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Financial literacy behavior among microfinance staff in the Philippines

State of financial literacy in the Philippines

The Philippines ranked 117th out of 143 countries surveyed in the Standard and Poor’s Global Financial Literacy Survey for 2014. The survey which covers questions on risk diversification, inflation, numeracy, and compound interest showed that only 25% of Filipinos are financially literate. There is no surprise to these findings considering the low savings rate of Filipinos and the even lower penetration rate in terms of accessing insurance and investments.

Generation X emerged as the most literate among age groups with a literacy rate of 33%. Baby Boomers and Millennials came next at 23% and 22% respectively. If you were born between 1980 to 1998, you belong to the youngest generation, the Millennials. Those born between 1961 to 1979 are Generation X and those born before that are referred to as Baby Boomers.

The average age of the participants is 41 years old, which belongs to Generation X. The demographics of the participants indicate that they are in the productive age and most likely have control as regards financial management within the household.

The premise of this research is that the providers of financial services should have good personal finance management to be able to become good examples to their clients. It is hoped that if microfinance management staff have good personal finance management, they would be better able to provide good advice to their clients and at the same time offer appropriate financial products and services to them as well.

Profile of respondents

A total of 157 participants from 56 microfinance institutions all over the country. They participated in the “Innovations and Trends on Financial Inclusion” training conducted in Baguio, Cebu, and Davao in 2017. Industrial Guarantee Loan Fund supported the conduct of the training.

The respondents are mostly top management (32%) and middle managers (62%) of their respective microfinance institutions. Most of them finished college (74%). More than half are male (58%) and married (71%). Most of the participants finished college (74%). Majority of the respondents or 68% are family breadwinners, with an average of two (2) children.

Savings Behavior

SEDPI subscribes to the definition that savings is the postponement of the pleasure of spending. Majority of the participants regularly keep the money for their savings (70%). However, eight out of ten participants do not have adequate emergency savings. An adequate amount of emergency savings is six months’ worth of income or 9 months’ worth of expenses. In addition, long-term saving is not a common practice as 65% of the participants do not save a fixed amount regularly for the long term.

The average amount of participants’ savings is PhP36,000.00. which is roughly equivalent to a month’s worth of salary. Given their current savings amount, 71% of the participants feel secure that their savings can cover expenses in case of an emergency. However, if emergencies occur, 59% of the participants would prefer to borrow money than to spend their savings. This type of coping mechanism during emergency situations shows that the participants need to improve their financial literacy practices.

During the training, the participants themselves realized that they have not been practicing what they were preaching. As the research shows, most of them do not have enough emergency savings. One participant explained that, perhaps, they can encourage more of their clients to save if they themselves are active savers.

The main reasons people—including the poor—save are for life cycle events, emergencies, and investment opportunities. When asked, the participants’ top five purposes of savings include emergency (54%), education of children (37%), business capital (33%), retirement (25%), and for household expenses (17%).

Credit Behavior

Nearly all of the participants have loans (91%). Half of them have a monthly debt less than or equal to 20% of their monthly income. Paying more than 20% of income for debt servicing is an indication of over-indebtedness. When asked whether they feel burdened by their loans, 51% of the participants said no. According to most of the participants (84%), they are able to manage their loans.

When this topic was discussed to the training participants, they started to be alarmed. As MFI staff, the majority of them are violators of good personal finance management – low savings and high debt.

The average loan amount of the participants is PhP100,000.00. People typically take a loan to invest, to respond to an unexpected emergency, and to consume or purchase an item for which they do not now have enough money for. According to the participants, the top five purposes of loans are business (42%), household improvement (36%), emergencies (23%), school expenses (22%), and to pay for other debt (12%).

Financial Planning Behavior

In order to understand the state of the participants’ financial practices. The participants were asked about their personal balance sheet.

The average value of the participants’ liabilities is PhP120,000.00. The average value of their net worth is PhP245,500.00. Close to the majority of the participants do not know the prescribed level of their net worth given their age (49%). Furthermore, most of the participants do not have a net worth that matches their age and the prescribed level (81%).

Nearly half of the participants do not have specific and monetized financial goals (49%). Those who have financial goals mentioned the following as their financial goals: put up a business (18%), for children’s education (14%), achieve financial freedom (7%), retirement (6%), and savings (6%).

Access to Insurance

Almost all of the participants have insurance (95%). When asked what type of insurance do they have, most of them answered that they have life insurance (86%), medical insurance (80%), accident insurance (79%), and disability insurance (64%).

However, it is important to note that even almost all of the participants have insurance, not all of them feel that the insurance they have is enough. From all of the participants, 58% feel they are adequately protected from emergencies. The reason why they feel protected is because of their insurance (18%) and savings (8%). Those who do not feel adequately protected said that the reason is because of inadequate savings (21%) and lack of insurance (9%).

The main goal of getting a life insurance is so that family members will not need to carry on financial burden upon the death of a person. Majority of the participants said that their families will be able to cope with the financial burden if something happens to them (56%). The reason behind this is that they feel that they have enough savings and insurance, as well as their family members having a source of income. Those who said that their families would not be able to cope well revealed that this is because their family is financially unstable, they do not have enough savings, and their children are still studying.

Investment and Retirement Behavior

 Almost half of the participants (49%) invest regularly from their salary. This is a good practice, especially in preparation for retirement and financial freedom. However, it is important to note that 63% of the participants do not know the amount of their retirement fund.

Currently, 72% of the participants feel that their families are in a good financial position now. However, this is inconsistent with the finding that 67% of the participants do not have passive income.

Improving Financial Knowledge and Skills

Finally, 69% of the participants revealed that they have an investment in themselves to improve their financial knowledge and skills. Ways to improve financial knowledge and skills include reading books and participating in trainings and conferences.

When the participants were asked what topic they want to learn, the following were mentioned: budgeting, financial literacy, business management, investment, setting up a business, sources of passive income, and how to be debt-free.

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