THE LEVEL OF FINANCIAL LITERACY OF MINIMUM WAGE EARNERS IN DAVAO CITY

An Undergraduate Thesis

Presented to the Faculty of the

College of Accounting Education

Submitted By:

Ricky James D. Dayot

Paolo Vic T. Elarcosa

John Carlou J. Perez

Katherine S. Uy

(14-026)

ABSTRACT

The government of the country still regulates the minimum wages in every region with different amounts in accord to the industry needs. The industries which are covered by the labor code law tend to adopt the constitution in paying of salaries or wages as compensation. There is a minimal amount of inducement to be legally provided with the approval of the authorized personnel. Generally, the intent of this study is to determine the level of Financial literacy of minimum wage earners in Davao City in spending strategies. In this regard, they may know more the functional tool of being aware about basic cash management. Through the use of scientific approach relevant in this thesis, financial management and decision-making theories applied, minimum wage earners parlance’ resources and the usage of questionnaires dealing with the concern of the respondents. This thesis seeks to improve the insufficient way of managing financial affairs of minimum earners in numerous ways for the betterment of wisely dealing cash funds. By raising awareness and understanding to the minimum wage earners. This aims to contribute sufficient and appropriate solutions to solve blind-minded individuals pertaining money against cognizant.

Keywords: Financial literacy, minimum wage earners, Davao City

Chapter 1

INTRODUCTION

Rationale of the Study

It has been observed that more individuals when it comes to money are

accountable of their own financial security and confronting, for the enhancement of

understanding as to economic phenomema, with ever more complex financial

mechanisms. Individuals, nowadays, are facing in a circulation of newly outsourced

investment products and the financial markets burst out its complexity..

There are now an expansion beyond national borders on the opportunities in

investment, allowing individuals in a broad range of assets and currencies to invest.

Though, as the financial crisis has made clear, it becomes very hard to navigate this

type of financial system, and the consequences of mistakes can be devastating. The

need to decide, economically, must have an understanding about financial matters.

The results of an improved saving behavior and decision making, is because of having

a programs on financial education, much can be done to improve these programs'

effectiveness (NBER, 2008). According to Alan Greenspan (2010, para. 2), “The

generation and economic problem today is then said to be due to unaware about

financials.

Financial education plays a key role in improving the lives of individuals.

Financial Planning has become not just a convenience but also an essential survival

tool. Contextually, the standard of living does not matter but it is somehow and

somewhat strategic techniques on knowledgeable individuals persist and endeavor in

the accurate way of everyday living (Jacob, 2000).

In the records of Department of Labor and Employment, there is a variety of

numbers of Minimum Wage Earners in Davao City, which includes salesperson,

construction workers, security guards, and other low-income earners. These earners

need to learn about broad definition of money on every errand for their guidance.

People are usually guided as to their attempts to budget, to outlay or to save their

money up to the utmost financial management (IFAC, December 2012).

Very few low-income earners elect to take a course that will improve financial

literacy and after all, people cannot be constrained to sit down and concentrate long

enough to learn what they must know to look out for themselves (Dr. Mandell, 1999).

The study regarding low-income earners shows how knowledgeable and

functional they are in the future choices and decisions on managing money. The

continuous involvement of minimum wage earners on their ability to make economic

financial decisions pertaining money affairs caught the attention of the researchers to

conduct a study. This eagerly induces researchers to enlighten and to aware their

minds about the monetary refinement of minimum wage earners as their bases for

future economic actions.

OBJECTIVE OF THE STUDY

This study determined the level of Financial literacy of Minimum Wage

earners in Davao City for spending strategies.

Specifically, this study sought to arrive at the following objectives:

1. To determine the characteristics of minimum wage earners according to:

1.1 Sex

1.2 Educational Attainment

1.3 Civil Status

2. To find out the level of financial literacy of the Minimum Wage Earners in

Davao City in terms of:

2.1 Budgeting

2.2 Saving

2.3 Investing

3. To find out the significant difference of the financial literacy of Minimum

Wage Earners when analyzed according to their characteristics.

