AN ASSESSMENT OF FINANCIAL LITERACY ON SAVINGS

AND BORROWING DECISION AMONG HOUSEHOLD

RESIDENTS OF BARANGAY TUMANA,
MARIKINA CITY

A thesis submitted

By:

Acosta, Theresa C.

Cedro, Isabella Beatrice V.

Llanes, Girlie R.

Medallo, Eula Marie J.

Paz, Clarisse Mae D.C

To:

PAMANTASAN NG LUNGSOD NG MARIKINA

In partial fulfillment of
the requirement for the
degree of

BACHELOR OF SCIENCE
in
Business Administration Major in Financial Management

This thesis has been

accepted for the faculty of
Pamantasan ng Lungsod ng Marikina by:

Name of Chair
Chair

Name of Advisor
Advisor

Name of External Reader

External Reader
TABLE OF CONTENTS Page

Chapter I: The Problem and the Review of Related Literature ………………………….3

Introduction ………………………………………………………………………3

Review of Related Literature …………………………………………………….6

Financial Literacy ………………………………………………………...6
Savings …………………………………………………………………..12
Borrowing ……………………………………………………………….14
Household Financial Decision …………………………………………..17

Synthesis of the Study …………………………………………………………..18

Theoretical Framework ………………………………………………………….19

Conceptual Framework ………………………………………………………….23

Statement of the Problem ………………………………………………………..24

Hypothesis ……………………………………………………………………….25

Significance of the Study ………………………………………………………..25

Scope and Limitation ……………………………………………………………25

Definition of Terms ……………………………………………………………..26

Chapter II: The Research Methodology …………………………………………………27

Research Design …………………………………………………………………27

Participants ………………………………………………………………………27

Instruments ………………………………………………………………………28

Data Gathering Procedure ……………………………………………………….29

Data Analysis Tools ……………………………………………………………..29

Survey Questionnaire ……………………………………………………………………32

References .........................................................................................................................36

2
 ABSTRACT

As the world changes, everything around us alters in the same. As individual, we

also encounter different decisions particularly in the field of financing. Being in a third

world country, one of the problems that our country’s facing is financial crisis. So it is

indeed necessary that an individual must at least be aware on handling their finances.

The main objective of this study is to assess the financial literacy on saving and

borrowing decision of Tumana, Marikina residents. It examines the factors that determine

the level of their financial literacy. The reason behind in analyzing and researching this

study is to determine its influences on each member of the family in terms of their

monetary proficiency and its effect on the improvement of their standard of living.

The intention of this research is to know the significant differences of financial

literacy based on the demographic profile that may vary according to the respondents

given information that are treated with confidentiality.

The researcher conducted an actual survey on household residents of Tumana

Marikina City. They also prepare some various questions to determine how does financial

literacy affect their finances and if those factors are important to them as a household.

Upon getting all the information needed in the research, the researcher may determine

different solutions with regards financial literacy.

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 ACKNOWLEDGEMENT

History of all great works is to witness that no great work was ever done without

either the active or passive support from a person’s surrounding. A research paper like

this would not be possible without the help and guidance of the Almighty God. God is

good for He always give his helping hand and wisdom to the researchers and their

families.

The completion of this work cannot go without acknowledging the contributions

made by some few special individuals who devoted their time, means and intellectual

activity to make our thesis study a success.

The researchers wish to express their sincere thanks to Dr. Celso Mendoza for

his guidance, help, support, and patients through this entire journey. He has been much

more than one would have from a study and degree adviser.

To our program head Prof. Jim Malajat for his never-ending reminders and

motivational advices.

To Mr. Jerome Deocareza and Mr. Carlo Geromala for their time helping us

and solving statistical problems. And Ms. Elyza Pachejo for her effort in checking our

grammars.

To our beloved families whom never fail to understand and support us in both

financial and emotional aspects throughout the entire research.

We express our deepest gratitude Barangay Chairman Zilfred Ancheta for

allowing us the opportunity to conduct our research and also to the household of

4
barangay Tumana Marikina City for their willingness to participate in our given survey

questionnaire, Thank you very much.

CHAPTER 1

The Problem and the Review of Related Literature

This chapter presented the introduction, the review of related literature,

conceptual and theoretical frameworks, the statement of the problem and hypothesis, the

significance of the study, the scope and limitation and the definition of terms.

I. Introduction

Financial literacy defined as the way how people manage their money in terms

of insuring, investing, saving and budgeting (Hogarth, 2002). Schagen, Lines (1996)

defined it as the ability to make informed judgment and to take effective decisions

regarding the use and management of money, while Roy Morgan’s Research (1993)

defined the term as being knowledgeable and assured in the areas of saving and

spending, budgeting and the measure of financial literacy should show the individual

circumstances. According to the study of Organization for Economic Co-Operative

and Development (2006), financial education is increasingly important not just for

investor. It is also becoming essential for the average family trying to decide how to

balance its budget. Lack of financial literacy could be a burden in making sound

financial decision which may lead to deficit budgeting. Having cognizance in simple

5
financing like borrowing and savings will be important especially in household

finances.

