Level of Financial Literacy of Real Estate Employees Towards Property Investments: A

Framework for Sound Investment Decision

_______________________

A Research Proposal Presented

to Ramon A. Victor, Ph.D. of the Graduate School
Institute of Accounts, Business and Finance
Far Eastern University
Manila

_______________________

In Partial Fulfillment
of the Requirements for the Course
RESEARCH METHOD IN BUSINESS

________________________

By

Miel, Ralph Adrian H.

2019
 CHAPTER I

THE PROBLEM AND ITS BACKGROUND

Introduction

Work enables man to earn money and provide for his needs. With a stable source

of income, either through employment or business, he develops practices that match his

lifestyle. Money has always been regarded as an important component in every man’s

economic decision such as how much to save, spend, and invest. However, individuals

inevitably need to make big investment decisions. Thus, investment knowledge plays a

vital role for everyone in developing and achieving investment growth. Financial

management is unique for every individual. For some, it means taking control of money

earned from work and making sure it is adequate to sustain standard of living. For others,

financial management is more than meeting present needs but more importantly, securing

what is needed in times of difficulty and life after employment, thus, allotting a portion of

earning for investing.

A survey conducted in the Philippines, showed that Filipinos value the importance

of investing for future but only 1 out of 10 Filipinos is consciously saving an amount of

money for investing (Duplito, 2008). There are also other people who engaged

themselves on the habit of making money out of their earnings by engaging with different

investing activities such as buying stocks, government bonds, and real estate. Depending

on their risk profile, these people put money in investment instruments that can potentially

improve their financial worth (Gallery, Newton & Palm, 2010). In view of this, Filipinos are
deprived to invest in real estate in Philippines, thus it continuously soars (Inquirer, 2017).

The economic boom in the Philippines which is considered as one of the fastest growing

region, shows no signs of slowing down. The robust macro-economic condition continues

to pave the way for the different sectors of the economy to further flourish, including that

of real estate. However, in the Philippines for instance, many Filipinos are still not formally

knowledgeable about real property investment. They are more likely not to participate in

financial and economic activities that could help them maximize their financial wealth.

This study will focus on the identifying of level of financial literacy of employees in

selected real estate firm and in developing a framework for sound investment decision

based on the result of the study.

Background of the Study

Ayala Land, Inc. (ALI) is a real estate firm based in the Philippines. It is a

subsidiary of Ayala Corporation. It began as a division of Ayala Corporation until it was

spun off and incorporated in 1988. It became publicly listed in the Philippine Stock

Exchange (PSE: ALI) in 1991. Its core businesses are in strategic land bank

management, residential development, shopping centers, corporate businesses, and

hotels & resorts. Support businesses are in construction and property management. ALI

also derives other income from its investment activities and sale of non-core assets.
Ayala Land, Inc. is located at Barangay Bel-Air, along Ayala Avenue, Makati City. This

study will be limited to the employees of Ayala Land, Inc. It has a total workforce of 532

employees as of September 2019.

Theoretical Framework

Decision Theory

Decision theory was developed by Warner in 1968. It is a theory about people’s

actions. It has both a prescriptive and a descriptive version. The prescriptive version says

that a person should choose the action that maximizes expected utility. The description

version says that a person does choose the action that maximizes expected utility. Real

estate decisions are made by a variety of actors pursuing a broad range of objectives.

These actors include homeowners, real estate buyers and renters, builders, brokers,

bankers, and the public agencies that provide physical networks and services such as

streets, utilities and schools. Property managers are facing every day critical risk

management decisions as determining the price for selling or renting of a property, choice

of financing, investment analysis, real estate portfolio management, real estate valuation.

In these cases, a decision support system can be very valuable in order to minimize the

risk of potential losses due to wrong decisions. Roberts and Henneberry (2007) explore

the decision-making processes of property investors. The study covered a broader

sample of countries across three European markets namely France, Germany and U.K.

Interviewees in this study constituted those most likely to engage directly in property

investment decision-making. The study proposes a ten-stage normative model as it finds

the actual decision-making process much simpler than the normative model suggested.

