September 30, 2020 Reading Time: 4 minutes

A recent Cointelegraph article soul-searchingly asked: “Are we dumb?” Cointelegraph was reacting to a recent Bank of Canada survey showing that, on average, Canadians who own bitcoin have lower financial literacy than Canadians who don’t own bitcoin.

The Bank of Canada’s 2020 Cash Alternative survey found that 4% of Canadians with high financial literacy own cryptocurrencies. But 8% of Canadians with low financial literacy own cryptocurrencies. This confirms results from the Bank of Canada’s earlier 2018 Bitcoin Omnibus Survey, published in 2019, which found that while 27% of all Canadians have low financial literacy, 38% of Canadian bitcoin owners have low financial literacy.

The Bank of Canada’s findings are echoed in a recent study by researchers at the Think Forward Initiative, a non-profit founded by Deloitte, ING, the Centre for Economic Policy Research, Dell/EMC and Amazon Web Services to explore the behaviour surrounding financial decision-making. Surveying 1,000 people in each of 15 countries, researchers found that financially literate people were more likely to have heard about cryptocurrencies than the illiterate. However, the more literate are both less likely to own cryptocurrencies and less likely to plan to own them in the future.

To measure financial literacy, Bank of Canada researchers asked Canadians three questions. This “Big Three” was first proposed by economists Annamaria Lusardi and Olivia Mitchell in the early 2000s as a fast and simple way to gauge the financial literacy of survey participants. The questions attempt to pinpoint what Lusardi and Mitchell consider to be the three economic concepts that individuals must understand if they are to make financial decisions: interest compounding; inflation; and diversification. (List here).

Since they were proposed, the Big Three have gone on to become the benchmark among researchers for gauging financial literacy. Thanks to financial literacy surveys, we now know much more about the demographics of financial literacy. For instance, women are less financially literate than men. But men are overconfident about their financial knowledge. Even when they are wrong, they tend to report being ‘very confident’ about their responses. (See here).

Lusardi and Mitchell find that Italians are more likely to answer the question on inflation correctly, perhaps because they have a history of high inflation. Conversely, fewer Japanese people answer the inflation question correctly, perhaps because Japan has experienced thirty years of deflation.

Surveys have found that the financially literate are more likely to plan for retirement and less likely to have credit card debt, according to Lusardi and Mitchell. When they do have debt they manage it better by paying off the full amount each month rather than just the minimum. They are also less likely to use high-cost borrowing methods such as payday loans and pawn shops.

Which gets us back to bitcoiner’s financial literacy. Why is it so low?

For many bitcoin owners, bitcoin appears to be neither a new monetary system nor a novel payments technology. Rather, it is a new type of financial betting game. These users place bitcoin in the same mental category as the Mega Millions lottery or a Las Vegas slot machine.

Gamblers tend to have low financial literacy. In a paper published in March 2020, Japanese researchers analyzed data collected from 3,687 participants surveyed in Osaka University’s 2010 Preference Parameters Study. The 2010 survey asked questions about financial literacy and gambling behaviour, specifically whether participants gambled in lotteries, at casinos, or bet on sporting events or horse races. The researchers found that financially literate Japanese are less likely to gamble than less literate ones.  

Italian researchers pinpointed this same pattern among Italians who played slot machines, video poker, and scratch-off lotteries. Using an online survey, the researchers determined that 27% of scratch-off players and 24% of slot machine/video poker players correctly answered all three of Lusardi and Mitchell’s financial questions. But of Italians who don’t play any of these games, 37% got all three questions right.

Bitcoin draws users from the same demographic as these other gambling games. And so the average level of bitcoin financial literacy is low.

The low financial literacy of the average bitcoin users stands in contrast to many of the intelligent cryptocurrency advocates I encounter on social media. Twitter has become a sort of digital salon where cryptocurrency users and builders congregate to talk shop about the economics of digital currencies. Spend enough time on “Crypto-Twitter” and you’ll encounter great conversation on diverse topics like 1990s digital cash, ancient monetary systems, crypto regulation, and financial censorship. 

The price of bitcoin isn’t what interests Twitter’s crypto vanguard—they care more about usage and the elegance of the underlying technology. However, the data that gets captured in the Bank of Canada’s surveys don’t reflect crypto-Twitter. It reflects what the average user thinks about bitcoin. And the average bitcoiner’s focus is on the price of bitcoin. The blinking number on the screen, after all, is how people get paid their winnings.

Unfortunately there are no reliably quick paths to financial freedom. Success takes hard work and time. That’s financial literacy 101.   

The mixing of low-literacy users with high-literacy cryptocurrency elites on social media worries me. Vulnerable bitcoin gamblers may be getting their habits validated by bitcoin elites on crypto-Twitter, many of whom prefer to think of bitcoin in grander terms than just gambling. If gamblers are told that they’re not really betting, but helping to overthrow the banking oligarchy or replacing corrupt fiat money, then they’ll probably gamble even more. 

Not many of us would think it wise to encourage people with low financial literacy to play slots or buy lottery tickets. Likewise, crypto influencers need to be careful about egging their followers on. It is sad to see an excited gambler sell their house to go all-in on a longshot, whether that be on lottery tickets or on cryptocurrencies. It is shameful to encourage such behaviors.

Cryptocurrencies like bitcoin are a game. Play responsibly. 

J.P. Koning


J.P. Koning is a financial writer and blogger with interests in monetary economics, economic history, finance, and fintech. He has worked as an equity researcher at a Canadian brokerage firm and a financial writer and publisher at a large Canadian bank. More recently, he has written several papers for R3, a distributed ledger company, on the topics of central bank cryptocurrency and cross border payments. He founded the popular blog Moneyness in 2012. He designs economics and financial wallcharts at Financial Graph & Art.

Koning earned his B.A. in Economics from McGill University.

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