Financial Knowlege and Potential of Millennial Generation

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Background of the Study

Millennials, also known as generation Y, are individuals born in the early 80s to mid-90s particularly from 1981 to 1996. According to an article in Live Science (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 nation, and the way they handle money may have an impact on future business leaders according to Pew Research Center.

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Millennials have a different way of handling their finances compared to older generations. As stated by Charles Schwab (2017) in an article on CNBC, millennials spend more on comforts and conveniences such as taxis, fancy restaurants, and trendy clothes. They prefer access than ownership meaning they would rather indulge money on vacations, and other things they do not necessarily need (Total Retail, 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 (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.” 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.

According to iMoney Philippines (2017), 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 (CBS News, 2016). It seems that millennials lack the financial literacy to make sound financial decisions.

According to Financial Educators Council, financial literacy can be defined 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.

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 (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, author Andrew Pepler discussed how financial illiteracy is a factor that causes anxiety among millennials. Millennials are worried about their finances and makes them anxious in other aspects of their life like their emotional wellbeing and their personal health.

Financial illiteracy may be brought about due to the fact that millennials are more preoccupied about 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.

Xiao (2008) 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. (PhilStar, 2017)

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. (Power Pinoys, 2018)

In an article on Get Real Philippines (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, 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. (Entrepreneur, 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.

Theoretical/Conceptual Framework

Theory of Psychosexual Development

Freud (1905) persisted that infants are capable of sexual excitement, but it differs from adults’ because it is autoerotic. He proposed that a child’s personality can be developed through five psychosexual stages: oral, anal, phallic, latency and the genital stage.

Autoerotic. Autoeroticism is defined as, “sexual feeling arising without known external stimulation” (Merriam Webster).

The anal stage occurs between the ages two to three years with anus being the center of the sexual pleasure. Feist and Feist (2009) stated in their book, “Theories of Personality” that children gain pleasure from aggressive behavior and excretion. In times of the early anal period, children often display aggressive behavior by frustrating their parents with toilet training. Without proper toilet training, children may develop a fixation. Under this fixation are the anal expulsive period and the anal retentive period.

Fixation. This refers to the conception that the libido is indefinitely invested to a particular psychosexual stage (McLeod, 2017).

Anal Expulsive. A child has experienced negligent toilet training in this period. A child may develop anal expulsive personality making them messy and disorganized (Cherry, 2017).

Anal Retentive. A child has experienced a strict and rigid toilet training in this period. A child may develop anal retentive personality making them a perfectionist and prone to have obsessive-compulsive tendencies (Cherry, 2017).

In relation to the researchers’ topic, adults with anal expulsive personalities may be prone to impulsive or reckless spending. While adults who have anal retentive personality tend to be tight fisted when it comes to finances, or in some cases tend to over-indulge themselves or overspend to compensate their childhood restrictions.

Maslow’s Holistic-Dynamic Theory

This theory relies on five assumptions regarding human motivation (Feist and Feist, 2009). The first assumption is that a human, as a whole person, is motivated. Second, a person’s behavior may arise from multiple motives. Third, people are continually motivated by one need or another (Maslow, 1970). The fourth assumption is that people of different cultures are motivated by the same basic need. Last is the assumption that needs can be arranged on a hierarchy (Maslow, 1970). Maslow further elaborated the fifth assumption in his concept, Hierarchy of Needs.

Hierarchy of Needs. Consisting of five vital human needs, this concept assumes that lower level needs such as physiological needs, must be satisfied before achieving the higher level needs, with self-actualization on the highest level (Feist and Feist, 2009).

These five vital human needs are physiological needs, safety, love and belongingness, esteem, and self-actualization. Physiological needs include the most basic human needs like food, water, oxygen etc. Safety needs include physical security, stability, protection and freedom. Love and belongingness include the desire for friendship, spouse, and to be a member of a certain group. Once the first three needs are satisfied, people can now pursue their esteem needs; these include self-respect, confidence, and competence. The highest level which is self-actualization includes morality, self-fulfillment, and realizing one’s full potential (Feist and Feist, 2009) (Maslow, 1970).

Regarding the researchers’ study, millennials have to spend money in order to meet their physiological needs. It is unavoidable because this is what people need to survive. People feel the need to invest on protection because of what is happening in the world. People spending money in order to fit in may be another reason.

As stated in Maslow’s theory, people have the need to feel a sense of belongingness and millennials are not exempted from this. This need for belongingness may be a contributing factor for the millennials’ tendency to overspend. In order to fulfill this need for belongingness, they would spend with, or for their peers.

Alfred Adler’s Individual Psychology

Alfred Adler’s theory of personality gave emphasis on the person’s wholeness and opposed Freud’s focus on the unconscious past. Adler believed that a person is aware of how and why a person is behaving the way he does, in contrast to Freud who believed that the behavior of a person is determined by their unconscious past.

