The Influence Of Financial Literacy On Financial Behavior Of Working Millennials

Millennials, also known as generation Y, are individuals born in the early 80s to mid-90s particularly from 1981 to 1996 (Pew Research Center, 2018). According to an article in Live Science (Main, 2017), millennials are regarded as more open-minded, self-expressive, and receptive to new ideas; however, they are also regarded as lazy, narcissistic, and have unrealistic expectations on their career. Millennials also make up majority of the population, and the way they handle money may have an impact on future business leaders.

Millennials have a different way of handling their finances compared to older generations. As stated by Charles Schwab (n. d. ) in an article on CNBC, millennials spend more on comforts and conveniences such as taxis, fancy restaurants, and trendy clothes (as cited in Elkins, 2017). They prefer access than ownership meaning they would rather indulge money on vacations, and other things they do not necessarily need (Reese, 2018). It may be because of these unnecessary purchases that some millennials may drown in debt. Debt is unavoidable in the case of mortgages and student loans, especially in the United States. It is cited in GenFKD. org (Montes, 2017) that millennials are more in debt than previous generations, with 45 percent having at least one long-term loan. According to Student Loan Hero (2017), “Americans owe over $1. 4 trillion in student loan debt, spread out among 44 million borrowers” (as cited by Cheng, 2018, para. 10). They are also found to lean towards alternative financial services such as payday loan stores and pawn shops just to get by. Despite having huge debts, millennials still do not seem to practice proper financial management.

Dave Ramsey, an American businessman and author, believes that financial management depends on the behavior more than it does on the knowledge. The behavior of an individual towards money is essential to their financial standing. In that note, many people are still unable to handle their finances effectively. This may be true in the case of the millennials.

An article in iMoney Philippines (Adrian, 2017) stated that millennials compose one-third of the Philippines’ general population, and compared to the previous generations, they are the most educated; however, millennials are still amateurs in managing their own finances. It seems that millennials lack the financial literacy to make sound financial decisions. National Financial Educators Council (n. d. , para. 1) defined financial literacy as, “possessing skills and knowledge on financial matters to confidently take effective action that best fulfill an individual’s personal, family, and global community goals. " Edmund C. Lee stated in 2017 that 41 percent of Filipino millennials are financially illiterate meaning they do not know how to save money, do not know how inflation, stocks, and other financial concepts work. Less than one percent of Filipinos invest in stock market, making the Philippines one of the countries with the lowest financial literacy rate in the world.

Financial Literacy and Behavior of Millenials

Seeing that millennials compose the majority of today’s workforce, this lack of financial literacy may pose a tremendous problem to the economy in the future. Instead of seeking professional help from financial advisors, millennials tend to seek financial information on social media. People do not want to ask for help because they feel embarrassed, which is known as the hiya factor in the Filipino culture. Due to their hesitance to seek help, they may become unaware of their financial wellbeing. Millennials’ financial illiteracy may be a contributing factor to the unawareness of one’s financial wellbeing. This is why Vice President Leni Robredo believes that financial education can help reduce poverty.

According to an article in CNBC (Dickler, 2017), millennials are not as financially knowledgeable as they think they are. They often overestimate their own knowledge and capabilities, and engage themselves in circumstances in which their financial wellbeing is jeopardized. They often take on risks without equipping themselves with adequate information of the possible consequences. In an article in Catholic Vantage Financial (Hammond, n. d. ), Andrew Pepler (2015) discussed how financial illiteracy is a factor that causes anxiety among millennials. Millennials are worried about their finances, and this makes them anxious about other aspects of their life like their emotional wellbeing and their personal health. Financial illiteracy may be brought about by the fact that millennials are more preoccupied with other things such as keeping a stable job, courting a potential life partner, and making ends meet. It seems that they simply do not have the luxury of time to acquire appropriate financial knowledge. For financial literacy to be functional, it should reflect on one’s financial behavior defined financial behavior as “any human behavior that is relevant to money management. ” Financial behavior can be distinguished from consumer behavior in that financial behavior involves spending, investing, and saving, whereas consumer behavior focuses only on spending. Besides being financially illiterate, millennials also engage in risky financial behaviors such as short term investments and loans with high interests. Working millennials tend to save for now rather than later. In fact, millennials only save money to buy what they want, not what they need. Edmund C. Lee stated that 41 percent of millennials spend more on coffee than on savings. Poverty mentality is rampant among Filipinos; they believed that no matter how hard they work, their situation will never change (Rios, 2017). This mentality is dangerous because it hinders a person from improving.

Another factor that contributes to the bad spending habits of Filipinos is the culture. One bad trait of the Filipino culture is the tendency to ‘live life to the fullest’. Filipinos tend to think ‘I only live once so I’ve got to live my life’ then go to night-long parties every weekend and do impulsive shopping. Fiestas and celebrations are a big part of the Filipino culture, and Filipinos will do anything to follow through even if it means borrowing money. One big difference between the Western culture and the Filipino culture is their way of celebrating birthdays. In the Western culture, people make contributions to treat the celebrant; in contrast to the Filipino culture in which the celebrant will shoulder the expenses. Filipinos also have the tendency to envy others. Whenever they see a gadget or anything of the latest trend on their peers, they would do anything to acquire the same thing (Louren, 2018).

Financial Literacy and Behavior of Millenials

In an article on Get Real Philippines (ChinoF, 2012), another bad trait of the Filipino culture is the emotionalism; Filipinos often spend based on their emotion rather than their knowledge. For example, Filipinos would treat themselves because they think ‘they deserve it’ after a stressful situation. They do not keep in mind the possible consequences they might reap. According to Randell Tiongson (n. d. ), Asian countries such as China, Singapore, Thailand, and Malaysia have an average consumer’s saving of about 30 percent in comparison to the average savings of Filipino households that do not even reach 10 percent of their total income. This is quite alarming, and makes them prone to sudden economic crisis (Humarang, 2015).

In the preceding pages, it is stated that millennials lack the discipline in managing their personal finances. They may have the money, but they do not possess the proper spending knowledge. In a situational context, millennials have the mindset of choosing fun over their financial responsibilities. They prefer to spend their money on vacations, luxurious items and expensive meals rather than on insurances and investments. Millennials also have the tendency to use their credit cards online such as in-app purchases. The thing is, millennials cannot seem to set limits regarding their concept of spending. They prefer to use their salary on luxuries instead of paying their previous loans or debts. In a national context, Filipinos have this habit of borrowing money to pay off other debts instead of earning it. This may be the result of lack of information needed to make responsible choices.