Household is generally defined as a group being composed of a person or

group of persons who co-reside in, or occupy, a dwelling (Statcan). In a third world

country like Philippines, the mother or the housewives are usually the head of the

family. They are those who are responsible in budgeting the money or the income that

the fathers have provided. It is really important for the head of the household to be

financially literate.

Several studies have shown that being financially literate has really big impact

on an individual’s saving behavior. People with more knowledge about finances are

more capable of preparing themselves for managing and saving their wealth for the

future compared to those who have little knowledge or none. They tend to understand

deeply that the monetary value is moving increasingly as time passes by that they

choose to save their money and secured themselves and family for the future. Before,

savings had been defined as the excess on the income after consumption. But since

everything has constantly changing including the movement of money in the market,

savings are now said to be the first to be deducted from the individual’s income

before consumption.

Financial literacy has always been linked to several financial practices like

borrowing. Literacy on finances has really big impact on the household’s borrowing

decision. If the head of the household is incapable in doing a sound financial decision

because of illiteracy, it may cause her to choose borrowing without thinking twice in

order to sustain the household’s needs.

6
 Financial literacy can be in relation not only on individual and household

assets but also to savings, borrowing and debt. For example, Moore (2003) reports

that with lower levels of financial literacy are more likely to have costly mortgages.

Similarly, Campbell (2006) shows that individuals with lower income and lower

education levels are less likely to refinance their mortgages during a period of falling

interest rate. Lusardi and Tufano (2009) find that individuals with lower levels of

financial literacy tend to transact in high-cost manners, incurring higher fees and

using high-cost methods of borrowing. The less knowledgeable also reports that their

debts load are excessive or that their unable to judge their debt position.

With these statements, it is an essential not just as an individual but as a head

of the household to be financially literate to be able to properly manage the budget of

funding that will sustain the household’s needs and wants.

The objective of this study is to know how financial literacy influences each

member of the family in terms of their monetary proficiency and its effect on the

improvement of their standard of living.

7
`

II. Review of Related Literature

These were the review of literature relevant to the study. This study

assessed “The Financial Literacy on saving and borrowing decision of household

in Tumana, Marikina City”. The variables included in this are useful to come up

with the study; savings, borrowing, and its relationship to household decision.

FINANCIAL LITERACY

According to Sandra Braunstein and Carolyn Welch (2002) in recent

years, financial literacy has gained the attention of a wide range of major banking

companies, government agencies, grass-roots consumer and com-munity interest

groups, and other organizations. Interested groups, including policymakers, are

concerned that consumers lack a working knowledge of financial concepts and do

not have the tools they need to make decisions most advantageous to their

economic well-being. Such financial literacy deficiencies can affect an

individual's or family's day-to-day money management and ability to save for

long-term goals such as buying a home, seeking higher education, or financing

retirement. Ineffective money management can also result in behaviors that make

consumers vulnerable to severe financial crises.

8
 The findings of studies of the effectiveness of financial literacy training

have been mixed. Although some programs, particularly those having discrete

objectives, have succeeded in improving certain aspects of consumers' personal

financial management—such as maintaining a mortgage, increasing savings, or

participating in employer-sponsored benefit plans—improved financial behavior

does not necessarily follow from increased financial information. The timing and

format of training, as well as human traits such as aversion to change play a role

in whether programs will effect positive change that contributes to households'

long-term financial well-being. Accounting for all the variables associated with

financial literacy training—when, how and where it is delivered, who is trained,

and what information is presented—poses a great challenge for program

developers. Given the resources now devoted to financial literacy training, this is

an opportune time to evaluate the research, identify best practices, and consider

public policy options that would further the goal of creating more financially

savvy consumers.

Another study of Annamaria Lusardi, Olivia S. Mitchell, Vilsa Curto

(Sept. 2009) examined financial literacy among the young using data from the

1997 National Longitudinal Survey of Youth. We showed that financial literacy is

low among the young; less than one-third of young adults possess basic

knowledge of interest rates, inflation, and risk diversification. Financial literacy is

strongly related to socio-demographic characteristics and family financial

sophistication. Specifically, a college-educated male whose parents had stocks

and retirement savings is about 50percentage points more likely to know about

9
risk diversification than a female with less than a high school education whose

parents were not wealthy. These findings have implications for consumer policy.

A study of Melissa A. Z. Knoll, Carrie R. Houts (2012) shows that

despite increasing interest in and funding for financial literacy and financial

education programs in the private and public sectors, the field of financial literacy

still has a major obstacle to overcome: the lack of a widely disseminated measure

of financial literacy, developed through rigorous psychometric analyses. In this

article, we develop such a measure, focusing specifically on financial knowledge.

Using item response theory (IRT), we analyze items from three national surveys,

resulting in a psychometrically sound 20-item financial knowledge scale. By

using IRT, the current analysis uses individuals' answers to inform which

questions to include in the scale in the first place, rather than simply confirming

relationships between these answers and other financially relevant outcomes post

hoc. Widespread use of this index and the continued use of modern psychometric

techniques would allow for the comparison of financial knowledge, measured

consistently and reliably, across studies, populations, and programs.

