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Section 6. Finance, money circulation and credit
Zvarych Marta, Banking University, Ukraine, Postgraduate student, E-mail: marta.zvarych@gmail.com
ANALYSIS OF HOUSEHOLDS' FINANCIAL SECURITY: METHODOLOGICAL APPROACH
Abstract: The article deals with approaches to analysis of financial security of households. Given the fact that the results of analysis of households' financial security are valuable while forming the landmarks of social and economic policy of the country, the methodological approach to such analysis is presented. Three phases of analysis are described, the system of indicators is considered, as well as analysis methods are distinguished.
Keywords: financial security, methodological approach, indicators, household well-being, household financial resources.
Introduction
Today's conditions of economic development shows that one ofthe priority tasks of each country is to ensure sustainable economic growth, and this process is impossible without permanent analysis, early detection and neutralization ofthreats to economic security.
The solution of complex tasks regarding ensuring economic security of the state is impossible without a comprehensive analysis of its functioning conditions. A separate task of such an analysis is the formation of certain tools for determining the level of economic security on the basis of complex criteria that allows quantitative assessment of the state's economic security dynamics and its main trends. Without this calculation and interpretation it is impossible to fully assess the condition of economic security [1, p.101]. The role of financial security in shaping the economic security of the country is perhaps one of the most important, since material goods of households is the decisive thing in formation of their financial security, and
its protection and multiplication are the basis for ensuring the material well-being of population.
Analysis of recent research and publications
A significant contribution to the study ofthe issues offinancial security has been made by such Ukrainian and foreign scholars as: Baranovsky O. I., Vorobyov M. Yu., Voroshilo V. V., Dragan O. O., Yermosh-enko M. M., Snishchenko R. G., Pidhomnyi O. M., Keren E. Dainen, Christian E. Weller, Amy B. Hel-burg, Robert S. Kerr. At the same time, it should be noted that despite the deeply investigated topic of financial security, mainly the strategy for managing the financial security of the state or enterprise is emphasized, but much less attention is paid to ensuring financial security of households. As far as household finances are concerned, foreign researchers generally use panel surveys as a basis for analyzing the financial stability of a given country's population.
The aim of the study
The aim of the research is to analyze world practices of defining households' security and to develop
methodological approach to households' financial security analysis from the government's perspective.
In general, ensuring financial security includes identification, prevention, neutralization and elimination of threats to the household's finance, as well as competent management of all factors that determine the welfare of a person.
This issue can be considered from two directions. On the one hand, the analysis ofhouseholds' financial security should take place at the macro level with the participation of policymakers and taken into account when forming the political priorities of the state by the central authorities. After all, without comprehensive analysis, appropriate forecasts and study of households' financial security, it is impossible to develop program documents, to make grounded plans for development of the economy and to choose the best options for management decisions.
At the same time, the emphasis should be made not on the previous actions, but on the basis of analysis results obtained to predict the likely consequences of the planned actions. On the other hand, analysis of households' financial security is important and relevant for the population itself, since it is not superfluous for any family to analyze its own financial situation, opportunities for saving and carry out a prediction for the future.
In the international financial environment the Genworth Index, developed by the insurance company, which despite its core business is engaged in an in-depth analysis of households' financial security not only in Europe but also in Latin America and Asia. The purpose of this project was to develop a single internationally relevant standardized indicator of consumer financial security. The Genworth Index has been developed to provide a clear and robust picture of households' general financial situations in the countries in which those households live [2].
The Genworth Index takes the ratio of the percentage of people who are financially vulnerable relative to the percentage of those who are financially secure. The score ranges from 0 to 100, with a low
score indicating financial vulnerability and a high score indicating financial security.
Based on their responses, households are categorised in four ways:
- 'Financially Secure' - have rarely experienced financial difficulties and expect their financial situation to improve.
- 'Circumspect' - have rarely experienced difficulties, if at all, and who expect their situation to remain the same or get worse.
- 'Strivers' - have experienced financial difficulties relatively frequently but who are now expecting their situation to improve.
- 'Financially Vulnerable' - have been experiencing financial difficulties often or all the time and who feel that their situation is unlikely to improve.
With almost four-out-of-ten Chinese households classed as financially secure, China has reported the highest levels of financial security ever recorded in any country over the five years of the Index. When looking ahead, cost of living features among the top three concerns for households in all of the European countries, apart from Norway, as well as level of income from work and job security.
There is one more project proposed by Consumer Financial Protection Bureau of USA for measuring individual financial well-being [3]. Combined with a review of research and consultation with leading experts, the CFPB found that financial well-being includes the following elements:
- having control over one's finances in terms of being able to pay bills on time, not having unmanageable debt, and being able to make ends meet;
- having a financial "cushion" against unexpected expenses and emergencies -having a capacity to absorb a financial shock;
- having financial goals - such as paying off one's student loans within a certain number of years or saving a particular amount towards one's retirement -and being on track to meet those financial goals;
- being able to make choices that allow one to enj oy life - such as taking a vacation, enj oying a meal
out now and then, going back to school to pursue an advanced degree, or working less to spend more time with family.
We believe that both described above methods are valuable and provide informative results, but the organization of such a study requires significant expenditures, as the survey must be conducted by a special research center or agency, and the processing of questionnaires takes a long period of time.
