left behind. This chapter looks at the trends in educational attainment of various demographic groups in Canada, with an emphasis on literacy as it relates to the marketplace.

4.1 Better Educated Consumers

On average, Canadian consumers are more highly educated than ever before. Over the last two decades, the proportion of Canadians 25 years of age and older with some post-secondary education increased from 29 percent in 1981 to nearly half (48 percent) in 2001 (see Figure 4.2). Statistics Canada reports that the Organisation for Economic Co-operation and Development (OECD) ranked Canada fourth in 2001 among member countries in the proportion of its working-age population with a university degree.164 However, if one includes the two parallel systems of education after high school in Canada, by combining university and community college graduation figures, Canadians led in the OECD in the proportion of its population with either a college or university education.

The rising costs of education

Young Canadians pursuing education face rising costs. From 1982 to 2002, the tuition fee component of the CPI grew by a rapid average annual rate of 8.1 percent, compared to 3 percent for the all-items CPI. For households that report post-secondary tuition fees, this represents a significant change in the relative importance of education as part of their expenditures. In 2002, for instance, their average spending for tuition fees actually exceeded expenses for food (see Figure 4.1). Coping with these tuition costs has led to a rise in student loans (see Chapter 8) and may also partly explain the rise in the proportion of 25-29 year olds still living with their parents, which doubled from 12 percent in 1981 to 24 percent in 2001 (Statistics Canada 2002b).

Figure 4.1

Post-Secondary Tuition Fees and Food, Average Household Expenditures per Reporting Household, All Households, 1982–2002

Source: Statistics Canada, Family Expenditure Survey (1982, 1986, 1992) and Survey of Household Spending (1997, 2002).

Research suggests that a rise in education levels can lead to more efficient consumer behaviour, such as paying less money for the same goods and services (HRDC and OECD 2000). Rising education levels in Canada have come, however, at an increasing cost: the tuition fee component of the CPI has grown by an average of 8 percent per year since 1980, twice the average rate of the all-items CPI.165 Consequently, for many Canadians, achieving a higher education level is closely linked to how well they manage their rising education expenditures and student loans.

Figure 4.2

Highest Degree Earned, by Age Group, Canada, 1981, 1991 and 2001

*The 15-24 age group was deleted from the total age groups, so as to consider relatively final educational attainment.

Source: Office of Consumer Affairs calculations based on Statistics Canada Cat. No. 97F0017XCB01002.

Recent advances in educational attainment have been linked to a higher demand for skills in the labour market and the focus of immigration policy on skills (Couton 2002). Research has also found, however, that the challenging circumstances faced by youth during the recession of the 1990s may have affected the decision making of the group of young Canadians that followed. In 2001, the educational attainment of individuals 25 to 34 years of age indeed rose significantly compared to previous groups of the same age. The increase in the proportion of Canadians in this age group with university qualifications in 2001 was particularly strong, rising to 28 percent from 17-18 percent over the previous two decades. Those young Canadians were 15 to 24 years of age during the early 1990s, which implies that during the recession, they were at an age to be making assessments of the trade-offs between continuing their post-secondary education and trying to enter the labour market. In light of anticipated difficulties in finding a job, members of the post baby-boom generation may have chosen to pursue further schooling (Statistics Canada 2003).

Consumers' changing education paths will define tomorrow's senior population

Considering the educational characteristics of age groups within the baby-boom cohort, it is reasonable to anticipate that tomorrow's seniors will be equipped with significantly different skills than today's older consumers. For example, in 1977 only 6 percent of working women 45 to 49 years of age had a university degree. This proportion increased to 19 percent of working women 45 to 49 years of age (members of the baby boom) in the labour market in 1997 (Earl 1999). The corresponding ratios for men were 9.5 and 23.1 percent, respectively. Future generations of seniors, therefore, are not expected to have much in common with the earlier generation. “With higher education levels and more varied work experiences, tomorrow's seniors may have a better knowledge of community and government programs and services ‧ and be more likely to demand their rights” (NACA1999, 5), both as consumers and citizens.

