This study aimed to establish a model that explains the personal financial practices of millennial students. Descriptive research design and exploratory method were used to examine and explored the factors behind the personal financial practices of 641 millennial students enrolled in Higher Education Institutions in Northern Mindanao, Philippines. Three adapted and content validated survey questionnaires were tested for internal consistency on the following: Financial Literacy indicated by financial knowledge, financial attitude, and financial behavior; financial socialization agents such as parents, peers, school and media; and the Personal Finance Practices. Multiple Linear Regression was used to treat the data and Structural Equation Modeling (SEM) was utilized to generate the model. Both the financial socialization agents and financial literacy impact the student’s personal finance practices. The study also developed a model that explained the personal finance practices of millennial students in terms financial literacy and socialization agents. Recommendations to the academic sector were presented to enrich curriculum on personal finance and for the institutions to reach out to parents for education considering them as significant providers of personal financial information to their children.
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In today’s financially challenged economy, billions of people are becoming unprepared to deal with the rapid changes in the financial landscape (Klapper, Lusardi, & Oudheusden, 2015). The quest for sound financial health requires skills necessary to efficiently and effectively manage money. As the younger generation opted to study in tertiary education which requires higher financial needs, they carry and make severe economic dilemma. The experiences of this generation in making a complex personal financial decision is considered as critically important to increase their financial literacy and to uplift them to a positive path towards financial security.
In the aftermath of the global financial crisis in 2008, financial literacy as a critical life skill for individuals has gained further international recognition (OECD INFE, 2012). In 2014, the S&P Global Financial Literacy Survey conducted showed that regardless of the country’s economic status, financial literacy of the general population of countries has become alarmingly low (Lusardi & Klapper, 2015). The 2015 World Bank’s Global Financial Literacy Survey also revealed that for every three (3) adults around the world, one (1) is financially illiterate. In the same survey, the Philippines ranked 112 among 143 countries surveyed resulting in a 25% literate adult Filipinos than the average 31% showing an understanding of basic financial concepts (Montecillo, 2015).
The Philippine statistics showed that one-third of its population is millennials or ages between 15 to 35 years old. Tetangco (2015) highlighted the importance of financial literacy for the Millennials as they are and will be moving to be key decision makers in business and industry. A study conducted among undergraduate students to different colleges and universities across the United States found out that majority of college students experience stress about their finances that suggested poor financial practices (Grabmier, 2015).
The facts indicated serious implication of dwelling less comfortable financial conditions in life resulting in mismanagement of finances. This study is strongly directed with the aim of establishing determinants that explains personal finance practices among students in Higher Education Institutions. Finding the best fit exploratory model for millennial student’s personal finance practices can contribute to the dearth of studies about millennial personal finance practices that may inform institutional decisions on policies that would enrich the college preparation of students on finances especially on personal finance practices.
Framework
Personal Finance Practices as the art of handling money involves all financial decisions and activities to manage well an individual’s financial resources. These includes: financial practices on budgeting, savings, spending, borrowing and repayment; financial literacy domains on knowledge, attitude and behavior; and financial socialization from parents, peers, school and media.
This study found substantial support from the following theories namely: Life Cycle Theory of Modigliani and Brumberg (1954), the 1997 Jumpstart Coalition’s concept on Financial Literacy, Mead's Theory of the Social Self (1934) and Albert Bandura’s Social Learning Theory (1977), Danes Model on Financial Socialization (1994), and Deacon-Firebaugh Input-output Family Resource Management Model (1988). These theories and models provided substantial theoretically grounding of this study.
Personal Finance Practices. Individuals go through financial life cycle just as in the natural life cycle (Gitman & Joehnk, 2008). These authors explained financial life cycle as they relate to the different life stages that an individual pass from one stage of maturation to the next and the patterns of managing income, budgets, assets, credit, insurance, retirement, home ownership, and investment also change. Stages of financial planning life cycle include from early childhood, when an individual relied on their parents for support, to early adulthood, when hired for the first jobs and when one starts a family there will be noticeable changes on the individual’s financial decision (Gitman & Joehnk, 2008).