Another study of Annamaria Lusardi and Olivia S. Mitchell (2014)

undertakes an assessment of a rapidly growing body of economic research on

financial literacy. We start with an overview of theoretical research, which casts

financial knowledge as a form of investment in human capital. Indigenizing

financial knowledge has important implications for welfare, as well as policies

intended to enhance levels of financial knowledge in the larger population. Next,

we draw on recent surveys to establish how much (or how little) people know and

10
identify the least financially savvy population subgroups. This is followed by an

examination of the impact of financial literacy on economic decision making in

the United States and elsewhere. While the literature is still young, conclusions

may be drawn about the effects and consequences of financial illiteracy and what

works to remedy these gaps. A final section offers thoughts on what remains to be

learned if researchers are to better inform theoretical and empirical models as well

as public policy.

Based on Maarten C.J. van Rooij, Annamaria Lusardi, Rob J.M.

Alessie (2012) relying on comprehensive measures of financial knowledge, we

provide evidence of a strong positive association between financial literacy and

net worth, even after controlling for many determinants of wealth. We discuss two

channels through which financial literacy might facilitate wealth accumulation.

First, financial knowledge increases the likelihood of investing in the stock

market, allowing individuals to benefit from the equity premium. Second,

financial literacy is positively related to retirement planning and the development

of a savings plan has been shown to boost wealth.

This study conducted by Jere R. Behrman, Olivia S. Mitchell, Cindy K.

Soo, and David Bravo (2012) isolates the causal effects of financial literacy and

schooling on wealth accumulation using a new household dataset and an

instrumental variables (IV) approach. Financial literacy and schooling attainment

are both strongly positively associated with wealth outcomes in linear regression

models, whereas the IV estimates reveal even more potent effects of financial

literacy. They also indicate that the schooling effect only becomes positive when

11
interacted with financial literacy. Estimated impacts are substantial enough to

imply that investments in financial literacy could have large wealth payoffs.

Jeahan De Barras (2016) states the significant role of the parents in

educating their children about their responsibility in handling their finances. For

instance, those small purchases can become alarmingly expensive. Also, parents

should educate their children in proper allocation of their money that can be saved

and can be used in meaningful purchases. Furthermore, “it’s never too early or too

late to share the importance of financial education to your kids” Jeahan De Barras

said that if the young can fully understand the value of financial literacy they can

be knowledgeable toward financial security and can have a smart decision about

finances.

Based to Joana Zafra (PDI, Sept 19 2016, p.a. 22) Millennial were described as

aggressive, mobile, entrepreneurial and highly interconnected. These digital

natives are strongly influenced by social media, which is evident in their

generation’s lifestyle including their spending and saving habits.

Nowadays, when they want to know more about something or are

interested in making a purchase, they’re sure to go online. Social media has made

it more convenient to actively canvass and search for the best deals. Sometimes,

they even succumb to purchase they don’t really need which affects their saving

behavior.

According to Annamaria Lusardi (2008),“ Individuals are increasingly

in charge of their own financial security after retirement.” Questions are presented

on how capable individuals are to save for their future. Half or 50% of workers

12
does not know which type of pension they have, and just little percentage of a

whole knows little about Social Security benefits. Factor includes the state of

income and education affects the capability to save for their retirement. A

financial education program can be a big help to inform individuals about saving

for the future.

The study of Jere R. Behrman, Olivia S. Mitchel, Cindy K. Soo and David

Bravo (2012) bought answer the study isolates the casual effects of financial

literacy and schooling achievement; these are associated with wealth outcomes.

According to Razafimahasolo, Miora A. (2012) Financial literacy affect

individuals and all factors surrounding individual among the youth it is a law, less

than 1/3 of young adult possess basic knowledge of interest rate inflation and

risk diversification; example a college graduate has 50% more earnings for the

future than those who don’t . Also financial literacy is related to demographic

characteristics and sophistication. Financial literacy, retirement planning and

household wealth relies on the comprehensive measures. A strong positive

association between financial and net worth financial knowledge increases the

thinking and eagerness of investing and allowing to be benefited from family

premium second, financial literacy tends to plan the retirement according and

develop savings plan to boost wealth.

The ability to manage finances has become increasingly important in today’s

world. Effective financial management plans are important for all members of

society.

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 Financial Literacy has been often been seen as “life skill”. Financial Literacy

is central to individual, family and communal economic security. Individuals

should be empowered with the basic of finance so that they will appropriate

choices based on their needs and budget parameters.

According to Charissa M. Luce (2012), the chairman of the House of

committee on higher and technical education asked the Aquino government to

promote financial literacy among Filipinos. Also, Aurora Rep. Sonny Angara is

seeking the passage of House Bill 490 or the “Financial Literacy Act of 2012”

that defines the importance of financial literacy program in both public and

private education. “Mostly, Filipinos grow up without knowledge on how to

handle their resources. They know how to count their money rarely know how to

make it grow,” he said, while quoting the significant role of being educated in

managing their finances to have knowledge regarding financial decisions. Also,

the latest annual “Fin-Q Survey” has a positive outcome which is 52.6 points in

the year 2011.