Virtually all net job creation since 1990 has required that job applicants have a post-secondary education. Between 1990 and 2002, slightly more than 3 million net new jobs were created that required post-secondary education (see Figure 4.3). Most of these jobs (81.7 percent) were full time. In comparison, there was a net loss of more than 1 million jobs during this period for workers with less than a high-school diploma, with the majority of this loss (88.1 percent) occurring in full-time positions. Net job creation for Canadians with a high-school diploma (but without a post-secondary degree) was positive, although very small, for both full-time and part-time positions.

Figure 4.3

Net Job Creation, by Education Level, 1990–2002

Source: Office of Consumer Affairs calculations based on Statistics Canada, CANSIM, series v2582419-v2582424 and v2582428-v2582433.

Interestingly, a Statistics Canada research report concludes that, in spite of the shift towards a knowledge-based economy and an increasing proportion of better educated workers in Canada, the relative advantage of education, in terms of earnings and likelihood of finding a job, has not changed. Specifically, the report states that:

more highly educated workers have higher earnings, and a higher likelihood of being employed than less educated workers, but no more so than they used to. Research suggests this is due to the rapid increase in the supply of highly educated workers in Canada, which offsets an increase in the demand for their labour (Heisz et al. 2002, 26).

Self-employment, another important new work opportunity

A 2000 report indicates that, for reasons not fully understood, there was a substantial change in the kinds of jobs created over the last two decades, from mainly full-time paid jobs in the 1980s to self-employment in the 1990s:

Over the 1990s cycle to date (1989 to 1998), full-time paid jobs accounted for only 18 percent of all net job creation in Canada. Over the 1980s cycle, this was 58 percent. … Self-employment accounted for about 58 percent of the net change during the 1990s [and] only 18 percent during the 1980s … (Picot and Heisz 2000, S10).

The relative shift into self-employment has had several important consumer implications. For example, earnings of self-employed workers are more polarized than those of paid workers: in 1995, about 45 percent of the self-employed made less than $20 000 and 4 percent made more than $100 000, while the proportion of paid workers making these amounts was 26 percent and 1 percent respectively (Statistics Canada 1997a). Also, many self-employed persons may lack important benefits available to paid workers, such as disability coverage, parental leave, pension plans and unemployment insurance (Hughes 2003). Other things being equal, the lack of fringe benefits may have a negative impact on consumption, since these individuals may be forced to save at a higher rate in order to cushion the impact of uncertainty, whether in terms of job prospects or health. In spite of these disadvantages, workers may choose self-employment simply because they prefer it. Professionals, for example, may enjoy the greater autonomy associated with self-employment (Krahn 1995, 35). An American study indicates that women, especially those with young children, are more likely than men to state that flexibility of work schedule and family-related responsibilities are important reasons for becoming self-employed (Boden 1999).

Post-secondary education has become the minimum requirement for Canadians to be able to simply maintain a standard of living comparable to that of previous generations. An increasing proportion of tomorrow's working-age population appears to understand these requirements, even with the favourable employment climate of the last few years, and is opting for prolonged studies. For instance, in 1991, 32 percent of young adults 20 to 24 years of age were attending school full time, but in 2001 about 4 out of 10 were doing so (Statistics Canada 2003).

Lack of education still hinders some consumers

Despite the relative rise in educational attainment, some groups of Canadians remain more vulnerable because of their lower-than-average schooling. In 2001, 57 percent of seniors did not have a high-school diploma (Statistics Canada 2003). Low education levels are part of the recognized socio-economic risk factors affecting safety and security for older adults (Government of British Columbia 1999), factors that can notably increase vulnerability to fraud.

Not only seniors with low educational attainment are at risk. Given the requirements of today's labour market, it is of concern that about one in seven young adults 25 to 34 years of age in 2001 had not completed high school (Statistics Canada 2003). This trend has important implications for these young Canadians as consumers in an increasingly information-intensive marketplace. There are strong connections between educational attainment and literacy; for example, literacy scores of 20-29-year-olds lacking a high-school education are significantly lower than those of graduates. Moreover, literacy scores of Canada's high-school dropouts were significantly lower than of dropouts in other countries: “they are so low, that Canada's overall literacy rate is among the lowest of OECD countries despite Canada having one of the highest proportions of post-secondary graduates” (HRDC 2000, 29). These consumers are making independent consumer decisions about essentials (housing, transportation, food), often for the first time. Since even these basic choices may involve dealing with complex information, the low educational attainment and literacy levels of these consumers puts them at a serious disadvantage.