Both the UK and the French and German models are found to follow a broadly similar

path, with investors setting a strategy, searching for properties, undertaking an analysis

of market conditions and purchasing properties that fulfill that strategy (Roberts and

Henneberry, 2007).

Decision

Selling
Renting Potential Gain
Choice of Financing RISK or
Property Valuation Potential Loses
Investment Analysis
Conceptual Framework

Demographic
Profile of the Financial Literacy
Repondents: Variables:
1. Valuation of Property Framework for
1. Age Sound Investment
2. Interest
2. Gender Decison
3. Inflation
3. Civil Status
4. Return on Investment
4. Income

Figure 1. Research Paradigm

Figure 1 shows the schematic representation of the different variables in the

research. The researcher come to this figure to show the profile of the respondents in

terms of age, gender, marital status, and income in relation to their level of financial

literacy. For this reason, using questionnaire that will be provided by the research, the

research intends to have deeper understanding of the financial literacy of the employees

in selected real estate firm and at the same time expecting an output that will serve as

basis for recommendations or a framework for sound investment decision.

Statement of the Problem

The study will determine the level of financial literacy of real estate employees.

Specifically, it will answer the following questions:

1. What is the demographic profile of the real estate employees in terms of:

1.1. Age

1.2. Gender

1.3. Civil Status

1.4. Income

2. What is the level of financial literacy of the respondents as to:

2.1. Time-value of Money

2.2. Interest Calculation

2.3. Risk and Reward Trade-off

2.4. Inflation

3. Is there a significant difference among real estate employees, when they are

grouped according to demographic profile?

4. What influences the investment decisions of the real estate employees?

5. What framework can be developed for sound investment decision based on the

result of the study?

Objectives of the Study

The main objective of the study is to determine the level of financial literacy of

employees of the subject real estate firm.

The study aims to achieve the particular objectives:

1. Determine the profile of the employee-respondents of the subject real estate firm

in terms of age, gender, civil status, and income.

2. Determine the level of financial literacy of employees in the subject real estate firm

in terms of time-value of money; interest calculation; risk and reward trade-off,

inflation and diversification.

3. Determine the significant difference in the perception of the employee-

respondents, when they are grouped according to profile, with regards to the level

of financial literacy in terms of the time-value of money, interest calculation, risk

and reward trade-off, inflation and diversification variables.

4. Determine the influences on investment decision of the real estate employees.

5. Build a framework for sound investment decision.

Significance of the Study

Employees at Real Estate. The study will help real estate employees to further

improve their knowledge about investing in real estate.

 Real Estate Brokers. The study could improve their marketing or sales strategies

that will address the financial capacity of the potential investors.

Government. The study may contribute to the government’s program of promoting

real estate as investment choice so that a potential investor could participate in economic

activities.

Researcher. The study will help the researcher, who is currently a real estate

employee, to have better understanding on what the factors that influence investment

decisions.

Other Researcher. The study may serve as reference for the future studies

relatively to financial literacy.

Scope and Limitation of the Study

The study will be focusing on the employees of the subject real estate firm

particularly on their level of financial literacy in regards to their knowledge time-value of

money, interest calculation, risk and reward trade-off, inflation, and taxation.

The study will be limited to the employees of the Ayala Land, Inc. (ALI) – Project

Management Team located in Brgy. Bel-Air, Ayala Avenue, Makati City for a time period

of October to November 2019.

 Definition of Terms

Financial Literacy. The ability to manage personal finance matters in an efficient manner,

and it includes the knowledge of making appropriate decisions about personal finance

such as investing, insurance, real estate, budgeting, retirement, and tax planning.

Inflation. Involves investing in an asset expected to maintain or increase its value over a

specified period of time.

Interest Calculations. Refers to the cost of borrowing money and is usually expressed as

a yearly percentage that is paid as part of your monthly loan payment. It can be change

on a daily basis depending on what the current market looks like.

Inflation. Involves investing in an asset expected to maintain or increase its value over a

specified period of time.

