Young adults more financially literate vs other age groups, BSP study shows

Young adults have higher financial literacy compared to other age groups, highlighting the need to educate more individuals and households across different ages, economic classes, and levels of educational attainment to allow them to be financially resilient and improve overall welfare, according to a Bangko Sentral ng Pilipinas (BSP) discussion paper.

The paper said young adults “display higher financial literacy than the middle-aged and senior cohorts.”

“Looking at the financial literacy index (FLI) scores for different demographic and economic factors and categories, we find that among the age cohorts, the young adult group recorded the highest financial literacy,” it said.

“We found that age and the life cycle matter in people’s financial behavior. Depending on the life stage they are in, people tend to exhibit more short-term or long-term behaviors,” it added.

The BSP’s 2021 Financial Inclusion Survey showed that only 2% percent of Filipinos were able to correctly answer all the six basic financial literacy questions.

“Equipping individuals and households with the necessary knowledge, skills, and ability to make informed financial decisions is crucial in ensuring their financial resilience and well-being. These, in turn, would lead to higher overall welfare,” the paper said.

“At the macro level, financial literacy can contribute to a more efficient allocation of financial resources in the economy and to greater financial stability. Financial literacy is also considered an essential component of financial inclusion.”

The study showed females have “slightly lower financial aptitude and overall financial literacy” versus males.

“Income and education are both positively related to financial literacy with the latter having a higher coefficient indicating that respondents with at least high school education have higher financial knowledge and skills,” it added.

The study showed that those with higher financial literacy are “less likely to spend less than or equal to their income.”

“Middle-aged individuals and senior age persons likewise appear to be less likely to spend within their income compared to young adults.”

Those with better financial aptitude scores are more likely to pay their loans on time, the paper said.

“Middle-aged persons are also less likely to have a loan- to-income ratio of less than one compared to the young adult group… In terms of loan payment, individuals with higher financial attitude scores are more likely to pay on time,” it added.

It was also found that individuals that are likely to have retirement or pension plans were those with higher financial aptitude and are middle-aged or seniors.

“Additionally, they are more likely to have insurance and other plans… We observe that many Filipino adults engage in savings, borrowing, and investment activities, but only a small number have pension plans and savings. These are also mostly the mandatory retirement plans for public and private sector employees,” it added.

The paper found there is still a need to enhance current financial education programs.

“Designing financial programs and interventions that aim at increasing financial literacy is important for developing and reinforcing positive financial behaviors. In the Philippines, significant strides have been made towards increasing and improving financial education,” it said.

“Given that the Philippines’ demographic is shifting toward an aging population, there is a need to increase and intensify financial education programs emphasizing retirement planning and saving. These programs could help Filipino adults remain financially resilient even in their retirement years.” — L.M.J.C. Jocson