Acquiring the knowledge and skills to cope with the demands of today's marketplace no longer means only educating the young, however:

The globalization of markets, the speed and fluidity of communications, the rapid pace of change in knowledge and technology, the accelerated rate of social change, the need for job market retention or re-entry and the increasing complexity of social life are all factors that require adults to have sufficient basic education and to update their skills in order to adapt (Ministère de l'Éducation 2001, 3).

In a 1997 survey, 28 percent of Canadians 17 years of age and older reported participating in adult education and training, making this a major component of education and training in general.166 In spite of this, a general “law of inequality” is a concern in Canada, with data suggesting that the higher the educational attainment, the more likely a person is to participate in adult education (Statistics Canada 2001, 18). In Canada as in a number of other OECD countries, there is a risk of increasing marginalization of “large groups outside the emerging learning society” (OECD and Statistics Canada 2000, 43), that is, those who need better skills, but are less likely to participate in formal and informal education.

Research opportunities

The negative impact on consumption of carrying large student debt over the long term may be offset by improved job prospects, remuneration and the capacity to deal with market complexity. The combined effect of improved education, debt and the marketplace requires further analysis.

Comparisons between the challenges of shopping faced by today's seniors and by tomorrow's better-educated seniors could lead to useful marketplace and policy changes. A deeper understanding of how less literate young people deal with the marketplace would also be useful. These young people share many characteristics with seniors, whose susceptibility to fraud is well understood. Protecting vulnerable young people effectively could be greatly aided by adjusting successful senior-oriented programs to their specific needs. The potential lack of marketplace choices for vulnerable youths (due to their inability to work through complexity) and their perception of barriers in certain markets (for instance, in banking) require more intensive consideration.

4.2 Consumer Literacy Challenges

Literacy is extremely important because “society rewards individuals who are proficient and penalizes those who are not, whether expressed in terms of employment opportunities and job success or active social, cultural and citizenship participation in society” (Statistics Canada, 1997b, 1). Literacy skills are a vital component of many aspects of consumer behaviour. The concept of literacy has evolved and broadened over time:

Literacy now means more than the basic ability to read and write. Literacy skill levels now also reflect a person's ability to understand and use information, a key function in a world where daily living requires higher communication and information processing skills (Statistics Canada, 1997b, 1).

In the mid-1990s, a major initiative was launched to fill a large data gap regarding literacy. The International Adult Literacy Survey (IALS) was a joint effort of various governments, national statistics agencies and international organizations, with Statistics Canada playing a significant role in the development and management of the survey. TheIALS was conducted in three stages for 23 countries (9 countries participated in 1994, 5 in 1996 and 9 in 1998) (OECD and Statistics Canada 2000, ix). While many previous efforts had treated literacy as an absolute condition (that is, a skill adults either had or did not have), the IALS measured literacy skills along a broad continuum. In its conceptual framework, the IALS defined literacy as:

the ability to understand and employ printed information in daily activities, at home, at work and in the community – to achieve one's goals, and to develop one's knowledge and potential (OECD and Statistics Canada 2000, x).

The IALS revealed that, overall, Canada performed somewhat better than the United States, but significantly worse than Sweden, the most literate nation in the world (see Figure 4.4). Compared to 19 other nations, Statistics Canada reports that Canada ranked 5th on the prose scale (the U.S. was 10th), 8th on the document scale (U.S. 13th) and 9th on the quantitative scale (U.S. 12th). The data also show that 4 out of every 10 Canadians 16 to 65 years of age fall in the two lowest groups (Level 1 or Level 2) on all three literacy scales, i.e., at levels of literacy that are below the minimum desirable threshold (Statistics Canada 2000).

Figure 4.4

Percentage of Population Aged 16 to 65 at Each Literacy Level, Canada, United States and Sweden,* 1994–1998

*Of 22 countries, Sweden had the highest percentage of adults registering in Levels 4 and 5 literacy for all three literacy concepts (quantitative, document and prose).