Statement of Hypothesis

Ho: There is no significant difference in the level of financial literacy of Minimum

Wage Earners when analyzed according to their characteristics.

Significance of the Study

This study provided information on the Minimum Wage Earners knowledge

about economic matters in Davao City as the basis for spending strategies. This study

will benefit the following:

Municipality of Davao. The City Hall’s office will use this information as the basis

for setting the minimum payroll for Davao Minimum Wage Earners.

Construction Workers. The result will provide information to get more money from

their small earnings, which includes spending strategies.

Security Guards. The findings will give guidance to secure their funds in disbursing.

Salesperson. The study will guide and inform this earner in managing financial

affairs.

DEFINITION OF TERMS

The following are the definitions used in this study:

Budgeting. A plan for how much money you have and how much money you spend.

COLA (Cost of Living Allowance). It is an adjustment on wages, for the changes in

the cost of living, to create economic balance.

Davao City.  It is a city in Mindanao, Philippines and grouped, but governed

independently, with the province of Davao del Sur. The city covers about 182

barangays in totality, composing 11 administrative districts under three congressional

districts in all.

Economic Decisions. A decision that depends on the economy that is currently in

place.

Financial Literacy. It is the possession of knowledge necessary to understand

concepts related to money; refers to the ability of individual, for an effective judgment

about the usage and managing of their money, to make informed and effective

decisions.

Investing. It is a commission of money or capital in order to acquire a financial

return; to spend for future advantage and devote for benefit.

Investment. It is related to saving and deferring consumption; an act of putting

money, usually over a longer term, into something with the expectation to gain in

return of the invested amount.

Minimum Wage Earners. Individuals, employees or workers receiving the lowest or

minimum wage fixed by legal authority or by contract as the least.

Monetary Matters. It is something in which money is concerned, such as financing,

budgeting or saving.

Savings. A detailed plan to be use as a guideline for spending and saving of future

earnings and expenses.

Chapter 2

Review of Related Literature

Related Literatures

Through reading of literature and studies, this research has something to put

up in the present study. This covers the discussions regarding Minimum Wage

Earners, financial education on budgeting, saving, and investing, investment strategies

and economic decisions.

Minimum Wage Earners. Since the seminal work of Stigler on 1946,

economists know that the minimum wage can have a positive impact on employment.

For a longer period, it has been known that the minimum wage can have a negative

impact on employment (Benjamin et. al, 2012).

The Operation HOPE, Inc., A Global Fleader for Financial Dignity (2007)

published its mission, for the empowerment of wealth-less, on eradicating poverty in a

way of establishing “silver rights” or the right to financial literacy. The mission in

expanding the economic opportunity for the uninformed communities gives

betterment of the financially viable quality of life for individuals, families and

communities.

Wages and salaries are the compensation of the workers equivalent to their

work rendered.  While business owners and workers are allowed to have a stipulation

on the amounts to be considered as salaries, these must not be then lower than the

minimum wage set by the Regional Tripartite Wages and Productivity Boards

(RTWPBs) in the Philippines. In the records of National Wages and Productivity

Commission under Region X1, provides integration under W.O. No. 16 into the basic

wage of the P15.00 COLA; and a new COLA of P15.00/day trenching P5.00 upon

effectivity and P10.00 effective May 1, 2012. Thus, the daily income before of

P286.00 Basic Minimum Wage Rates/day plus its New COLA as per wage order

totaling P301.00 is the new stipulated rate of a low-income garner can have.

Financial Literacy. The Australia and New Zealand Banking Group Limited

(ANZ) in its survey defines financial literacy as the capacity to make effective

decisions from its core informed judgements regarding the use of money and

managing it(2008, p. 6).

Early evaluations noted by Douglas Bernheim and a series of co-authors, he

suggest that the increasing participation in planned savings shall have a workplace

financial education initiatives (Bayer, Bernheim, Scholz, 1996; Bernheim, Garrett,

2003), while adult propensity to save has increased significantly in financial education

(Bernheim, Garrett, Maki, 2001). Moreover, the publication of Jumpstart Coalition

(2012) stated that the more education one has, the more his or her average income

goes up.