SAVINGS

According to Jocelyn Alma A. Rodriguez and Richard L. Meyer there

is a close link between rural savings mobilization and the process of economic

development especially in countries where the agricultural sector holds a key

position in the overall economy. Savings can be mobilized through voluntary or

involuntary strategies. The former consist mainly of providing opportunities and

incentives to encourage savings whereas the latter essentially involves.

14
 Another study conducted by Nava Ashraf and Dean Karla (2006) states

that commitment devices for savings could benefit those with self-control as well

as familial or spousal control issues. We find evidence to support both

motivations. We examine the impact of a commitment savings product in the

Philippines on household decision making power and self-perception of savings

behavior, as well as actual savings. The product leads to more decision making

power in the household for women, and likewise more purchases of female-

oriented durable goods. We also find that the product leads women who appear

time-inconsistent in a baseline survey to self-report being a disciplined saver in

the follow-up survey. For impact on savings balances, we find that the 81%

increase in savings after one year did not crowd out savings held outside of the

participating bank, but that the longer-term impact over two and a half years on

bank savings dissipated to only a 33% increase, which is no longer statistically

significant.

According to Aniceto C. Orbeta, Jr. (2006) the importance of savings in

development is well known. The traditional interest in savings is that, at the

aggregate and household levels, it is the main determinant of investment.

Investment, of course, is acknowledged as the primary engine of economic

growth. This can be easily demonstrated, albeit crudely, by running a simple

regression between gross domestic savings and investment. 1 At the household

level while investments and income prospects may also be important as

determinants of savings, protection against income shortfalls may be more

relevant particularly if there are borrowing constraints and/or social security is not

15
well developed. Savings is the vehicle for consumption smoothing as argued in

the celebrated life-cycle hypothesis. Recently saving, on a regular basis, has been

found to enable households to move out of slum areas (Lall et al. 2005). Both of

these macroeconomic and microeconomic concerns are evident in the case of the

Philippines. The savings rates in the country are low, even lower than Indonesia,

which has lower per capita income (Orbeta 2005a). This had been identified as

one the main reasons why the country has not grown as fast as her neighbors. Low

household savings also exposes families to the risk of income shortfalls.

According to Razafimahasolo, Miora A. (2012) The best reason to save

money is to provide the future needs, both expected and unexpected. If a

household set nothing aside for these inevitable needs, it will constantly on the

edge of financial disaster. Saving regularly will help meet the short term and long

term needs.

BORROWING

A study of Sofia N. Andreou (2011) investigates how various factors

affect households demand for borrowing in Cyprus using data from the Family

Expenditure Surveys for the years 2002/03 and 2008/09. The descriptive statistics

show that middle income households with a younger age head have relatively

high gross debt-to-income ratios; whereas upper income households with an older

age head tend to have relatively high gross deposits-to-income ratios. The

econometric analysis uses smooth (over the life cycle) income to investigate the

extent to which household borrowing at a given point in time conforms to long

16
term expectations about future income. The results conform to theoretical

expectation insofar as demand for loans is determined by smooth, not current,

income. This can be interpreted as an indication that the borrowing behavior of

households in Cyprus is rational. Nevertheless, the results in the paper need to be

confirmed by further analysis to also account for the dynamics of the borrowing-

saving behaviour of households. This will be possible when the Household

Finance and Consumption Survey are available in Cyprus, hopefully in the near

future.

Last (2009) A large literature has examined factors leading to filing for personal

bankruptcy, but little is known about household borrowing after bankruptcy.

Using data from the Survey of Consumer Finances, we find that relative to

comparable non-filers, bankruptcy filers generally have more limited access to

unsecured credit but borrow more secured debt post-bankruptcy, and they pay

higher interest rates on all types of debt. We also find that credit access and

borrowing costs improve as more time passed since filing. However, filers

experience renewed debt payment difficulties and accumulate less wealth, even

many years after filing, suggesting that for many bankrupt households, debt

discharges fail to generate an effective fresh start as intended by the law. Our

estimate also provides empirical guidance for calibrating the equilibrium models

of household credit.

In this literature review Supriya Singh, Paul Myers, Warren McKeown

and Marita Shelly (2005) detailed the current knowledge about how people

decide on personal debt in Australia, with particular reference to low income

17
families. These readings form the starting point of our study of Families at Risk

Deciding on Personal Debt. The aim of our study is to understand financial

decision-making so that we can address what needs to be done to empower

consumers and alleviate debt problems amongst the most vulnerable families in

Australia. This literature review on personal credit and debt in Australia

complements the accompanying literature review on the theoretical frameworks

and literature around the study of personal debt and credit. These literature

reviews do not include a detailed discussion of consumer education as this will

form the subject of a separate report.

Furthermore, Loreto D. Cabañes (MB, Jan 24, 2016, p.c-6) states that there is

nothing wrong when a person wants to “upgrade” themselves in a way they

please. The problem is that most of these people are the ones who purchase

beyond their capacity- mostly using credit cards, advance salaries and bank loans.