Source: Literacy in the Information Age: Final Report of the International Adult Literacy Survey.OECD and Statistics Canada, 2000 (Table 2.2, pp. 136-137).

International Adult Literacy Survey

TheIALS entailed a series of tasks to test three concepts of literacy.

Quantitative: The knowledge and skills needed to apply arithmetic operations to numbers embedded in printed materials (e.g. balancing a chequebook, completing an order form, determining the amount of interest on a loan from an advertisement).

Document: The knowledge and skills needed to locate and use information contained in various formats (e.g. tables, schedules, charts, graphs, maps).

Prose: The knowledge and skills needed to understand and use information contained in various kinds of texts (e.g. newspapers, brochures, instruction manuals).

The literacy tasks in the IALS were assigned a point value from 0 to 500 (i.e. the more difficult the task, the higher the point value). Subsequently, this range was divided into five broad levels of literacy.

Level 1 indicates a very low level of literacy, so that an individual has difficulty performing the most basic of tasks (i.e. identifying the correct dosage of medicine from information found on the package). A person is identified as Level 1 when they can perform all, some or none of the Level 1 tasks, but are not at Level 2.

Level 2 indicates a level at which respondents can only deal with material that is simple and clearly presented, and at which the tasks involved are not very complex. This category typifies people who may have adapted their lower literacy skills to everyday life, but may have difficulty learning new tasks that require a higher level of literacy.

Level 3 is considered the minimum desirable threshold of literacy skills in many countries.

Levels 4 and 5 indicate higher literacy skills, such as the ability to integrate several sources of information or to solve complex problems.

Source:HRDC 2003.

The IALS revealed a strong correlation between literacy skills and age (see Figure 4.5). In particular, elderly Canadians were much more likely to have lower levels of literacy. The document scale revealed that the percentage of Canadians 15-24 years of age scoring in the lowest two levels (32.7 percent) was less than half the rate of older working-age adults (67.2 percent for those 55-64 years of age) and seniors (79.3 percent for those 65 years of age and older) (Statistics Canada 1998, 51, Table 2.1).

Interestingly, however, many functionally illiterate older people do not realize or admit a deficiency in their literacy skills. For example, 63.8 percent of people 65 years of age and older and at Level 1 (reading, prose scale) self-rated their reading ability as “good to excellent” (Statistics Canada 1998, 63, Table 2.17).

Figure 4.5

Proportion of Canadians at Each Literacy Level, by Age

Source: Literacy, Economy and Society. Organisation for Economic Co-operation and Development and Statistics Canada, 1995, p. 153, Table B-11b.

To make good purchasing decisions, literacy is virtually essential. While bad decisions arising from poor literacy skills may result in financial or material costs to the consumer, bad decisions about health products are of particular concern. For example, Statistics Canada notes that 72 percent of Canadians 65 years of age and older with Level 1 literacy (prose scale) say they do not need assistance when reading instructions on a medicine bottle (Statistics Canada 1998). This compares to more than 98 percent of those with prose literacy Levels of 3 or 4/5. Many seniors often have multiple prescriptions, sometimes not even prescribed by the same doctor. Given the potential consequences of taking a wrong dosage or mixing inappropriate prescription medicines, the difficulties experienced by some seniors regarding their literacy is an especially worrisome marketplace issue.

In addition, a strong correlation between literacy and general health has been noted. One explanation for this finding may be that:

Persons with higher [literacy] skill may maintain better health through their ability to understand and interpret health information. They may also be better able to exercise preventive health practices and detect problems so that they can be treated earlier, or make appropriate choices amongst health care options (HRDC 1996, 7).