Experience and understanding is the basis of knowing how, with some

definitions merely requiring familiarity. Still others, such as stated by Mandell (2007)

and Lusardi and Tufano (2008), emphasize a judgment and decision-making aspect of

financial literacy. Lusardi and Tufano also focus under debt literacy as one of the

specific form of financial literacy. Moore (2003) goes so far as one basis in providing

an increased level of knowledge and other aspects of financial literacy is the practical

experiences obtain by an individual.

However, consumers often think that they know more than they actually do

(OECD, 2005) – a common concluding acts that has been demonstrated not just

concerning about money, but in the range of knowledge and abilities as well across its

course (Alba & Hutchinson, 2000; Yates, 1990; Lichtenstein, Fischhoff, & Phillips,

1982).

Finally, Lusardi and Mitchell noted that some studies, as a component of

financial literacy tests, have explicitly included numeracy (Lusardi & Mitchell, 2007a,

2007b; ANZ Bank, 2008; NCEE, 1999). As explained considering numeracy relating

to and in support of financial literacy, or basic number skill (Lipkus, Samsa, &Rimer,

2001; Peters et al., 2006), to be a distinct construction of financial capabilities.

Budgeting. Budgeting plays a biggest key in managing well the money as

discussed by Caldwell in its article. Caldwell added that many people, even just a

simple term budget, are often turned off. However, budgeting can actually save you

money, and allow you to have more to spend by helping you to make the most of your

money. (Caldwell, 2013)

In a wiseGEEK article, mentioned that oftentimes, flexibility is the means to a

succession on a well-budgeted and accounting of money matters. Payment of those

bills should be an inflexible element due to some certainty of expenses which are

fixed in amount. Furthermore, it added that money allocated for one purpose could

not be reallocated or another if flexible budgeting is improperly used or never have

been implemented.

 Jeremy Vohwinkle (2012) suggested creating a budget; take control of the

money so that it does not control you.  He exerted also so as to spend too much

money on one expense may make a shortage on another expense, which would yield

results that are less than expected.

Saving.  According to Dustin (2011), improper planning to save money can be

the reason that makes the next generation could be worst if the generation previously

becomes unproductive and thus only the individual or small community scale are

working.  One generation saving money, factually, can’t undeniably make them better

off. Money, as explicitly stated by Dustin, is neither long-lasting good nor prosperity

of living in its broad sense.

In an article entitled How and Why to save a Money (2001), it expresses that

if you want to achieve a huge financial targets from just a small knowing of how and

why then saving money is essential to be observe. It was suggested in the article that

it is important for an individual’s financial resources to make their investments wisely

protected for the improvement of their financial security in future times.

Investing. In Daisy Slan and Veniayetta Aikens study, it shows that the more

you have to invest, the more money you are likely to end up having. Moreover,

Shamin Preeda insisted that proper investment planning is more likely to have any

chance of success in financial endeavors. The most important helping tool specified

by Shamin Preeda is to understand how economic finances works in order to have a

sound investment portfolio, and so thereby, individuals will be familiar what are the

various types of investing techniques.

In the article of Canadian Securities Administrators, it was stated that

everyone defines money indifferently with the others—personal freedom, the

individual's wants of life is one factor which senses of security or the ability to afford

the things. Having a proper and workable investment plan can help get where the

salaried individuals want to be. [Canadian Securities Administrators in an article

Investing Basics-Getting started, 3rd part]

Investment Strategies. In an annotation of The Independent Financial Portal

(Financial Web) stating that investment strategy, to ensure the succession of financial

goals satisfaction, deals with the overall long-term guidelines that sets up and attempt

to implement financial solutions.

Indifferent considerations on different background of individuals affects the

decision pertaining to investment strategiey. In deciding the investment strategy of the

investor during lifetime which is based on the financial periods, commonly utilize is

the 'life cycle approach' (“Investing your money,” 2003).