Investments. An asset or item acquired with the goal of generating income or

appreciation.

Real Estate. A tangible asset and a type of real property, it includes land, buildings and

other improvements, plus the rights of use and enjoyment of that land and all its

improvements.

Real Estate Broker. Is a licensed real estate professional who typically represents the

seller of a property.

Risk-Return Tradeoff. The potential return rises with an increase in risk.

Time Value of Money (TVM). The concept that money available at the present time is

worth more than the identical sum in the future due to its potential earning capacity.
 CHAPTER II

REVIEW OF RELATED LITERATURE

Local Literature

There have been numerous studies about Financial Literacy but before any discussion

can be relevant it is pertinent to define Literacy to have a better grasp what encompasses

financial literacy. Literacy as defined by Oxford dictionary is the ability to read and write.

This simple definition is split between the understanding (Reading) and application

(Writing), so by oxford’s definition we can assume that financial literacy is also cut into

two portions which the ability to read, understand, analyze, manage, communicate

financial data and ability to discern financial choices, discuss money and financial issues

without (or despite) discomfort plan for the future, and respond competently to life events

that affect every day financial decisions, including events in the general economy. In our

always-evolving world, financial literacy is crucial in the development of sustainable

welfare and more transparent and fairer society. A several studies were conducted in the

Philippines to revealed the state of financial literacy of most Filipinos.

According to Bangko Central ng Pilipinas (BSP) 2018, the financial literacy level of

the average Filipinos remains alarming low – a problem that begins with poor childhood

education that persists until their adult years. They also stated that Filipinos adults could

correctly answer only three out of seven financial literacy-related questions covering basic
numeracy, computing compounding interest, fundamentals of inflation and investment

diversification.

COL Financial Group Inc (COL) 2017, stressed the importance of investing early.

They said this will not benefit the person but help in nation-building, as well. However, as

per their study at 41% of Filipinos, in the Philippines, don’t know how to invest. The

reason why Filipinos fail to invest is simply because of lack of awareness or lack of

knowledge on investment options. Some simply haven’t heard of mutual funds or UITFs

and other vehicles, while others may be aware of them but do not know much about them

– how they work, how to buy them, etc. or even have the misconception that you need a

lot of money to be able to invest (Riza Mantaring, CEO of Sun Life Financial, 2017).

Under different circumstances, JLL says the outlook for the Philippine real estate

industry in 2019 remains positive and expected growth and expansion of the industry in

2019 will hopefully encourage investments. This forecasted information will be a

inspiration of the government, or other future researcher that there is a need for a effective

financial education and awareness to our fellow Filipinos.

Foreign Literature

Financial literacy has been discussed by many researchers from different aspects.

Different research organizations have conducted research to identify the level of financial

literacy of investment decision makers. Financial literacy’s definition varies in different

literature. For example, Hung, Parker, and Yoong (2009) quoted the President’s Advisory

Council of Financial Literacy (PACFL) definition of financial literacy as “the ability to use
knowledge and skills to manage financial resources effectively for a lifetime of financial

well-being”. However, they claimed that it is unclear how widely accepted this definition

is. Thus, they said financial literacy can also pertain to perceived knowledge, good

financial behavior, or financial experiences. Because variety of definitions for financial

literacy, they said that the methods used to measure it also differ. Surveys such as

performance test and self-reports can be used to assess financial literacy. If the definition

given by PACFL, is adapted, methods which measure a person’s “ability to use

knowledge and skills towards achieving financial well-being” are needed (Hung et. al.,

2009). Lastly/ they stressed that a precise definition for financial literacy will produce clear

researches and allow development of practical interventions.

Almenberg and Widmark (2011), in their work “Numeracy, Financial Literacy, and

Participation in Asset Markets”, differentiated numeracy and financial literacy such that

financial literacy involves “familiarity with financial concepts and products, whereas

numeracy is the ability to process numerical information and perform simple calculations”.