The theory suggests that in an individual’s life cycle there is an intention to plan for future finances through wealth accumulation when earning and spend rabidly when retired but keeping consumption level in control to even out financial concerns in the best possible way (Hodges, 2013). Thus, in personal finance, managing financial resources of what is available to an individual and his family becomes a major concern; to improve their equity to be able to attain, maintain and sustain financial and personal independence and consequently to improve own and other’s life according is the next concern.
As individuals move through a life course, it seems reasonable to expect that personal finance practices, such as budgeting, savings, spending, borrowing and repayment would also change given that there will always be changes in financial resources and demands. A budget is like a roadmap for an individual’s finances and helps avoid unnecessary debt and make informed financial decisions to become wise spender, good credit manager, have ample saving for future use, funding for emergencies and lastly, prepare graduates to smart investment bringing them great wealth in return.
Savings as one of many financial strategies to wealth accumulation, prevents students from making costly mistakes and can contribute to a stable economy as productive citizen, sustain financial freedom (Tan, 2012) and to meet their future financial goals (Perez, 2017). Spending on the other hand is a universal matter among today’s college students. Students in private universities and community colleges spent for tuition, room, and board (Thaler and Sunstein, 2008). Additionally, students’ money can be spent on items that do not have enough importance in value. When their pocket money run out, they either take up part-time work or borrow from friends and family.
Borrowing is often view as student loans or a means of financing investment in human capital. This helps students acquire knowledge as well personal and social attributes. Borrowings may enhance the performance of students’ ability in the economy later and hence, gain higher earnings (Li, 2013). Acquiring debt to invest in a college education is commonly called good debt (Chopra, 2013). For the most college student, borrowing decision affects every subsequent financial management decision later in their lives.
Repayment. Increasing awareness of the importance to repay the loan among university students and the deepening of attitudes towards loan repayment is prevalent in many western societies over the past decades. As students experience delinquency during their college days, they consider loan repayment as burden and hindrance to the many life options after graduation. In this lifecycle, the emphasis is given to the contribution of financial literacy to a more informed personal finance practice and decisions.
Financial Literacy. Financial literacy is an emerging concept first championed by Jumpstart Coalition in its inaugural study on personal financial literacy among high school students (Hastings, Madrian & Skimmyhor, 2013). There is no uniformity among the financial literacy definitions. Potrich, Vieira & Mendes-Da-Silva (2016) defined financial literacy as the mastery of a set of knowledge, attitudes, and behaviors that assumed a fundamental role in allowing and enabling people to make responsible decisions as they strive to attain financial wellbeing. Marsh (2006) also segmented financial literacy into three domains which are the affective, behavioral and cognitive.
The affective domain refers to the individual’s attitude. Financial attitude is the application of financial principles to create and maintain value through decision making and proper resource management (Rajna, Ezat, Junid, & Moshiri, 2011). Thus, developing a regular pattern of saving, having written goals on what to spend, or being aware of one’s responsibility for their financial well-being are just among the manifestations of an appropriate financial attitude.
The behavioral domain likewise looks into the individual’s behavior on finances. This denotes how one behaves about personal financial matters. According to Xiao (2008), a financial behavior is a human behavior about money management. Among the desirable financial behaviors may include but not limited to keeping a record of daily and or monthly expenses, depositing savings, staying within the budget and making comparison of prices before purchase.
The cognitive domain refers to the individual’s knowledge. Knowledge is what information one knows about personal finance. Financial knowledge is a particular type of capital acquired in life through learning the ability to manage income, expenditure, and savings in a safe way (Delavande, Rohwedder & Willis, 2008). Knowledge about compound interest, risk and return, inflation, taxes, insurance and or bonds is some measures of financial knowledge.