We proposed a methodological approach to the analysis of households' financial security from the position of policymakers, given the fact that the results of such analysis are valuable while forming the landmarks of social and economic policy of the country. Thus, when considering the level of households' financial security, first of all it is necessary to determine the phases of analysis and their consistency (Figure 1).
Figure 1. Sequence of methodological analysis of households' financial security The purpose of households' financial security holds, identify threats to their financial security and analysis is to study the financial condition of house- find reserves for its improvement.
Based on the goal the following analysis tasks may be distinguished:
- scientific substantiation of trends at the micro level of the economic system;
- research on household finances, their behavior in the market, assessment of available resources and possible reserves;
- search for options for improving the welfare of population;
- assessment of the results of the fiscal, budgetary policy of the state, stability of the financial and credit system (banking and non-bank financial institutions), rate of the credit, deposit and stock market development;
- search for reserves to increase households' financial security based on the study of foreign experience and advanced research in the field of household finance.
The object of analysis is the result of households' financial activities and the result of the whole state in the financial sphere, namely: average monthly wages, minimum wage, GDP per capita, household income and expenditure structure, savings, etc.
The subject of analysis is the reason for changing the level of households' financial security.
Among the analysis methods the following traditional methods of economic statistics should be mentioned: comparison method, graphical method, balance method, method of analytical groupings, tabular method and others, which should be used in collecting and processing information, conducting analysis of changes in economic environment.
Mathematical and statistical methods are equally relevant for analyzing relationships, among which are: index, correlation, regression, dispersion analysis. These methods should be applied at the stage of analytical work, in particular when factor analysis is conducted. This may enable to identify the influence of the main factors on the resultant one.
Logical (heuristic) methods (questionnaires, expert assessments, situational analysis and forecasting) should be used in conducting sociological
surveys, interviewing, expert analysis, in developing forecasts. It is advisable to do this when there is no reliable statistical information or when it is necessary to study the subjective opinion of respondents.
The analysis requires the development and implementation of a number of indicators that provides a comprehensive assessment of the level ofhouseholds' financial security, its dynamics, as well as the search for possible reserves to increase the financial security effectiveness. However, precisely the threshold values of these indicators are valuable because they are the limit values, and non-compliance with these values prevents the normal development of system elements and leads to formation of negative, devastating tendencies in economic development. The approach to the limit indicators signals about an increase of threats to the financial stability of the entity, and exceeding the threshold values indicates about the undermining of financial security [4, p. 19].
The quantitative expression of the indicators of financial security level allows to notice the negative influence factors and threats in advance and indicates the need for preventive actions to neutralize them (Table 1).
Considerable importance should be attached to the information provision of the analysis, since it includes such sources of information as: legal acts, statistics and reporting data gathered by research institutes, accounting data of enterprises and organizations.
The next phase of analysis involves information collection, its statistical processing and generalization. It is advisable to use modern computer programs such as Microsoft Excel, Statistica, SPSS, SAS, Statgraphics, Minitab, Systat, StatPlus, etc. to process the collected information materials. The established system of indicators should be calculated and analyzed, the properties and characteristics of households' financial security should be determined. In addition, logical patterns that affect the studied object may be set, as well as benefits and vulnerabilities that may appear under the influence of various factors can be searched.
Table 1. - System of indicators of households' security level
Indicators of financial backing level of population Indicators of unemployment Indicators of poverty Indicators of financial literacy
GDP per capita, household final consumption expenditure per capita, income per capita, the volume of all deposits of population, pension fund volume, structure of the money income and expenditure of households, national minimum wage and national living wage rates. Economically active population, economic activity rate, the number of employed persons, employment rate, the number of unemployed persons, unemployment rate, migration flows data, informal employment, rationality of labor resources use. The quality of life index, the human development index, the human capital index, population viability, the index of human potential development, housing, social services, transport, communication and health care provision, the level of absolute and relative poverty, the Gini coefficient. The education index, index of intellectual potential of society, number of people with higher education, level of basic financial knowledge and skills.
For the final stage the summary is made, results of analysis are demonstrated, the level of financial security and its effectiveness is assessed. Preparation of conclusions and development of proposals for increasing the level of households' financial security is equally important.
Conclusions
The analysis of literary resources on the subject of the study gives grounds to argue that there is no single approach and methodology for analyzing the
level of households' financial security. Therefore, we propose to apply a methodological analysis consisting of three consecutive phases: preparatory phase, main phase and final phase. It is necessary to take into account the specified system of indicators, which enables a detailed interpretation of analysis results.
The application of the described approach allows to make an adequate assessment of households' financial security and observe certain regularities in changing the indicators of population welfare.
References:
1. Melnyk S. I. "Methodical approaches to evaluation of the level of the state's economic security". Scientific bulletin of Lviv State University of Internal Affairs,- vol. 2. 2013.- P. 101-108.
2. The official website of the University of Bristol. "Genworth Index: Measuring Consumer Financial Security and Vulnerability". URL: https://www.bristol.ac.uk/media-library/sites/geography/migrated/ documents/pfrc1307.pdf
3. The official website of the Consumer Financial Protection Bureau of USA. "Measuring financial well-being: A guide to using the CFPB Financial Well-Being Scale". URL: https://www.consumerfinance. gov/data-research/research-reports/financial-well-being-scale/
4. Ghasanov S. S., Puhachova M. V., Yashchenko L. O. "Scientific and methodological principles of the statistical analysis of public finances sustainability". Academy of Financial Management, Kyiv, 2013.524 p.