Striving for Superiority as Compensation. Adler believed that humans are motivated to strive for success or superiority and that humans strive for success as a means of compensation to innate feelings of inferiority. He also belived that these feelings of inferiortity came from being born with small, weak, and inferior bodies.

Adler’s theory of striving as a means of compensation may support the researcher’s topic in that it might explain why millennials handle their money poorly. It may be that millennials are spending a lot to things that might compensate their innate feelings of inferiority.


Maybe one of the reasons why people spend is because of conformity. It can be defined as “a change in behavior or belief as the result of real or imagined group pressure” (Myers, 2007). There are three varieties of conformity: compliance, obedience, and acceptance. Compliance is acting accordingly but privately disagreeing, obedience is acting accordingly with the direct order, while acceptance is acting and believing according to pressure.

Maybe people believed that spending is a way for them to be accepted because their colleagues do the same. They may have ‘accepted’ or believed that this is a way for them to belong in a group. There may be other reasons why people conform such as normative and informational influence.

Normative Influence. This is conformity based on a person’s desire to be liked (Myers, 2007). It is “going along with the crowd” in order to gain peer approval, and to avoid peer rejection. Myers (2007) mentioned in his book, “Social Psychology” that normative influence often sway people’s judgment without them knowing. They are clouded by their need to fit in.

Informative Influence. This is conformity based on the person’s desire to be right (Myers, 2007). This desire is the result of sufficient evidence provided by others. Without supporting evidences, one would not conform.


According to Myers (2007), persuasion is “the process by which a message induces change in behavior.” It is the ability to sway someone’s opinion with words and incidental cues such as mascots or celebrities. There are two methods of persuasion: the central route and peripheral route.

Central route. In the book entitled, “Social Psychology” (Myers, 2007), central route is defined as the persuasion that focuses on arguments. In relation to the researchers’ topic, if a salesman’s argument is compelling, millennials are more likely to agree with him. The main focus is the information provided by the salesperson.

Peripheral route. Myers (2007) mentioned in his book that this is persuasion that focuses on cues that trigger automatic acceptance without much contemplation. For example, millennials may impulsively buy something because their favorite celebrity is the endorser, or the product’s packaging is eye-catching.

Millennials are not the only ones at fault. Salesclerks often use techniques that greatly influence consumers’ decision. These include foot-in-the-door phenomenon and low-ball technique.

Foot-in-the-door Phenomenon. This is the “tendency for people who have first agreed to a small request to comply later with a larger request” (Myers, 2007). In a situational context, a salesperson who is trying to seduce people may often use this technique. These people have a tendency to voluntarily agree because of how persuasive these salespeople are.

Low-ball Technique. According to McLeod (2014) in, this technique is “agreeing to purchase something at a given price increases the likelihood of agreeing to purchase it at a higher price.” For example, airlines or hotels may use this tactic to promote great deals for seats or rooms. Once the consumer is ready to avail, ‘problems’ would arise such as being fully booked or the room is under renovation. These companies hope that customers would invest in the higher-priced option.

Over-confidence Phenomenon

Myers (2009) mentioned in his book that this is “a tendency to be more confident than correct.” In relation to the researchers’ study, some millennials may think that they are more financially literate than they really are. The quote “incompetence feeds overconfidence” from the “Social Psychology” book may sum up the millennials’ assumption on their financial literacy.

Risky Shift Phenomenon

James Stoner (1961) found out that a group’s decision is usually riskier when the reach a consensus and that others who are opposed to a decision will also alter their choice.

This phenomenon might explain why millennials often engage in risky financial behavior. They might be urged by their peers to spend their money on things that are not practical, or on investments with high risks.

Significance of the Study

This study can benefit not only working millennials, but also employees of all ages who work in both public and private institutions as this would provide recommendations on how to handle finances effectively.

In the preceding pages, it is stated that millennials are the largest demographic group and make up most of the workforce. Their inadequate financial literacy may be a problem that will have a grave impact on the future economy. This concern troubled the researchers which is why they decided to study this particular topic.

Future researchers who would want to study a related topic can utilize this study as a reference for their own research. Also, this can serve as a basis of comparison between the millennials and the future generation in terms of financial literacy and behavior.

The researchers will also benefit from this study as they are about to enter the industrial field and this study can be a reference for them in terms of handling their own finances.

Statement of the Problem

The researchers would like to know the influence(s) of financial literacy on working millennials’ financial behavior. Specifically, the researchers would like to answer the following questions:

  1. Does financial literacy have a significant influence on financial behavior?
  2. Ho: Financial literacy does not have a significant influence on financial behavior.

  3. Does socioeconomic status affect financial behavior?
  4. Ho: Socioeconomic status does not affect financial behavior.

  5. Is financial illiteracy rampant among working millennials?
  6. Ho: Financial illiteracy is not rampant among working millennials.

  7. Does educational attainment affect financial literacy?
  8. Ho: Educational attainment does not affect financial literacy.

  9. Does sex affect financial behavior?

Ho: Sex does not affect financial behavior

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