Economic Decisions. Since World War, economic theory of decision making

was considered the major paradigm in making decisions (Schoemaker, 1982;

according to Plous, 2002). David Ingram expresses that economic decision making is

the fundamental basis to individuals’ desire somehow, while minimizing costs, to

ensure the maximization of benefits. This balancing act is a skill that takes practice to

master, and is referred then as maximizing value. [David Ingram, Demand Media,

2012] Oftentimes, people usually want more things than they can afford. This forces

them to make economic judgements and decisions.

Hallerbach and Spronk (2003) emphasizes thoroughly in its study that most

financial-economic decisions made consciously, with unambigous and constant drive

to do “good”, “better” or even optimal decisions. Nevertheless, despite the availability

of financial economic theory, many decisions do not earn these type of qualifications

in practice which could be valuable in future judgements.

Theoretical Framework

The study was affixed in the research paper of Annamaria Lusardi and Dr.

Mandell (2009), National Financial Educators Council (NFEC), and Jumpstart

Coalition. This study was sustainably associated with the following theories:

Annamaria Lusardi (2007) stated that individuals need knowledge beyond the

fundamental financial concepts discussed above in order to make saving and

investment decisions competent. Furthermore, the relationship between risk and

return of money is the basis to strengthen individuals understanding. She noted that

basic knowledge is the objective of any designed policy to promote financial literacy.

The NFECs Financial Literacy Standards were developed to help individuals

achieve a state of financial capability and implement the learned money management

lessons in the 'real world' so as to provide then clearer steps. Through collaborative

efforts from the NFEC's team of educators, financial professional and community

leaders, these financial education standards represent the best practices in the

industry.

For personal economic well-being, the JumpStart Coalition asserts that

individuals should be able to take individual responsibility. They insisted that, broadly

speaking, person possessing financial capacity should know how to: find, evaluate,

and apply informative economy; set goals and plan financial affairs to achieve them;

enhance potential income-earning and saving abilities; use effective financial

services; meet financial obligations; and profound and protect wealth.

Level of Financial Literacy

Budgeting Saving Investing

Characteristics of Minimum Wage Earners:

Gender Civil Status Educational

Attainment

Conceptual Framework

The study is intended to establish the relationship between the individuality of

Minimum Wage Earners and the level of financial literacy as the basis for investment

strategies for future economic decisions. The Figure 1 below illustrates the

independent and dependent variables.

Figure 1. Conceptual Framework Showing the Variables of the Study

Chapter 3

METHOD

Presented in this chapter are the methods and procedures used in making this

research. It gives information about the device which is useful in the data gathering

and the statistical tools used for the analysis and interpretation of the data being

gathered.

Research Design

This study will use descriptive quantitative method to assess the level of

financial literacy of minimum wage earners in Davao City. Descriptive research that

are going on or trends that are evident in an opinions held in processes, is concerned

with conditions, practices, structures, differences or relationships that exist (Best

1970).

Research Respondent

The 40 respondents of the research were the minimum wage earners in Davao

City with 2012 barely minimal monthly earnings. These earners will be organized

according to the factors affecting their financial literacy level.

Research Instrument

A modified questionnaire, adopted form the study of a certain researcher, was

used in collecting the data. The first part of the instrument used is the profile

background of the respondents and the second part is their level of financial literacy

under budgeting, saving and investing. It is composed of five questions in each

independent financial aspect that will be answerable by level of frequency and if it is

not attainable it will be treated as blank.

Research Procedures

Data Gathering. The sampling plan will include the sample of 40 minimum

wage earners, with different kind of jobs, in Davao City.

Suitable questions modified from related research was used in creating the

survey and individual questions will be formed. The survey will be comprised

of 15 questions in totality, which will be related to the respondent’s

knowledge about financial matters.

The confidentiality of the respondent’s survey was assured. We will be giving

them the option of being anonymous in an understanding that people’s

consciousness may hinder the answering of survey.

After the researchers have gathered the data, Likert scale was used in the

questionnaire to determine the respondents’ behavior in a subject matter

provided and to determine the level of their financial literacy.

The data gathered will be analyzed using the scaling below.

