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Section 7. Economics and management
https://doi.org/10.29013/ESR-21-9.10-35-40
Vanishvili Merab Mixailovich, PhD in Economics, Affiliate Professor, Georgian Technical University, Georgia E-mail: merabvanishvili@yahoo.com Kokashvili Nanuli, PhD in Economics, Associate Professor Gori State Teaching University, Georgia E-mail: nanulikokashvili@gmail.com
Osadze Lali,
PhD in Economics, Associate Professor Gori State Teaching University, Georgia E-mail: l.osadze@gmail.com
THE SAVING CULTURE AND FINANCIAL GOALS OF POPULATION IN GEORGIA
Abstract. In the present scientific article, based on the latest literary sources and rich factual data, such important issues of financial education as the culture of population saving and financial goals are discussed.
The research has established that interest-free loan from friends and bank loan prove to be the most widely-used loan sources by the Georgian respondents, with 42% of people borrowing interest-free from a friend, and 39% borrowing from a bank. In terms of popularly, bank loan is followed by pawnshop loan (18%), payday loan (12%), and MFI loan (11%).
The research also revealed that 57% of the population has at least one financial goal, while 41% does not set financial goals at all. It is noteworthy that most of the population is concerned with meeting immediate, indispensable expenses and is not likely to set longterm or high-cost goals; the most widespread financial goals for the Georgian population are: covering current loan liabilities (28%), buying food (25%), and paying for utilities (24%).
The data obtained through this research is highly useful for setting approximate baseline and benchmarks within the frames of the National Strategy for Financial Education, and for developing financial literacy programs.
Keywords: Financial Education, Financial literacy, Financial well-being, Financial Decisionmaking, Financial Stability, Culture of Saving, Financial Goal.
Introductions: In recent years, Financial literacy has been widely recognized as an essential skill for financial well-being. Therefore, questions related to financial education take an increasingly central part of policy discussions globally. Georgia is no exception to this development; financial literacy is understood as a prerequisite for sound financial decisionmaking, and financially literate individuals are seen as informed consumers, contributing to overall financial stability.
Ofparticular importance among the results of financial education is the culture of saving and financial goals of the population. This scientific article is dedicated to the study of this issue.
Within the framework of the research, 1100 respondents (age: 18+) were interviewed by face-to-face survey method across the country. A stratified cluster sampling method was used used. The selection was made according to the regions and the type of settlement. Sampling points were selected in proportion to the population; adults were randomly selected in households based on the „last birthday principle (adults who had the birthday most recently were chosen as respondents). The fieldwork was conducted between April 1 and April 25, 2020.
In addition to basic frequency analysis, this research includes factorial analysis and the statistical analysis using the Affinity Index.
Results and discussion: The research revealed that, during the last year, 37.9% of the respondents saved money in some way, and for this purpose, they addressed 1.7 loan sources on average. 23.4% of the respondents have not saved money at all during the last year. 28.1% of the population saves money at home, 13.8% gives money to a family member for saving, 9.8% builds up a balance of money in their current account, 7% is paying money into a saving account, while 6.8% saves in informal way, e.g. plays "lottery".
There is an important link between saving culture, on the one hand, and income and financial education levels on the other. Respondents with higher financial education and income levels save
more actively, and increasingly use more formal methods of saving.
Saving at home mostly characterizes the segment whose household monthly income is up to 550 GEL. The most active savers are those whose monthly household income is 901 GEL and up. Unsurprisingly, formal methods of saving, such as saving at a bank or saving by buying investment products (stocks, shares), are also linked with higher income.
It is likely that the lower-income segments mostly save smaller amounts of money and for shorter periods, which influences their decision to save money at home or with family members; in this case, money remains easily accessible.
Financial knowledge, as well as overall financial literacy scores are higher among those, who use formal saving methods, i.e. save by buying financial investment products, save money on a current account, or pay money into a savings account. It must be noted that due to the underdevelopment of capital markets and investment activities, saving money via investment products is not particularly widespread in Georgia.
Saving methods vary based on the employment status. In particular, the self-employed population mostly saves money on a current account, or by buying property, such as gold or livestock. Those in paid employment (excluding the self-employed segment) mostly save money on a current account, using informal methods of saving (e.g. playing "lottery"), buying investment products, or paying into a savings account. Saving money using formal methods is not particularly popular among housewives, retired persons, and those looking for a job. Retired population and those looking for a job most commonly save by giving their money to family members, while housewives typically save at home or using informal methods of saving.
