Young Filipino Adults Are More Financially Literate, Study Shows
More often than not, the younger population has little to no access to banking services due to their limited credit history and the stringent requirements of financial institutions in the Philippines. Yet, quite surprisingly, this age group is the most financially literate compared to middle-aged and senior cohorts. This was revealed in a recent study by the Bangko Sentral ng Pilipinas (BSP).
Findings from the central bank showed young adults—or those 18 to 39 years old—scored the highest in terms of financial literacy at 0.742. Middle-aged individuals (40 to 59 years old) followed with 0.656, and senior citizens (60 years old and above) with 0.623.
ALSO READ
Why Are Filipino Consumers Spending More Money on Things They Don't Need?
Financial Adviser: 5 Smart Ways to Make Your Money Work for You
“Looking at the financial literacy index (FLI) scores for different demographic and economic factors and categories, we found that among the age cohorts, the young adult group recorded the highest financial literacy,” the BSP said in its report.
The study examines the financial state of households—covering both financial and non-financial assets, including income, savings, debts, investments, properties, and expenditures. The latest findings suggest the need for the country to ramp up its efforts to educate more people and households across various age groups, educational attainment levels, and economic classes. As cited by the BSP, having more income tends to influence financial literacy positively. In the same way, individuals who at least attained secondary education are found to “have higher financial knowledge and skills.”
Possessing better financial knowledge, young adults are seemingly more aware of their limits when it comes to spending, too. The study revealed that they are less likely to go beyond their annual income, and usually spend only less than or equal to what they earn every year. Middle-aged and senior individuals, on the other hand, are more likely to exceed their income.
“It is possible that the older age groups have larger expenses, such as food, [children's education], medicines, and other household consumption needs,” the BSP said.
Those with higher financial aptitude scores are perceived to be more diligent in terms of paying loans. Middle-aged individuals are less likely to have a loan-to-income ratio of below one compared to young adults. This may be attributed to how 40- to 59-year-olds often take out loans for larger purchases like homes, leading to greater loan-to-income ratios. Meanwhile, the central bank found that the age group, as well as senior citizens, are the only ones who have retirement or pension plans most of the time.
“We observe that many Filipino adults engage in savings, borrowings, and investment activities, but only a small number have pension plans and savings. These are also mostly mandatory retirement plans for public and private sector employees,” the BSP noted.
As for savings, the study found that young adults and middle-aged persons have deposit accounts with banks and other financial institutions. Only 66 percent of these respondents disclosed how much they have saved up.
“In terms of the average amount of savings, the senior age group has the highest average amount, followed by [the] middle-aged and young adult populations,” said the BSP. “The savings of seniors could include the lump sum payments they received when they retired, as well as their retirement benefits and savings made over the years.”
This apparent lack of priority in retirement planning and saving among the younger generation is concerning, especially since the country is shifting toward an aging population. According to the report, not only adults and their households would be affected if this continues, but the whole economy as well. So, for the BSP, the only way to move forward is by increasing and intensifying financial education programs to “help Filipino adults remain financially resilient even in their retirement years.” It points out how the changes in individuals' priorities and preferences, along with their financial and economic circumstances, can influence the way they approach money.
“We found that age and the life cycle matter in people’s financial behavior,” the report said. “Depending on the life stage they are in, people tend to exhibit more short-term or long-term behaviors.”
“Thus, such factors should be considered in the design of financial education programs to make them more effective and responsive to the needs of their target participants and learners,” it added.
Most importantly, the BSP highlights that financial literacy is key to making the Philippines more financially inclusive—a challenge it strives to address to this day, with close to half of the adult population still deprived of access to traditional banking services. The total number of Filipinos with bank accounts in the country barely went over half (56 percent) as of 2021. Based on the same report from the BSP, only two percent of adults were able to answer all six basic financial literacy questions correctly. With more services, technologies, and programs emerging to cater to unbanked and underserved communities nationwide, the central bank is hopeful it can hit the 70-percent mark in overall financial inclusion this year.
“At the macro level, financial literacy can contribute to a more efficient allocation of financial resources in the economy, as well as greater financial stability,” the BSP emphasized. “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.”