Because they recognized this difference, they measured financial literacy and numeracy

separately. They asked a sample of Swedish nationals to complete a survey, which is

composed of two questionnaires: one for financial literacy, and one for numeracy. In

addition, they examined the relationship between financial literacy and numeracy on

housing market and stock market participation using LOGIT regression. They found that

numeracy and financial literacy are positively correlated with participation in the asset

markets. However, they found that financial literacy is not an important variable to

participate in housing market relative to the importance of numeracy.

 Their study was supported by Lusardi (2012) in her work “Numeracy, Financial

Literacy, and Financial Decision-Making”. She differentiated financial literacy from

numeracy and pointed out that studies showed very low levels of numeracy in USA and

other countries, while lack of numeracy is severe in some demographic groups. She

stressed that there will be negative implications toward individuals and the society

because numeracy is found to be related tom nay financial decisions like mortgage

borrowing, loans and the use of credit cards. She also cited that.

Many individuals are not able to do economic calculations or to understand the

distinction between nominal and real value. They also do not have sufficient knowledge

about such basic economic terms as basic risk diversification. In addition, they also need

to be informed about such complicated concepts as the differences between bonds and

stocks, investment fund operations and primary asset pricing comparisons (Lusardi &

Mitchell, 2014; Lusardi, 2008). A range of studies into the issue have revealed that those

who lack sufficient financial knowledge are not able to save duly for their retirement

(Lusardi & Mitchell, 2007), use high-interest loans and experience debt problems (Moore,

2003), follow the financial advice of their family and friends and invest less in stocks (Van

Rooij et al. 2011). Therefore, individuals require education in relation to a range of

financial issues to meet their financial needs and increase their wealth (Gale & Levine,

2010, Lusardi & Mitchell, 2014).

Financial Literacy was also studied in both developed and developing countries to

determine the state of financial literacy around the world. Xu and Zia (2012) conducted a

study by comparing available survey results of financial literacy for both developed and

developing countries. Surveys around the world consistently showed that higher-income
countries perform better that lower-income countries. The awareness of basic financial

products and concepts of lower-income country is generally low, with many people never

having heard of savings account.

There are factors affecting the level of financial literacy of individuals. An analysis

by Chen and Volpe (2012) further test the difference between the financial literacy of men

and women. Results from various prior studies consistently show that women’s scores

are lower because they either do not know the basis fact, terminology or concept or they

do not perform well in mathematics related questions, theoretically due to the more “left-

brained” intuition of women to men. In any case, there is conclusive evidence to singe out

gender as a significant variable affecting financial literacy scores (2012)

Gender is indeed a principle variable specifically examined in Chen and Volpe’s

study; other characteristics examined include family income, year level, and education:

family income is another singled out to be considerably significant as it relates to the

macroeconomic measuring of household income as per capita, a valuable component of

economic development. Family income also relates to household investing and

management of assets; compare to the measuring instruments discussed in the previous

section relating household wealth, portfolio, diversification and successful returns on

investments to financial literacy (Chen & Volpe, 2012)

The study by Obamuyi, (2013) sought to determine the main factors influencing

investment decisions of investors and how civil status is related to the investors’

characteristics in the Nigerian Capital Market. The study covers individual investors using

convenient sampling method to obtain information from 297 respondents through a

modified questionnaire. The results indicated that the five most influencing factors on

investment decisions of investors in Nigeria are past performance of the company’s stock,

expected stock split/capital increases/bonus, dividend policy, expected corporate

earnings and get-rich-quick. The study found that the civil status of investors statistically

and significantly influenced the investment decisions of investors in Nigeria. Marital status

and dependents, such as children, parents, or siblings, determine whether one is planning

only for yourself or for others as well. If you have a spouse or dependents, you have a

financial responsibility to someone else, and that includes a responsibility to include them

in your financial thinking. You may expect the dependence of a family member to end at

some point, as with children or elderly parents, or you may have lifelong responsibilities

to and for another person. Partners and dependents affect your financial planning as you

seek to provide for them, such as paying for children’s education.

Age can influence personal financial planning management among people.