Eventually, these people facing one big problem: Debt: Some of them are able to

get out of this problem eventually. However, the rest often fall into a spiral of

unending debts, using one debt to pay for another debt and so on.

For those who want to avoid incurring huge debts, here are the few tips;

a. Avoid using Credit card – use credit cards only to purchase items that will

produce money for you.

b. Sell unneeded items

c. Involve your family

d. stop using debts to pay other debts

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 Efren Ll. Cruz discussed how to lighten the debt burden through one or the

combination of the following: refinancing, restructuring, and condonation. But

he also says that combination is merely a “lifeline”.

HOUSEHOLD FINANCIAL DECISION

Using an experimental design Nava Ashraf (Feb. 2008) elicit causal

effects of spousal observation and communication on financial choices of married

individuals in the Philippines. Making choices public moves men from putting

money into their own account to consumption; communication with their spouse

drives men to put income in their wives account. The strong effect on men but not

women of information and communication appears to be driven not as much by

gender as by control: men whose wives control household savings are much more

likely to exhibit this treatment effect and women whose husbands control savings

exhibit the same pattern as men. These results suggest that existing household

models and policies are incomplete without taking into account the bargaining

process and, in particular, the way in which this process interacts with underlying

control structures in the household. Household outcomes depend on decisions

made by spouses who may often disagree. Given these potential differences in

preferences, the particular conditions under which intra-household decisions are

taken may matter a great deal for household outcomes. A large and growing

19
literature in economics provides evidence from several countries that household

savings and investment are significantly affected by how decision-making power

is allocated between women and men. In particular, when intra-household

financial decisions are made by women, savings and investment are often greater

and repayment of debt is more likely.

Synthesis of the Study

Braunstein & Welch, Lusardi & Mitchell they literates are all related to

the present study because it tackles about the advantages to the economic well-

being of the household residents as a consumer of having knowledge on financial

concepts in making decision. On the other hand, Knoll & Houts discussed the

development of measures focusing specifically on financial knowledge using the

“Item Response Theory” (ITR) on their study.

Lusardi, Rodriguez & Meyer both discussed the importance of financial

knowledge on the effect of an individual’s ability to save and secure a

comfortable retirement plan. While Ashraf & Karla states that commitment

devices for savings could benefit those with self-control as well as familial or

spousal control issues.

Andreou study’s relates on the research topic because it is the borrowing

behavior of household in terms of their age-head. However, Cabañes states on his

literary work some tips to avoid incurring high debts.

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III. Theoretical Framework

There were ten basic principles of financial management proposed by Jeff

Morris, that every head of the household must learn:

1. Organize Finances

Organizing your finances is the first step to creating wealth. Credit cards, bank

accounts, personal loans, brokerage accounts, mortgages, car loans and retirement

accounts should to be tracked. Budgeting software can provide complete solutions

to track all such accounts, make on-time payments and more. Jeff Morris, a certified

public accountant in Bethesda, Maryland, points out: "Once you enter your

accounts and balances into budgeting software, you will be able to spend less time

getting organized and more time making sense of your situation."

2. Spend Less Than You Earn

Personal financial software provides powerful tools to help you track and

budget you’re spending and take steps to achieve your long-term goals. If you learn

to track your finances and know where you spend the most, you'll be able to control

21
your money. "The best way to ensure that you either overcome debt or avoid it in

the first place is to never spend more than you make," Morris says.

3. Put Money to Work

Take advantage of the time value of money. Morris gives the following

example: "A 21-year-old who invests $17.50 a day until retiring at the age of 65 at a

5 percent average annual investment return can be a millionaire. At age 30, the

required daily savings amount almost doubles. At age 40 the amount quadruples."

So save early and often, even if the amount is small.

4. Limit Debt to Income-Producing Assets

With credit cards and car loans, every penny you spend to repay that

debt is money flushed down the drain. All but a few models of cars depreciate to

zero and require more in repairs and finance charges than can be reasonably

expected to be returned to the owner upon being sold. Morris explains, "With their

ultra-high interest rates, credit cards utilized to buy household goods and clothes

that quickly wear out are bad bargains. If you have to be in debt, stick to financing

items that retain their value over time, like real estate and education."

5. Continuously Educate Yourself

Budgeting software often links to hoard of research that puts the collective

knowledge of Wall Street at your fingertips. "Read every financial periodical, book

and blog you can find from well-regarded financial authors," Morris recommends.

22
"Understand why you are investing so that you will stick to your plan. Periodically

gather research so you do not miss excellent investment opportunities."

6. Understand Risk

The key to understanding return on investments is that the more you risk, the

better the return should be. This is called a risk-return trade-off. Investments like

stock and bonds that have a higher rate of return often have a higher risk of losing

the principal that you invested. Investments like certificates of deposit and money

market accounts with a lower rate of return have a lower risk of losing principal.

Since no one knows the future, you cannot be 100 percent sure any investment will

do well. Morris explains, "If you diversify your investments, one can go sour without

severe impact to your overall portfolio."