It is interesting to analyze saving methods based on the respondents' occupation. Using financial investment products is the most popular among those in top management (incl., legislators and government officials). Specialist-professionals mostly save money on a current account and on a savings
account. Specialists and assistant professionals commonly save using informal methods of saving, such as playing the "lottery". Service and retail personnel, as well as craftsmen, save on a savings account and give money to family members for saving; however, unlike craftsmen, service and retail personnel have not been actively saving over the last year. Lastly, non-qualified workers mostly save by buying livestock, gold, or other property.
If we analyze saving habits based on how long a household would be able to meet its expenses without borrowing or changing standard living conditions (e.g. moving house) in case of income loss, we can see that the ability to withstand the loss of income is normally associated with good saving skills. 64% of those who state that they could withstand income loss from 3 to 6 months have been saving in some way over the past year. Those who state that they would be able to do so for less than one month have the poorest saving habits.
Having financial goals can be generally seen as a sign ofproper financial awareness, as well as mindful saving and spending habits. According to the study results, 57% of the Georgian population has at least one financial goal; by contrast, 41% of the surveyed audience has no financial goals at all.
The overall financial literacy score of the segment that has at least one financial goal equals to 62.1 (out of 100). By contrast, financial literacy score of the segment with no financial goals amounts to mere 54.5 points, suggesting, once again, that setting financial goals is associated with relatively high financial literacy.
The most widespread financial goals in Georgia are covering current loan liabilities (28%), buying food (25%), and paying for utilities (24%). This indicates that most of the population is concerned with meeting immediate, indispensable expenses and is not likely to set long-term or high-cost goals. The respondents also set the goals ofbuying or renovating a home (21%), buying a car (19%), and receiving education (16%). As it appears, starting a new business is not a very widespread financial goal in the country.
A typical person in Georgia has on average 2 financial goals. The number of financial goals is significantly above average in Kvemo Kartli, imereti and Samegrelo, and very low in Adjara, Guria and Mtskheta-Mtianeti.
It is interesting that the number of financial goals does not vary by employment and gender parameter; however, there is a weak but negative correlation between the number of financial goals and age. More specifically, the higher the age of an individual, the lower the number of financial goals he/she has. 21% out of those who have at least one financial goal have undertaken no concrete actions to reach it. 31% of those with a financial goal cut back on spending, 22% looked for new/additional work, and only 15% prepared a plan of action to meet his/her financial goals. Further, 14% saved or invested money, and 12% identified a source of new credit.
From among the surveyed audience, those with at least one financial goal have undertaken on average 1 out of10 actions to meet their goal. In the regional profile, the number of actions undertaken for achieving financial goals is highest in in Kvemo Kartli - 1.8 actions and the lowest in Tbilisi - 1.2 actions.
There is a weak correlation of this variable with age; in particular, the number of actions undertaken is above average in 18-19 and 29-40 age group, and is significantly below average in 70+ age group.
To analyze thoroughly what the respondents with financial goals have in reality done in order to achieve their goals, the factorial analysis of their actions was performed. A simple frequency analysis provides us only with information on which actions are the most popular across the population; by contrast, factorial analysis helps find correlation between actions that people undertake, and interpret the results. Thus, the purpose of the factorial analysis is not to establish frequencies, but to study the nature of the respondents' behavior.
Within the frames of the factorial analysis of the actions undertaken in order to reach finan-
cial goals, 6 of the most popular actions in the (Table 1). Such grouping has quite an interpre-population were divided into 3 groups, or, factors table nature.
Table 1.- Factorial analysis of actions taken to achieve financial goals
Highlights 1st group: Weakened self financially 2nd group:Tried to generate more 3rd group: Became mobilized, made savings
Prepared an action plan .218 -.020 .554
Increased credit card or loan repayments .720 -.002 .134
Saved or invested money -.199 -.021 .739
Looked for new/different/additional work .079 .666 -.291
Identified a source of credit .068 -.779 -.368
Cut back on spending .462 .348 -.200
Something else, namely: Sold a personal belonging .640 -.021 -.026
The 1st group, or factor, created with factorial analysis ("Weakened self financially") unites those actions that result in limiting/weakening existing financial conditions of the respondent, in particular: increased credit card or loan repayments; Cut back on spending; sold a personal belonging. This grouping tells us that in order to achieve his/her financial goal, a person fully uses existing resources and makes adjustments in own financial conditions in order to release disposable financial resources for reaching financial goals.