Figure 2. Data Interpretation Scale

Range Level Interpretation

0-1 Very Low Financially illiterate

1.1-2 Low Below Average in Financial Literacy

2.1-3 Moderate Average in Financial Literacy

3.1-4 High Above Average in Financial Literacy

4.1-5 Very High Financially Literate

Statistical Tools

Treatment of Data. The following statistical tools was used in the

computation of data.

1. Percentage/Frequency. This was used to identify the ratio of characteristics of

the Minimum Wage Earners in Davao City in terms of sex, educational

attainment and civil status.

2. Mean. This was used to determine the financial practices and applications of

the Minimum Wage Earners in terms of budgeting, saving and investing.

3. Analysis of Variance (ANOVA). This was adopted to test the

hypothesesdeveloped in this study. Moreover, this was used in identifying the

significant difference of the level of financial literacy of the Minimum Wage

Earners.

4. T-test. This was used to measure the significant difference in the level of

financial literacy by Sex, Educational Attainment and Civil Status.

Chapter 4

RESULTS AND DISCUSSIONS

The study’s population is composed of minimum wage earners in Davao City.

There are 40 respondents with three different characteristics. The table below

summarizes the gender, educational attainment and civil status of the respondents and

its respective percentages.

Table 1 Frequency Distribution of RespondentsDescriptive Value Frequency Percentage

SexMale 21 52.5FemaleTotal

1940

47.5100

Educational Attainment

Elementary Graduate 2 5High School Graduate 16 40College Graduate 22 55Total 40 100

Civil Status

Single 20 50Married 20 50Total 40 100

The table exemplifies that the population of the male respondents acquired

more than half of the entirety with the ratio of 52.5:47.5 as to sex. The table illustrated

also that the college graduates dominated the total respondents which represents 55%

of the totality. High school graduates comprise 40% and elementary graduates

resulted to a 5% of the population under the educational attainment variable. The table

shows above, when analyzed by their civil status, that the population of the single and

married respondents got the same percentage showing a ratio of 50%:50%.

Table 2.1 Level of Financial Literacy in terms of BudgetingItem Statement Mean Descriptive LevelHow frequent are you budgeting your labor-worked money? 4.13 Very High

Do you consider the benefits over cost? 3.80 HighDo you consider the value of the thing you buy? 4.20 Very HighDo you compare your previous expenses with the expenses in present? 3.60 High

Do you keep records of your income and expenses? 2.88 ModerateOverall 3.72 High

The table above shows the level of financial literacy of the minimum wage

earners in the field of budgeting, which is from moderate to very high under each item

statement thereupon. The following results indicate that the minimum wage earners

have an overall average or mean constituting 3.72 in totality which describes as high

in descriptive level in this field and practicing it at the same time.

Table 2.2 Level of Financial Literacy in terms of SavingItem Statement Mean Descriptive LevelAre you saving? 3.70 HighDo you properly spend your money every transaction? 3.83 HighDo you consider how much you saved and spent last month? 2.88 Moderate

Do you keep a record of all your daily savings regularly? 2.60 ModerateHow frequent are you saving than spending? 4.00 HighOverall 3.40 High

The table 2.2 shows the level of financial literacy of the minimum wage

earners in the field of saving which is from moderate to high under each item

statement on the specification above. The result signifies that they are saving their

money frequently as indicated above by its overall mean approximately 3.4 and

therefore resulting to an overall high in descriptive level of knowledge about this

field.

Table2.3 Level of Financial Literacy in terms of InvestingItem Statement Mean Descriptive LevelAre you aware of the business world? 3.45 HighHow frequent are you dealing with money management? 3.95 HighDo you make any business if in case you have extra money? 3.13 High

Do you properly manage the time and money? 3.53 HighDo you make decisions for future expenditures and savings? 3.95 High

Overall 3.60 High

The table 2.3 shows the level of financial literacy of the minimum wage

earners in terms of investing their idle or extra money. The results indicate that

though they are earning less or at the least, the respondents’ level of knowledge in this

field is high when analyzed in its mean approximating 3.6 of the overall item

statement thus minimum wage earners are knowledgeable when it comes to investing

money affairs.

