Financial literacy affects spending, saving habits
Making enough money to cover basic expenses counts a lot in allowing people to have leftover cash at the end of each month. However, results of a new World Bank survey suggest education may have a significant effect in household financial security.
The World Bank this week said its recent baseline survey on financial inclusion in the Philippines showed most Filipino families’ incomes were eaten up by basic necessities every month.
As expected, this represents a significant hurdle in the amount of savings Filipino families can set aside. About 55 percent of families said the money they were making every month barely covered expenses. Of the families that report saving money, only half keep their cash in banks.
Results of the World Bank survey on financial inclusion for the Philippines mirrored the outcome of a similar assessment made by the central bank this year.
But the World Bank report takes its results further, noting that respondents who say they save regularly are more likely to have money left at the end of every month, less likely to borrow, and less prone to overspending. Results cut across income levels.
“We’re not claiming causality, but there’s a strong correlation,” World Bank senior financial sector specialist Nataliya Mylenko said at a press conference.
To measure financial literacy, respondents were asked if they were familiar with basic terms concerning money such as interest rates, the purpose of insurance, compound interest and risk diversification. Respondents who knew more about financial terms were found to be more responsible with their finances, the World Bank said.
Respondents who passed the World Bank test were 24 percent less likely to buy things they could not afford, 11 percent less prone to overborrowing, and 20 percent more likely to having money left after paying for basic necessitates.
Similar results were found for respondents who said their finances were planned out. The World Bank asked families if they followed plans on how their money would be used. Nearly half or 45 percent of respondents said they didn’t plan their monthly finances, while the rest regularly or occasionally had plans.
Respondents who budgeted their money regularly or occasionally were 12 percent less likely to overspend, 5 percent less likely to borrow money they couldn’t afford to pay, and 9 percent more likely to having savings at the end of every month.
World Bank’s Mylenko said the survey results meant policymakers should focus on financial literacy education. Interventions may include getting financial literacy into the basic education curriculum.
“The area of financial education came into light after the global financial crisis. It became really clear that a lot of the reasons for the malfunction came from lack of awareness of risks,” she said.