Other IALS tasks also demonstrate a clear relationship between literacy and marketplace issues for consumers. For example, a Level-3 prose task referred respondents to a page in a bicycle owner's manual to determine how to ensure the seat is in the proper position; 42.2 percent of Canadians 16 to 65 years of age tested below Level 3 on the prose scale, indicating insufficient skills to complete this task. A Level-3 task on the document scale required individuals to use a bus schedule to identify the arrival of the last bus on a Saturday night, a skill lacked by the 42.9 percent of respondents below Level 3 (OECD and Statistics Canada 2000). Finally, a Level-4 task on the quantitative scale required individuals to use a chart to determine the amount of money they would have after investing $100 over 10 years,167 a skill lacked by 77.8 percent of respondents (OECD and Statistics Canada 1997, 128). Based on these examples, it is apparent that people with less than the minimal Level-3 literacy rating face significant challenges in the marketplace.

Financial literacy is essential

Unless consumers are financially literate, they are vulnerable to problems such as fraud or the mismanagement of credit. Alan Greenspan, Chairman of the U.S. Federal Reserve Board, noted at the launch of an economic and financial education initiative:

Focussing on improving fundamental mathematical and problem-solving skills can develop knowledgeable consumers who can take full advantage of the sophisticated financial services offered in an ever-changing marketplace (Greenspan 2003).

A survey by a Quebec consumer group has identified seniors and Canadian consumers with low incomes as groups with below average financial knowledge. Participants were asked to respond to a list of 17 questions about financial matters. The average number of correct responses was 7.2, but only 5.2 for seniors and 5.5 for people belonging to households with annual incomes of less than $20 000 (Fédération des ACEF du Québec 2001). Another survey, conducted for the Ontario Securities Commission and relating to investments, found:

Only 18% of Ontarians consider themselves to be highly knowledgeable about investments. And 26% of those surveyed did not understand one of the basic tenets of investing, one of concern to regulators – the relationship between risk and return (Conacher 1998).

The principle of disclosure is behind many aspects of consumer protection policy in the financial services sector. Despite an emphasis on using plain language, a 1998 assessment on the readability of common financial documents found that all of them demanded a college or university education, and that virtually all were either “difficult” or “very difficult” to read (Colbert, Carty and Beam 1999). Consequently:

Findings in this section of the [Task Force] study suggest a great gap between the characteristics of the documents and the capacity of their audience to understand them. They suggest that the purpose of such documents is disclosure in response to regulatory requirements, rather than genuine communication with consumers (Colbert, Carty and Beam 1999, 58).

Research opportunities

The overwhelming proportion of Canadians with less-than-adequate literacy skills for effective interaction with the marketplace should be of great concern. Research into effective ways of improving real access to consumer information by these Canadians, in the absence of solutions to the literacy problem per se, is urgently needed. The dangers to health posed by poor literacy skills among Canadian seniors have been described. A thorough analysis of other risks to senior consumers' well-being based on literacy could shed light on ways to improve their interaction with the marketplace.

Beyond basic reading skills, financial literacy is key to long-term security for most consumers. In a period characterized by time-constrained households, changing school curriculum, and an information-intensive marketplace, further research into financial literacy will require both additional assessments of consumers' knowledge, and consideration of how information disclosure can play an effective role in enhancing consumer protection.


164 Canada was preceded only by the United States, Norway and the Netherlands. See Statistics Canada 2003. Back to text

165 The CPI is calculated as a weighted average of specified commodity price indexes, and weights are periodically revised and derived from surveys such as the Survey of Household Spending. According to the 2001 Survey of Household Spending, 83 percent of tuition fee expenditures were for post-secondary education. The tuition fee component of the CPI is thus a good approximation of trends in post-secondary tuition fees. Back to text

166 An adult learner generally excludes all regular, full-time students and other students 17 to 24 years of age. However, the definition includes full-time students subsidized by employers; full-time students older than 19 enrolled in elementary or secondary programs; and full-time students older than 24 enrolled in post-secondary programs. In the survey question, training and education were defined as courses, private lessons, correspondence courses (written or electronic), workshops, apprenticeship training, and arts, crafts and recreation courses, or any other training or education. Based on the Adult Education and Training Survey presented in the report, there are five times as many adult students as full-time students (classified as youth). See Statistics Canada 2001. Back to text

167 This task received a Level-4 rating because the chart only presented information on the amount of interest earned. The individual was required to add this amount of interest to the principal amount (i.e. $100) to determine the correct answer (OECD and Statistics Canada 1997). Back to text