Table3.1 Significance of the Difference in the Level of Financial Literacy of Minimum Wage Earners by Sex

Indicators Male Female F-Value P-Value Decision=Ho

Budgeting 3.81 3.62 0.72 0.4 AcceptSaving 3.29 3.53 1.39 0.246 Accept

Investing 3.47 3.75 1.7 0.201 AcceptOverall 3.52 3.63 0.42 0.52 Accept

The table 3.1 shows that the level of financial literacy of minimum wage

earners in terms of budgeting, saving and investing is considered to be high because

of the resulted overall analysis of data when analyzed by sex. In analyzing the data

using ANNOVA, the researchers always consider the P-Value in order to arrive at the

decision whether to accept or to reject the null hypothesis. Wherein the chance of

accepting the null hypothesis is always attainable under the independent variable

illustrated above.

Table3.2 Significance of the Difference in the Level of Financial Literacy of Minimum Wage Earners by Educational Attainment

Indicators F-Value P-Value Decision=HoElementary

GraduateHigh School

GraduateCollege

GraduateBudgeting 3.6 3.74 3.72 0.03 0.97 Accept

Saving 3.3 3.29 3.49 0.47 0.63 AcceptInvesting 3.3 3.43 3.75 1.29 0.29 AcceptOverall 3.4 3.48 3.65 0.57 0.57 Accept

The table 3.2 above shows a high level of financial literacy of the respondents

when analyzed according to educational attainment in each indicator. The overall

result thereby is the likelihood of accepting the null hypothesis. The probability of

getting 95% of correctness in the computational process under the P-Value is always

attainable in each aspects of financial literacy in the independent variable illustrated

above.

Table 3.3 Significance of the Difference in the Level of Financial Literacy ofMinimum Wage Earners by Civil Status

Indicators F-Value P-Value Decision=HoSingle Married

Budgeting 3.69 3.75 0.07 0.789 AcceptSaving 3.48 3.32 0.6 0.442 Accept

Investing 3.62 3.58 0.03 0.857 AcceptOverall 3.6 3.55 0.07 0.787 Accept

The table 3.3 shows above that the level of the minimum wage earners

financial literacy resulted to a high level of frequency after considering the data

gathered, using ANNOVA, under budgeting, saving and investing, when analyzed

according to civil status. The presumption herein is to accept although there is a

difference but it is not significant at all. The decision made to accept the null

hypothesis is greater than the approximate error set on the overall results illustrated

under the independent variable above.

Chapter 5

FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

Summary of Findings

The researchers had conducted a survey, composing five questions in each

dependent variable, to 40 minimum wage earners. The gathered data, with the use of

the research instrument, has been analyzed and interpreted to determine their level of

financial literacy.

1. Majority of the respondents were male and most of them were college

graduates. While the ratio between single and married respondents was noted

equally.

2. Using the Mean Deviation, the level of Financial literacy of the overall result

in the three independentvariables is high. The result therein indicates that their

knowledge in financial aspects is all above the average of the minimum wage

earners.

3. Using the ANOVA and the t-test approach, results showed that there is no

significant difference in the level of financial literacy of Minimum Wage

Earners when analyzed according to their profile, thus the null hypothesis is

accepted.

Conclusion

This research showed that though it has differences in totality, each

independent variable with respect to determining the level of financial literacy of the

minimum wage earners, this cannot be considered as significant at all. In addition, this

research shows that even though respondents earned within the minimum amount of

wages per day stipulated in the Regional Tripartite Wages and Productivity Boards

(RTWPBs), they still do budgeting, saving and investing intheir idle funds for future

spending.

Recommendations

In line of the findings and conclusions as the basis of the study, the following

recommendations were drawn by the researchers:

1. The Municipality of Davao should set the bases for the wages of Minimum

Wage Earners per day and they should make an additional amount of pesos for

the betterment of their spending strategies.

2. The minimum wage earners, such as Construction Workers, Security Guards

and Salesperson, should keep track on their daily recordings for their future

spending and expenditures strategy.