7. Diversification Is Not Just for Investments

Find creative ways to diversify your income. Everyone has a talent or special

skill. "Turn your talents into a money-making opportunity. Investigate ways to make

money from home and launch a home-based business," Morris says. The extra

income can supplement your full-time income or even result in an exciting career

change. Good financial management software can show you how even a slight

improvement in income can positively change your financial profile.

8. Maximize Your Employment Benefits

Employment benefits like a 401(k) plan, flexible spending accounts and

medical and dental insurance yield some of the highest rates of return that you have

23
access to. "Make sure you are taking advantage of all the ways benefits can save you

money by reducing taxes or out-of-pocket expenses," says Morris.

9. Pay Attention to Taxes

Financial planning software helps you manage your tax information. For

example, Quicken quickly analyzes taxable investments and provides powerful

organizing tools that make year-end tax filings go much smoother. Morris

emphasizes, "We all know that any money you make is going to be taxed. That is

why it is important to consider the related tax implications for every investment.”

10. Plan for the Unexpected

Despite of your best efforts, you'll face unforeseen emergencies. Morris

urges, "Save enough money and stock up on insurance to be able to weather

extended unemployment, accidents, catastrophic medical care, large car or house

repairs and natural disasters." Increasing the amount of money you save when times

are good can help you manage the cost impact of hedging against bumps in the road,

making sure unexpected financial exposure does not derail your long-term goals and

your family's financial security.

The Life-cycle Hypothesis

In economics, the life-cycle hypothesis (LCH) is a model that strives to

explain the consumption patterns of individuals which is proposed by Franco

Modigliani and his student, Richard Brumberg.

The life-cycle hypothesis suggests that individuals plan their

consumption and savings behavior over their life-cycle. They intend to even out their

24
 consumption in the best possible manner over their entire lifetimes, doing so by

accumulating when they earn and dis-saving when they are retired. The key

assumption is that all individuals choose to maintain stable lifestyles. This implies

that they usually don't save up a lot in one period to spend furiously in the next

period, but keep their consumption levels approximately the same in every period.

Conceptual Framework

The conceptual framework was based at the demographic profile and the

degree of financial literacy of the respondents which shows the significant

relationship of the two variables, and those factors (e.g. respondent’s profile; age

and employment status) that affected the respondent’s degree of financial literacy.

The conceptual framework of the study is shown in Figure 1 in paradigm form.

The Significant
Relationship

The Demographic Level of Comprehension

Profile of of Financial Literacy of
the Respondents
Respondents

25
 “Financial Literacy Framework”

Figure 1.

IV. Statement of the Problem

This study aimed to assess the degree of financial literacy of the household

in Tumana, Marikina City in terms of saving and borrowing decisions to analyze

its effect in the improvement on the standard of their living.

Specifically, it sought to answer the following questions:

1. What are the demographic profile of the respondents:

1.1 Age

1.2 Gender

1.3 Civil Status

1.4 Employment Status

1.5 Educational Attainment11

1.6 Monthly Income

2. What is the degree of comprehension of financial literacy of

respondents in Tumana in terms of the following variable:

2.1 Saving decision

2.2 Borrowing decision

26
 3. Is there a significant difference in the answer of the respondents who

sought according to their demographic profile?

Hypothesis

Ho: There are no significant differences in the answer of the respondents

who sought according to their age; sex; civil status; employment status; monthly

income.

V. Significance of the Study

This study was essential since it benefited the following group of persons

and institution:

a) Student – They will benefit from the study since not just finance

student, but every business student must at least be financially

literate or aware for them to come up in a sound financial decision.

b) Local government and Barangay units – The result of the study can

be a tool for them in creating new administrative policies for the

betterment of their community and its residences regarding their

financial decision.

27
 c) The Community and Residents – The finding of the study can

serve as useful information for them to be aware of the possibilities

in having a lack of knowledge in terms of finances in managing a

one’s household.

VI. Scope and Limitation

This study focused on determining the level of financial literacy on

saving and borrowing decision of Tumana Marikina households.

The study will be limited to households of Barangay Tumana in

Marikina City only. The respondents of the study will be limited to 100 that

will be selected through random sampling. The data gathering instrument can

be limited to a survey questionnaire.

VII. Definition of Terms

Bankruptcy. Failure of the borrower to repay its obligation to a lender.

Borrowing. An obligation that should repay the principle in the future

including the interest.

Budgeting. A planning of a sum money for a particular purpose

Debt. Amount of money owed for some purposes to be paid in the future with

interest.

28
 Financial Literacy. The degree of knowledge of a certain person regarding

money management and decision.

Household. Persons that composes a single family. Usually those left at their

home to manage the family needs.

Household Finances. Defines as the amount of money used and handled by a

particular household for any purpose.

Saving. It is an income not used for immediate consumption and they earns in

a given period of time.

CHAPTER 2

The Research Methodology

This chapter presented the different methods that utilized to gather

relevant data. It had used the following methods; Research Design, the

Participants, the Instruments, Data Gathering Procedure and Data Analysis Tools.