The 3rd group created through factorial analysis ("Tried to generate more") unites the following two actions: prepared a plan of action, and saved or invested money. The third group has a "remedy searching" structure; a typical respondent in this group can make full use of existing resources for achieving his/ her financial goals without significantly altering current financial conditions. He/she develops an action plan and gradually puts aside some money in order to achieve own goals.
Lastly, the 2nd group consists of one action only: looked for new/different/additional work. This action differs significantly from those united under 1st and 3rd groups: while the respondents in the 1st and the 3rd groups distribute existing financial resources (even though these groups have different approaches),
the respondents in the 2nd group leave existing financial conditions intact and prefer to find a new job, as a new source of income, in order to reach their goals. It is noteworthy that the respondents in the 2nd group refuse to borrow in order to achieve financial goals.
To sum up, factorial analysis revealed the nature of actions undertaken by the respondents to reach financial goals, and divided the population with financial goals into three groups, or factors. However, this method of analysis does not tell us what fraction of the population belongs to each factor. To answer this question, we conducted a cluster analysis, which, in its turn, revealed, that almost half of the population (47%) is united in the 3rd group - "Became mobilized, made savings".
Those respondents who undertook actions weakening their current financial conditions/resources (increased credit card or loan repayments, cut back on spending, or sold a personal belonging) in order to achieve their financial goals, received the highest financial literacy scores by all three indicators: knowledge, behavior and attitude - in total, 13.4 points on a 21-point scale. Interestingly, the remaining two groups received identical financial behavior scores, yet different attitude, knowledge and the overall financial literacy scores (Table 2).
Table 2.- Clusters in the context of financial education
Knowledge Behavior Attitudes Financial lit-
Clusters score Score score eracy score
(max: 7) (max: 9) (max: 5) (max: 21)
Weakened self financially
Increased credit card or loan repayments Cut 4.9 5.5 3.0 12.4
back on spending Sold a personal belonging
Tried to generate more Looked for new/dif- 4.9 5.3 3.0 13.2
ferent/additional work
Became mobilized, made saving
Prepared a plan of action Saved or invested 4.7 5.3 2.8 12.3
money
Total (within the entire population) 4.5 5.0 2.8 12.3
Total (within those having a financial goal) 4.8 5.3 2.9 13.0
Conclusion: The research found, that interest-free loan from friends and bank loan prove to be the most widely-used loan sources by the Georgian respondents, with 42% of people borrowing interest-free from a friend, and 39% borrowing from a bank. In terms of popularly, bank loan is followed by pawnshop loan (18%), payday loan (12%), and MFI loan (11%). In general, middle-income households prove to be the most active borrowers, followed by higher-income households.4 Interest-free loan from a friend/family is the most popular amongst low- to middle-income respondents and thus, it is likely that such loans are predominately given in small amounts. It is noteworthy that none of the formal loan sources are particularly popular in the low-income segment (with monthly income of up to 550 GEL). Further, household loan exposure generally increases in proportion with the improvement of education levels,
employment, and economic status; to illustrate, 55% of those with university education, and 68% of the employed population have a loan in a household, while the same can only be said about 43% of those with incomplete secondary school education and 44% of the unemployed persons.
It is also interesting, that 57% of the population has at least one financial goal, while 41% does not set financial goals at all. The research revealed that the respondents with financial goals received higher financial literacy scores than the respondents without financial goals. It is noteworthy that most of the population is concerned with meeting immediate, indispensable expenses and is not likely to set long-term or high-cost goals; the most widespread financial goals for the Georgian population are: covering current loan liabilities (28%), buying food (25%), and paying for utilities (24%).
References:
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2. Hung A., Yoong J. and Brown E. Empowering Women through Financial Awareness and Education, OECD Working Papers on Finance, Insurance and Private Pensions,- No. 14. 2012. OECD Publishing, URL: http://dx.doi.org/10.1787/5k9d5v6kh56g-en
3. OECD/INFE (2012). High-level Principles on National Strategies for Financial Education.- URL: https://www.oecd.org/finance/financial-education/ OECD-INFE-Principles-National-Strategies-Fi-nancial-Education.pdf
4. OECD/INFE (2015). 2015 OECD/INFE Toolkit for Measuring Financial Literacy and Financial Inclusion, OECD, Paris.- URL: http: //www.oecd.org/daf/fin/financial-education/2015_OECD_INFE_ Toolkit_Measuring_Financial_Literacy.pdf
5. OECD/INFE (2016). OECD/INFE International Survey ofAdult Financial Literacy Competencies.-URL: http://www.oecd.org/daf/ fin/financial-education/OECD-INFE-International-Survey-of-Adult -FInancial-Literacy-Competencies.pdf