Generally, older individuals are more conservative and risk adverse. The deeper life

experiences may encourage the acquisition of skills to secure their financial aspirations

in their life. Ansong and Gyensare (2012) conducted a study among 250 University

students of Cape Coast reveals that the age and work experience are positively related

to financial literacy.

Financial literacy was also considered to be significant for potential investors to

make better informed investment decision. An essential element of investment is the

anticipated return therefore management of the asset invested must be done to ensure

that at least assets appreciate in value. Investment decision is the determination made

by the investors, in case of an individual investment or management where a corporation

is involved, as to how, when, where, and how much capital will be spent on investment

opportunities (Bhalla, 2012). These decisions are usually supported by decision tools,

literacy being one of the necessity, that would help achieve a satisfactory return after

performing an investment analysis using the fundamental and technical analysis The

decision to invest is usually followed by research to determine the costs and returns for

various options available. Musundi (2004), investment planning being an integral part of

investing and positive inducement in planning for protection has two main reasons why

people have to engage in it.

Bhushan (2014), examined the connection of level of financial literacy to

understand risk and return concepts as well as choice financial products correctly. He

concluded that high levels of financial literacy created more financial awareness of the

financial products hence were found to be likely to make wiser investment decisions as

compared to their counterpart with low financial literacy. Those with low financial literacy

are usually constrained in terms of the choice where to invest and therefore opt to invest

in limited traditional products. Though traditional products are considered safer and to

yield more return, they carry riskier.

Local Studies

Relatively little analysis of the Filipino’s Financial Literacy was done in the past.

One of them is study of Sucuahi (2013). He used four topics such as record keeping,

budgeting, personal finance, and savings to measure the financial literacy of micro

entrepreneur in Davao City. These micro entrepreneurs would include owners of sari-sari

store, beauty salon, fish vendors, eatery, and auto repair shop. The results show that
micro entrepreneurs were not knowledgeable in record keeping, savings, financing and

budgeting because the respondents did not utilize their skills. In addition, educational

attainment influences financial literacy, while gender is not a significant factor.

Another study by Mandigma (2012) assessed the financial capability of academic

personnel among Universities. The sample population includes faculty, guidance

counselors, and librarians in an academic institution in Philippines. Majority of the

respondents have above average financial capability, which is defined as “the ability to

manage their day-to-day finance and long-term plan” (Mandigma, 2012). As a result,

respondents show no difficulties in managing money, savings, and financial planning

behaviors, awareness of financial products, and where to seek financial advice.

Foreign Studies

According to Ayieko, (2004) investment planning is one of most important areas of

personal financial planning. It is an integral part of retirement and a direct inducement

protection planning. Financial independence after and during retirement, and with a view

of your estate is largely determined by effective retirement planning. Investment planning

includes developing investment strategies. These strategies should include designing a

systematic investment plan and developing an asset allocation strategy. Investment

planning is major part of retirement planning

Mahmood (2011) conducted a study in Pakistan to examine the role of various

socioeconomic and demographic factors affecting the investment decision of investors.

An investment model was developed that described the impact of past investment
experiences of investors, variation in regulatory policies, asymmetric information, their

marital status, gender, and reinvestment intentions of investors. They suggested that risk

perception performs the key role in the investment decision process and that the variation

in the government policies can impact the risk perception of an investor. An empirical

study conducted by Shyan, Gow and Hui (2010) among Taiwanese investors to determine

their past experiences and their outcomes when exposed to the economic signals.

Empirical results found no difference by gender to investor propensity to take risk.

However, higher and lower perceptions of risk were indicated by investors according to

their personal investment experience. Investors with little experience and structured notes

were found to have significantly heightened perception of risk. Furthermore, the married

subjects believed that they have adequate financial management knowledge and can

make better investment decision.

 CHAPTER III

RESEARCH METHODOLOGY

This chapter presents the procedures followed in gathering and analyzing the data

needed to address the problems identified in previous chapter. It will include the research

design, target population, research locale of the study, respondents of the study, sample

size and sampling technique, research locale, research instrument, validity and reliability

tests, and statistical treatment of data.