I. Research Design

The study used descriptive design of research. It is the most

appropriate to use because the study is concern with the financial literacy of

the household among the residents of Tumana Marikina City.

II. The Participants

The population of the study was consisting of approximately 100

composed of households in the said barangay that was gathered through

random sampling.

Research Locale:

29
 The research study will only be limited and conducted at Barangay

Tumana, Marikina City.

III. The Instruments

The design used in the instrument is survey questionnaire.

Questionnaires are written set of questions that was given by the researchers

to the respondents in order to collect facts and opinion about certain topic.

The questionnaire consists of two parts as follows:

Part I. The Demographic Profile was consisting of the following;

a) Age

b) Gender

c) Civil Status

d) Employment Status

e) Educational Attainment

f) Monthly Income

Part II. The facts and opinion of the respondents was consist of the

effects in decision of household’s financial literacy regarding the

following;

30
 a) Saving Decisions

b) Borrowing Decisions

IV. Data Gathering Procedure

The researcher asked permission from the barangay officials of

Barangay Tumana before they’d distributed the questionnaires to the

respondents that was personally given and collected by the researchers to the

households of Tumana, Marikina. The researcher contrives items of questions

that are related to the household’s personal financial literacy.

IV. Data Analysis Tools

The questionnaire was personally distributed by the researchers to the

households of Tumana, Marikina. The researcher contrives items of questions

that are related to the household’s personal financial literacy.

The following are the statistical tools had been used in the study;

1. A computation of the number of respondents who will answer the

questionnaires that was given to determine the frequencies of the respondents

in each item.

31
 Percentage formula was used to quantify the profile of the respondents.

𝒇
𝑷= (𝟏𝟎𝟎 %)
𝒏
Where:

P = percentage

f = frequency

n = total number of respondents

2. The weighted mean formula used to evaluate the assessment of each

household’s financial literacy on their savings and borrowing decision.

This is finding out the average response of the respondents in every

category. The instrument used 5 points numerical scale of assessment,

where 5 is the highest and 1 is the lowest.

∑ 𝒙𝒘
𝑾𝒙 =
∑𝒙

Where:

Wx = weighted mean

∑ 𝑥𝑤 = sum of the product of the number of samples per

scale and weight

∑ 𝑥 = sum of the sample size

* = the sum of

w = the weights

x = the value

32
 3. The ranking procedure had been used to identify the most important

category that the respondents avail. To treat the response of the

respondents, the researchers will used the Likert’s scale to rank the most

important category.

Likert’s scale

SCALE RANGE VERBAL

INTERPRETATION

5 4.21-5.00 Highly important

4 3.41-4.20 Important

3 2.61-3.40 Moderately important

2 1.81-2.60 Unimportant

1 1.00-1.80 Highly unimportant

33
 CHAPTER 3

Results and Discussion

This chapter provides the empirical finding gleaned from the collected data. It

presents the demographic information of the respondents and the statistical analysis of the

data collected from them. This was followed by the results and discussion about the

researcher’s findings.

Part I. Demographic Profile of the Respondents

This part is consist of six tables regarding the demographic profile of the respondents

which is the age, civil status, employment status, educational attainment, monthly

income, and also frequency and percentage of responses.

Table 3.1 Age of Respondents

AGE FREQUENCY PERCENTAGE

18-22 5 5%

34
 23-27 11 11%

28-32 10 10%

33 and above 74 74%

TOTAL 100 100%

Table 3.1 shows that in the age bracket of eighteen to twenty two (18-22) years old, there

are only five respondents that is equivalent to five percent (5%), which make it the least

number of responses. While in the age bracket of thirty three (33) years old and above,

there are seventy four respondents that is equivalent to seventy four percent (74%), which

make it the greatest number of responses.

Table 3.2 Gender of Respondents

GENDER FREQUENCY PERCENTAGE

Male 23 23%

Female 77 77%

TOTAL 100 100%

Table 3.2 displays that out of one hundred (100) respondents; the frequency of male

respondents is 23 which is equivalent to twenty three percent (23%) while the frequency

of female respondents is 77 which is equivalent to seventy seven percent (77%).

Based on the 2015 survey of Community Based Monitoring System in Marikina

City, the population of male is 129,444 while the population of female is 133,625.

35
 According to United Nation World Population Prospects: the 2017 revision, male

hold a slight lead with 102 men for every 100 women. Most precisely out of 1,000

people, 504 are men (50.4%) and 496 are women (49.6%).

Comparing the data gathered by the researchers, the CBMS 2015 census, female

had the greater number compared to male that is why there are more responses gathered

by the researchers from female. While contradicting to the study of UN World Population

Prospects(2017), male is greater than female. This ratio is partly due to sex selective

abortion and “gendercide”, the killing of female infants in countries such as China and

India where males are desired.

Table 3.3 Civil Status of Respondents

CIVIL STATUS FREQUENCY PERCENTAGE

Married 60 60%

Single 36 36%

Widow 2 2%

Separated 2 2%

TOTAL 100 100%

Table 3.3 explains that the frequency of married respondents is sixty (60) which is

equivalent to sixty percent (60%) and make it the greatest number of responses, followed

by single respondents of thirty six (36), which is equivalent to thirty six percent (36%).

