CHAPTER I

INTRODUCTION

Financial literacy is typically an input to model the need for financial education

and explain variation in financial outcomes. Defining and appropriately measuring

financial literacy is essential to understand educational impact as well as barriers to

effective financial choice (Houston,Sandra 2010)

“Financial education is the process by which individuals improve their

understanding of financial products and concepts; and through information, instruction

and/or objective advice develop the skills and confidence to become more aware of

financial risks and opportunities, to make informed choices, to know where to go for

help, and to take other effective actions to improve their financial well-being and

protection. (Measuring Levels of Financial Literacy at an International Level by Elaine

Kempson, OECD Working Paper 2010)

Otoritas Jasa Keuangan in Indonesia (2013) defines financial literacy as a basic

need for every individual to avoid financial problems. Financial distress is not only a

function of income (low income); financial distress can also arise from the errors in

financial management (miss management) such as the miss use of credit, and lack of

financial planning. Financial problems can cause stress, and low self-esteem.
 In America, credit cards on campus have been a disaster, leaving students buried

in debt before graduation, often with little hope of paying off the debt before high fees

and interest double the amount. In 2004, the average college student had only $946 in

credit card debt (Lusardi, Mitchell & Curto, 2010). Credit card balances had been falling

since September 2008, as the economic slowdown caused both banks and borrowers to

worry about the dangers of shouldering too much debt. From its peak of $973.6 billion in

August 2008 through November of 2010, consumer credit card debt fell $175.4 billion.

But that trend finally reversed direction in December, as holiday shoppers went into

stores with their credit cards in hand. Overall debt grew as well, growing about $6 billion

to $2.41 trillion — a 3 percent increase. That number includes revolving credit as well as

non revolving debt, made up of such debt as auto loans, student loans and loans for

mobile homes, boats and trailers. Non revolving debt grew by 2.8 percent to $1.6 trillion

(Simon,2011)

In the Philippines, consumers end up paying 3.5% interest rate per month or 42%

per annum on past due accounts while the average lending rate of commercial banks only

ranges from 6.21% per annum in the start of first-quarter of 2013 to 5.72% per annum at

the end of the fourth-quarter of 2013 (Bangko Sentral ng Pilipinas, 2014a). Therefore, the

credit card industry becomes problematic if credit cards are given to the consumers who

do risky credit card activities. Despite the situation, there is still an immense marketing

campaign among credit card issuers in the country. The increase in credit card usage

among consumers is due to the developing nature of the financial system in the country

(Bangko Sentral ng Pilipinas, 2014b).

 On the other hand, In Digos City, the researchers interviewed one of the business

counselors who is a credit card user. She said that credit cards really help her a lot in

terms of paying goods or services, immediate source of financing and facility for online

purchasing. Consumption for her becomes easier since she doesn’t have to go to an

automated teller machine to withdraw cash nor to have to carry a lot of cash. However,

on the long run, she notices that she spends beyond her budget.

These are the factual situations that prompted the researchers to conduct the

study. It aims in finding if there is a relationship between financial literacy and lifestyle

of the respondents for using credit cards.

Theoretical and Conceptual Framework

This study was anchored on the “Self Efficacy Theory”. Authored by Albert

Bandura 1997 which states that individuals with high levels of self-efficacy have the

confidence that they are able to manage and plan their financial successfully and better.

The confidence motivates them for optimal performance. While goal setting is the

process used to set the goal, in this case is financial planning.

He emphasized that self-efficacy is an individual generative capability that

includes cognitive, social, and emotional. This theory is related to how individuals

manage their ability to understand financial products and services, to be well literate to a

variety of financial product and services that are always dynamic and fluctuative.
 Furthermore, this is also anchored on the theory of “Planned Behavior” which

states that attitudes affect ones behaviour (Ajzein,1991). Attitudes are composed of a

number of salient behavioral beliefs that affect the outcome behavior More specifically,

predictors should be behavior-specific, conceptually independent of the TPB’s or Theory

of Planned Behavior existing predictors, and it should be conceivable that such predictors

could causal factors in the measured of behavioral intention or actual behavior. Financial

literacy measures specific financial knowledge (Houston 2010), which is independent

from what is measured by the original Theory os Planned Behavior variables. In addition,

as researchers that those with a lack of financial literacy possess greater sum of credit

card debt (Chudry, F., Foxall, G., & Pallister, J. 2011)., it is conceivable that financial

literacy be a causal factor in determining the behavioral ‘intention to use credit cards and

acquire credit card debt.