According to Mahdzan and Tabiani (2013), increasing financial literacy help promote better financial decision-making for better planning and management of life events such as education, housing purchase, or retirement, a much more relevant issue among college students. The need of university student for a higher level of personal financial responsibility should also be taken into consideration With relevant financial instruction from Universities, still, students face more financial conjunction challenges as college students budget, pay their bills, save, borrow money, a budget for monthly expenses, work, and manage debt. Comparing levels of financial literacy across different determinants will make it possible to see which influence the millennials perform best and begin to identify effective strategies and good personal finance practices.
Financial Socialization Agents. Socialization as a process teaches people to be proficient members of society. It describes the ways that individual to be aware of societal values, come to understand societal norms and expectations and to accept society’s beliefs. Little, Scaramuzzo, Cody-Rydzewski, Griffiths, Strayer, Keirns, Ron & McGivern (2013) expanded the Mead’s Theory of Social Self and Bandura’s Social Learning theory on socialization.
Mead’s Social Theory emphasis that self is not there from birth and the development is over a period from social experiences and activities provided by social groups; an individual will always form part of the whole social organization (Aboulafia, 2016). Harrison, Marchant, & Ho (2014) explained Bandura’s Social Learning Theory in the context of how young people learn attitudes and behaviors through observation and imitation of social groups that they come into frequent contact.
Parents can, directly and indirectly, affect financial socialization and are considered as most influential on an individual’s values, attitudes, and practices throughout the life of their children. Parental financial socialization usually comprises modeling consumer behavior, making rules about a person’s consumer behavior and engaging in direct discussions about purchasing decisions, money, credit, encouraging savings and the giving of an allowance (Allen, 2008). How the children observed regular patterns of parents’ consumer behavior would most likely influence their own consumer behavior pattern in the future.
According to Simons-Morton & Farhat (2007), peer socialization is the tendency for behavior and attitudes to be influenced by the actual or perceived attitudes and behavior of ones’ friends and the conforming properties of group membership. In the study of Mohamed (2017) observing and interacting with peers had a positive relationship to the acquisition of the financial behavior among the young. Among young adults, Lusardi, Mitchell, and Curto (2010) also found out that peers also informed the individual’s behavior and attitude toward financial decisions.
Another central socialization agent for children and adolescents is media. Little et al. (2013) stated that media serves to socialize individuals in helping pass along norms, values, and beliefs to the next generation. In fact, people are socialized and re-socialized by media throughout their life course. Information and communication technology have invaded much of the waking hours of individuals, much more the Millennials who were found to be the most techno-savvy.
Socialization agents like social institutions of the society like schools, workplaces, and the Government are great influences as they teach how people behave in and navigate these systems. The OECD (2013) framework suggests that financial education should be introduced to learners early on, starting with values formation on money, saving, and the rewards and risks of making monetary decisions. Most Filipino learners are expected to be in school for 195 days (DepEd, 2017). For HEI students, in a semester, 18 weeks is required (CHED, 2017). Making it hard to deny how significant school has on their socialization. It follows the fact that the school is an essential step towards the acquisition and integration of financial skills to living with others in society (Anastasiu, 2011).
In general, inputs are information that enters the system that is then transformed to produce outputs. Deacon-Firebaugh Input – Output Family Resource Management Model (1988) supports the interplay of variables. Jorgensen (2008) cited Bubolz & Sontag (1993) study on socialization agents, accordingly agents are family, peers, community, school, nation, and media that all shape college students’ knowledge and attitudes, behavior over time. According to Moore (2003) attitude in combination with financial knowledge and behaviors may be synergistic in driving outcomes. Individuals receive input in the form of financial literacy which includes financial knowledge, financial attitude and financial behavior and financial input from financial socialization agents like parents, peers, school and media. The actual observable personal financial practices are the output.
From the above discussions, this study theorized that millennial student’s financial literacy and financial socialization agents have major bearings on the personal finance practices of millennial students. In this regard, this study investigated the direct relationship between financial literacy to personal finance practices and financial socialization agents to financial literacy and personal finance practices. Also, financial socialization agents impact the financial literacy of student millennials.