While widow and separated are the same level of two (2) respondents each and

equivalent to two percent (2%).

36
 Based on the 2015 survey of Community Based Monitoring System in Marikina

City, the population of Single is 92,319 while the population of married is 79,906.

Comparing the CBMS 2015 census is quite contradicting to the data gathered by

the researchers that shows greater number of responses from married people compared to

single. According also to CBMS, civil status does not only limit to married and single.

There is still common law and widowed. But today, it is acceptable in our culture to be a

single parent. Anyone does not necessarily need spouse to have a family.

Table 3.4 Employment Status of Respondent

EMPLOYMENT
FREQUENCY PERCENTAGE
STATUS

Regular 26 26%

Contractual 33 33%

Self-employed 41 41%

TOTAL 100 100%

Table 3.4 signifies that the frequency from self-employed make the greatest number of

respondents of forty one (41) which is equivalent to forty one percent (41%), followed by

the frequency from contractual of thirty three (33) which is equivalent to thirty three

37
percent (33%), and frequency from regular employees of twenty six which is equivalent

to twenty six percent (26%) and make it the least number of responses.

The result of the data gathered by the researcher’s states that household residents

of Tumana Marikina are mostly self-employed because they are into sari-sari store

business followed by those employed on a contractual basis.

Table 3.5 Educational Attainments of Respondents

Table 3.5 on the next page shows that the responses from secondary level creates

mostly with fifty two (52) responses which is equivalent to fifty two percent (52%) and

the responses from primary level creates the least number of respondents with the

frequency of six (6), which is equivalent to six percent (6%).

According to the Census of Population and Housing (CPH), of total household

population, 19.1 percent had finished at most high school, 11.7 percent completed

elementary education, 10.1 percent were academic degree holders, and 2.7 percent were

post-secondary graduates.

Differentiating the gathered data and the information from CPH, are quite similar

which states that the greatest number of respondents are those who finished high school

and the least came from those respondents with academic degree.

EDUCATIONAL
FREQUENCY PERCENTAGE
ATTAINMENT

Primary 6 6%

Secondary 52 52%

Tertiary 19 19%

Under graduate 23 23%

38
 TOTAL 100 100%

Table 3.6 Monthly Income of the Respondents

MONTHLY
FREQUENCY PERCENTAGE
INCOME

Below 5,000 45 45%

5,001-7,500 41 41%

7,501 and above 14 14%

TOTAL 100 100%

Table 3.6 shows that the highest frequency comes from the responses of

household with below 5,000 monthly income of forty five (45) responses, which is

equivalent to forty five percent (45%), followed by the frequency from the household of

5,001-7,500 monthly income with forty one (41) responses, which is equivalent to forty

one percent (41%). And the least number is the frequency from the household with

monthly income of 7,501 and above with fourteen (14) responses, which is equivalent to

fourteen percent (14%).

Part II. Financial Literacy

This part is consisting of three tables, regarding the two variables of financial

literacy which are savings and borrowing. Each table has their computed mean and

interpretations.

39
 Table 3.7 Savings

VERBAL
Weighted Mean
INTERPRETATION

1 4.04 Important

2 3.51 Important

3 4.03 Important

4 2.92 Moderately Important

5 2.43 Unimportant

TOTAL 3.39 Moderately Important

Table 3.7 shows the differences of the result from the following questions under

savings. The question that got the highest response is question number one (1), that is

about “It is important to know how to create personal savings plan” which had the

weighted mean of four point zero four (4.04) and interpreted as important. While the

question that got the least number of responses is number five (5), it is about “the savings

of money through ALKANSYA” which had weighted mean of two point forty three

(2.43) and interpreted as unimportant.

Table 3.8 Borrowing

VERBAL
WEIGHTED MEAN
INTERPRETATION

1 4.06 Important

2 4.1 Important

40
 3 2.87 Moderately Important

4 2.52 Moderately Important

5 2.36 Unimportant

TOTAL 3.18 Moderately Important

Table 3.8 shows the differences of the result from the following questions under

borrowing. The question that got the highest response is question number one (1), that is

about “Having knowledge to avail a SSS/ Pag-ibig/ GSIS” which had the weighted mean

of four point zero six (4.06) and interpreted as important. While the question that got the

least number of responses is number five (5), it is about “the knowledge to pawn my

personal items is unimportant” which had weighted mean of two point thirty six (2.36)

and interpreted as unimportant.

41
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Give your children the keys to financial responsibility (September 19 2016) Philippine

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Money, Media, Millennials: How Social Media Influences Our Spending Habits by

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Financial Literacy (December 7, 2016) Philippine daily inquire

Measure Filed Promoting Fincial Literacy by Charissa M. Luce (December 26 2012)

Manila bulletin

How to overcome unneeded debt by Loreto D.Cabañes(January 24 2016) Manila bulletin

One cure for debt addiction by Efren Ll. Cruz (2015) Philippine business daily inquire

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45