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Chapter 2REVIEW OF LITERATURE AND STUDIESThis chapter presents literature and studies written by local and foreign students which helped the researcher justify the viability of the chosen topic.A. Financial Literacy Mason and Wilson (2000) characterized financial literacy as a "significance...

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Chapter 2

REVIEW OF LITERATURE AND STUDIES

This chapter presents literature and studies written by local and foreign students which helped the researcher justify the viability of the chosen topic.

A. Financial Literacy Mason and Wilson (2000) characterized financial literacy as a "significance influencing process" in which people to utilize a mix of abilities, assets, and relevant learning to process data and settle on choices with information of the budgetary outcomes of that choice. Gallardo & Libot (2017) also mentioned that financial literacy refers to the awareness and knowledge of business and finance, financial capability, money management and financial planning, which is a vital tool for retirement preparedness. Financial literacy refers to percepts on awareness and knowledge of business and finance, including the difference of the financial products available in the market or by the different financial institutions. It includes the ability of the individual to make calculations on compound interest, management of finances and planning the financial resources. B. Importance of Financial Literacy According to Castro, Salamat & Tabor (2020), financial literacy is an important element in financial decision making and well-being, which may oraffect all areas of our lives. Poor knowledge on financial literacy, particularly among young adults, is a global problem. The findings suggest that young professionals should be guided not only by the financial experts

and advisors of financial institutions but this should be observed with the parents and be introduced in schools and universities to gain adequate knowledge on financial education. Also, results indicated financial education positively affects financial knowledge which in turn influence both financial attitude and behavior. Study shown that in terms of financial attitude the future and non-impulsiveness was important while in financial behavior expenditure monitoring and saving was critical. On any connections, no gender difference was noted. Creating financial education accessible as well as continuous change of attitude are recommended for immediate actions. Olima (2013), indicated that financial literacy impacts to a great extent on the financial management because financial education programs guide program development and refinement. The study findings indicate that generally financial literacy to a great extent affects personal financial management. Lusardi (2019) shows that the lack of financial literacy, even in some of the world's most well-developed financial markets, is of acute concern and needs immediate attention. The big three questions that were designed to measure financial literacy go a long way in identifying aggregate differences in financial knowledge and highlighting vulnerabilities within populations and across topics of interest, thereby facilitating the development of tailored programs. Young professionals take interest on investments such as stocks, life and health insurance, and other type of financial in depending on their short- and long-term goals and preferences. In the Philippine setting, financial companies are becoming way creative on how they acquire individual clients. Most offer good deals such as inclusions of investment and other personal assistances. There are also several factors that influence financial awareness of these young professionals. Some of which can be classified as social influences such as technology, social media, advertisements and peer influences.

Licera (2020) says in his blog that being financially literate is the first key to becoming financially successful. You don’t need a degree or a master’s in business studies just to be financially literate. Reading financial and investment blogs or books by those who are experts on the field is good way to start. You don’t need to worry about not being able to understand what they are talking about because these investment experts makes it a point that they make themselves comprehensive to the general public. Grit.ph says "For many young Filipino professionals and entrepreneurs, most especially in this era, it’s conventional wisdom to consider investments early. The time to think about investing is NOW. If you want a more secure and brighter future for yourself, you shouldn’t put investing on hold." They also gives steps on how to start investing: 1. Determine how much you can afford to invest; 2. Save up for your emergency fund; and 3. Put your money in low initial investment vehicles. Sanchez (n.d.), discussed in his blog about Golden Blessings, which he emphasizes the benefits and beauty of savings. He pinpoints what benefits and what will saving and investing brings to individual, and he also says that having knowledgeable when to invest and doing it means life easiness. C. Factors considered in differentiating financial literacy and invesment behaviors of individuals According to Mbarire (2014), level of financial literacy varies significantly among respondents based on various demographic and socio-economic factors. Similarly, sources of information & financial advice influence individuals’ level of financial literacy and investment choice decisions. Financial literacy level gets affected by gender, age, education, other wealth factors and sources of information & financial advice, whereas it does not get affected by occupation status, occupation type and personal income. Complicated financial products, low level of awareness and lack of knowledge about financial matters makes the want of financial literacy significant.

According to Hogarth (2002) people who are financially educated are: 1) proficient, taught, and educated on the issues of overseeing cash and resources, saving money, speculations, credit, protection, and expenses; 2) comprehend the essential ideas fundamental the administration of cash and resources; and 3) utilize that learning and comprehension to plan and execute money related choices. Mitchelle (2017) discussed that financial literacy survey shows that consumers in developed nations are poorly informed about financial products and services. This is troubling in that financial illiteracy may stunt people’s ability to save and invest for retirement. It is also concerning that these deficiencies are concentrated among particular population sub groups--those with low income and low education, minorities and women--- where being financially illiterate may render them most vulnerable to economic hardship in retirement. Kokkizil, et al. (2017) also indicated in their study that financial literacy patterns in developing countries are similar to developed countries. Women have lower financial literacy scores than men. Some of the gender gap seems to be due to lower income levels of females, but the gender gap persists even after controlling for personal income. Education is another important determinant of financial literacy. Individuals who have at most a primary education degree have lower, and individuals who have a university degree have higher financial literacy scores than those with a high school degree in all countries that we study. Again, the effects of education are still large and significant even after controlling for income and region of residence, albeit somewhat mitigated. Not being literate in the official language is an important impediment to financial literacy, the effect of which persists even when education is controlled for. One may think that not being literate in the official language presents an obstacle to financial inclusion as well. According to Fianza (2015), A person’s wellbeing is not solely determined by the dictates of his surroundings; it depends primarily on his/her decisions. Many programs have been created to promote financial literacy throughout the world. Some are spearheaded by national