Figure 1 shows the relationship of independent variable which contains the

Financial Literacy in terms financial assessment, financial confidence, financial

knowledge that might have an effect on the dependent variable which is lifestyle in terms

of minimalistic lifestyle , luxurious lifestyle, compulsive spending lifestyle.

Financial Literacy Lifestyle

Financial Minimalisti

Assessment c Lifestyle

Financial Luxurious

Confidence Lifestyle

Financial Compulsive

Knowledge
 Independent Variable Dependent Variable

Fig. 1 Conceptual Framework

Statement of the Problem

This study aimed to find out the magnitude of relationship between financial

literacy and lifestyle of credit card holders.

Specifically, it sought to answer the following sub problems:

1. What is the socio-demographic profile of the respondents in terms of;

1.1 gender;

1.2 age;

1.3 civil status; and

1.4 monthly income?

2. What is the level of financial literacy of credit card holders in terms of;

2.1 financial confidence;

2.2 financial evaluation; and

2.3 financial knowledge

3. What is the level of lifestyle of credit card holders in terms of:

 3.1 minimalistic lifestyle;

3.2 luxurious lifestyle; and

3.3 compulsive spending lifestyle?

4. Is there a significant relationship between financial literacy and lifestyle of

credit card holders?

Hypothesis of the Study

The null hypothesis was tested and formulated at 0.05 alpha level of significance.

Ho: There is no significant relationship between financial literacy and lifestyle of

credit card holder.

Significance of the Study

This study is significant and deemed important to the following group and

individuals:

Credit Card holders. This study would give knowledge to those credit card

holders on how to be a responsible credit card user. It would let them realize on how

important it is to know the limitation of using credit card and to have enough information

on how to manage it.

 Financial Advisers. This study serves as an additional information to the

financial advisers that can serve as their tools in providing financial advice or guidance to

customers on their investments, taxes, estate planning, college savings accounts,

insurance, mortgages, and retirement.

Future Researchers. This study would help the future researchers to be a better

analyst and it can be a help as a future reference for more studies in the future.

Students. The results of this study would help them to more literate on how

important to have knowledge in planning and managing finances to eliminate financial

problems in using credit cards.

Scope of Limitations

This study focused on the financial literacy and lifestyle among 100 credit card

holders anywhere in the Davao del Sur. The researchers chose the respondents from the

Davao del Sur for it is accessible to them. This study was conducted in the second

semester of SY 2018-2019. It made use of the purposive sampling method in choosing

the respondents. This study was limited to the financial literacy of the credit card holders

in terms of financial confidence, financial evaluation and financial knowledge; and the

lifestyle of credit card holders in terms of minimalistic lifestyle, luxurious lifestyle and

compulsive spending lifestyle.

Definition of Terms

For clarity and precision, the following terms are operationally defined.
Compulsive Spending Lifestyle refers to the Credit card holders who keep on spending

despite of adverse consequences.

Credit Card Holders refers to someone who owns and benefits from the use of a

membership card, particularly a credit card and using it in paying goods and services.

Financial Evaluation refers to the ability of credit card holders to weigh alternatives

before availing credit, including comparing prices of products.

Financial Confidence deals on how the credit card holders believe in oneself that their

financial structure can support their finances throughout the years.

Financial Knowledge refers to the level of awareness of the credit card holders on how

to manage their cash and payments and the ability to directly know about opening a

savings account, obtaining a credit and to compare offers and plan for future financial

needs.

Financial Literacy pertains as an individual ability to obtain, understand and evaluate

information which is relevant to decision making by understanding of the financial

consequence that occurs as an effect of the development in the complexity of global

finance.

Lifestyle refers to a pattern of consumption reflecting a credit card holder’s choice of

how he or she spends time and money.

Luxurious Lifestyle is a way of living life where a person puts extra special in

everything she or he does, not minding how much it will cost, just to give her or himself a

pleasure.
Minimalistic Lifestyle refers to those credit card holders that prefer to live in a simple

way, when we say simple, it is when you choose things that are less expensive over those

extravagant and luxurious things.