Research Design

Research design has been explored under diversified definitions. According to

Groenewald (2004), research design has been noted as an advanced set of decisions

that creates the master plan for the determined methods as well as proceedings for the

collection of data analysis of the same. This study will follow descriptive research design.

A descriptive study is concerned with finding out who, what, where, when, or how much

(Cooper and Schindler, 2006). This research is descriptive because it is concerned with

discussing the extent of financial literacy of real estate employees and factors associated

with regards to their investment decisions. The descriptive design will be used since it

ensures complete description of the situation as it is, making sure that there is minimum

bias in the collection of data and to reduce errors in interpreting the data collected.
Population of the Study

The target population of this study will be employees of the Ayala Land, Inc.

specifically under Project Management Team in Makati City. The total target population

of this study is five hundred thirty two (532) employees, who were hired as of October

2019.

Respondents of the Study

The respondents of the study will be the employees of Ayala Land, Inc. Through

the use of Slovin’s Formula it came up with a total of 228 respondents, with total

population of 532 and a margin of error of 5%. Sloven’s formula is used to calculate the

sample size (n) given the population size (N) and a margin of error (e). -It is computed as

n = N / (1+Ne2). - If a sample is taken from a population, a formula must be used to take

into account confidence levels and margins of error.

Sampling Technique

The sampling technique that will be used in this study is simple random sampling

technique in order to meet the objectives. Simple random sampling technique will help to

ensure that the sample represented the entire population, and was not biased or

prejudiced towards any particular groups within the population.

Research Instrument

The primary data will be collected using survey questionnaires which will be

randomly distributed to the employee-respondents. This method will be appropriate since

it will encourage prompt response from the respondents. The survey questionnaires was

divided into three parts. The first part of the questionnaire contains the demographic

profile of the respondents such as age, gender, civil status, and monthly income. The

second part of the questionnaire contains the key financial literacy questions. The third

part contains respondent’s investment decision. Respondents will be asked to indicate

their degree of how they were influenced by each of the items on four point scale. The

range of four point scale is shown in the table 1.

Table 1.

Range of Four Point Scale

No. Verbal Interpretation Range

4 Strongly Agree 4.20 – 5.00

3 Agree 3.40 – 4.19

2 Disagree 2.60 – 3.39

1 Strongly Disagree 1.80 – 2.59

Validity and Reliability Test

To ensure validity and reliability of the data that was collected, formulated survey

questionnaires were pre-to ten (10) employee-respondents to establish their validity

before they were administered to the respondents. The questionnaire were structured to

enhance the research objective. Further, the internal consistency of a measurement scale

is assessed by using Cronbach’s Alpha. It is generally recommended that if a

measurement scale having Cronbach’s value above 0.70 is acceptable as an internally

consistent scale so that further analysis can be possible. However, if the scale has a

coefficient alpha below .70, the scale should be examined for any sources of

measurement errors such as inadequate sampling of items, administration errors,

situational factors, sample characteristics, number of items, and theoretical errors in

developing a measurement scale (Gable & Wolf, 1993).

Table 2.

Variables Cronbach's Alpha

Financial Literacy 0.727

Investment Decision 0.766

This table shows that value of cronbach‘s alpha of variables is greater than 0.6 and for

financial literacy and investment decision value of cronbach‘s alpha is 0.727 and

0.766 respectively. So it is evident through statistical results that our instrument is

reliable to gauge the level of the financial literacy and factors influences their investment

decision.

Data Gathering Procedure

A survey questionnaire will be used to gather information. The questionnaire

consisted of the different questions relevant to the study, which were related to the

respondent’s level of financial literacy and influences their investment decisions. A brief

explanation about the research topic will be given. The researcher also understood that

people’s consciousness may also affect their honesty and effectiveness in answering the

survey, and so, the researchers gave people the option of being anonymous.

Research Locale

This study will be conducted in Ayala Land, Inc. which is located in Ayala Avenue,

Ayala Triangle, Makati City.

Statistical Treatment of Data

Responses to the questionnaires will be analyzed and interpreted using statistical

tools