governments and some by private entities. Most of them have the primary objective of promoting financial literacy as a way of achieving financial wellness and/or financial independence. The Philippine economy has been doing great for the past two years, represented by its stock index surpassing levels not most would expect. However, not everyone is happy because most claim that they do not feel the effects of a developing economy. Crisostomo, Padilla & Visda (2013), mentioned that in June 2009, a survey of the Social Weather Stations (SWS) reported that only one percent of Filipinos said that they owned any stock. Filipinos lack specific knowledge to make informed financial decisions... Money management habits formed in childhood stay into adulthood. Those who began saving as children display better attitudes to saving, and tend to outperform their counterpart group who did not develop the habit early in the areas of choosing financial products and services, monitoring expenses and planning for retirement,” - Bangko Sentral ng Pilipinas as cited on an article at Business World. Ramsey(2009), is one of the top financial writers out there. His book, Total Money Makeover, gives a 10 “baby-step” process in financing your finances well, which includes paying off debt, saving for an emergency fund, starting to invest, and other financial goals. It says that total money makeover makes a life makeover, because personal finance is 80 percent behavior and 20 percent knowledge, you will either make your life over in this process, or you will end up miserable. D. Investment preferences and habit Federova, et al. (2015) stated that financially literate investors participate proactively in the stock market, like in the study of Bhushan (2014) who also says that the respondents on their research that are included in high financial literacy group have higher awareness level for all financial products except

for post

office savings. Statistically significant difference in

awareness level has been found for bank fixed deposits, savings account, public provident fund, mutual funds, stock market investments and bonds. Having low financial literacy primarily

makes individual invest in traditional and safe financial products and do not invest much in those financial products which are comparatively riskier and can give higher returns. Thus, it can be said that financial literacy level affects awareness regarding financial products as well as investment preferences towards financial products. This clearly implies that due to low level of financial literacy, individuals invest their money in traditional financial products and are not able to take advantage of new age financial products which can offer them higher returns. Jagongo, et al. (2017) also indicated that the level of financial knowledge of an individual influence the investment decisions that they will make. The higher the financial knowledge of an individual, the better his investment decisions. Similarly, investment decisions can be affected by the gender of the investor. The age of the individual also affects his decision making when it comes to investments. Older people may think more of retirements than younger people, thus they may be more active in investments such as pension schemes and other retirement schemes. E. Investing decisions and financial literacy relationship Meyers (2020) discussed that formal education does not guarantee better financial knowledge acquisition among the students. There were personal finance students who scored below a passing grade, and the class did not outperform the other classes of students in all question dimensions. Formal education is not the only way to acquire financial knowledge, which presents an opportunity for all young adults to develop their personal finance skills through other means. Contrastly, Njehia (2014) concludes that most of the employees of Mumias Sugar Company were financially literate and this highly contributed to personal financial planning of employees. From findings of the study on credit and other liabilities, tax planning, and spending patterns respondents were "to a less extent‟ literate due to poor financial decisions. This can affect savings and financial stability or independence. The results indicate that in general, individuals need to be financially literate in order to make good

financial and investment decisions. Lusardi and Mitchell (n.d.) says that it is essential to provide basic financial education that allows people to better navigate an economic crisis. U.S. Federal Reserve Board Chairman Bernanke (2011: 2) has similarly opined: "In our dynamic and complex financial marketplace, financial education must be a lifelong pursuit that enables consumers of all ages and economic positions to stay attuned to changes in their financial needs and circumstances and to take advantage of products and services that best meet their goals. Well-informed consumers, who can serve as their own advocates, are one of the best lines of defense against the proliferation of financial products and services that are unsuitable, unnecessarily costly, or abusive." As cited on an article from National Economic Development Authority (NEDA), According to a study conducted by Philam Life, "96 percent of Filipinos are concerned about their own and their family’s health, however, only 16 percent of them are prepared to pay for medical costs in case they are diagnosed with a critical illness. There is a rising number of senior-dependents or those retirees who depend on their children for financial help, due to lack of financial education." Added also that "Financial planning teaches individuals to be responsible when it comes to their finances, and instills the discipline needed in order to keep track of their financial goals. Financial planning involves educating Filipinos on the different types of goals that they should set: short-term, medium-term, and long-term. Short-term goals involve monthly living expenses that need to be paid, or the person’s basic needs, including the setting-up of an emergency fund. In contrast, medium term goals are those you want to achieve in one to five years like buying a house or a car, while long term goals are those that take longer than five years to achieve." Aldovino, Pangilinan & Bermude (2013) looked into the financial literacy and financial management practices of permanent employees in a private university. Results showed that majority of the respondents were female, married, and master’s degree holder. In terms of their understanding, most respondents showed moderate and high literacy in saving and investment

while generally, they showed moderate literacy in credit. Their savings are normally kept in banks and other financial institutions within the university. Likewise, they prefer the financial services of the same for their financial needs over other means such as those offered by credit card companies and financial entities outside the university. Meanwhile, real estate is the most common investment among the employees. Meanwhile, significant relationship in financial literacy exists when respondents are grouped according to civil status. Imelda, Angeline, Gwendelina & Genalen (2017) said that in recent years, developed countries have become progressively more concerned about the level of financial literacy of their citizens. Strong interest in improving financial literacy has moved to the forefront of public policy concerns worldwide. It has become a key priority for global policymakers who realize the effect that individual financial decisions can have on national level as well as on global scale.

Synthesis of the Reviewed Literature and Studies The above mentioned literatures and studies played important role to this research, it serves as the framework and backbone to the study that researchers conducted. The literatures provided pre-informations and ideas which are going to be tested by this research. The literatures above will be the main source of this research especially to the instrument to be used. It is also help the researchers to identify if the hyphothesis is to accept or to reject....