Title: Assessing the Level and Impact of Financial Literacy on

individualsaving and spending habits in Royal Institute of

Management

Phurpa Wangmo
Royal Institute of Management
 Acknowledgement

I would like to express my deepest gratitude to the Royal Institute of Management and the
faculty for supporting and giving us a platform to learn basic research skills.
There are no words to express the deeply felt gratitude to my supervisor, Madam Namgay Dem.
Your constant guidance and suggestions despite busy schedule played vital role for making this
research a success.
I also would like to thank our course Convener, Madam Palmo Thinley for your constant
reminder and guidance. Your kind words of concern havemade us complete this research on
time.
My friends Jigme Zangmo and Thinley Wangmo had accompanied me all the way through to
this end.Thank you for your endless support. Furthermore, my sincere appreciation also extends
to my class mates and the Program Assistant, Mrs. Sonam Chodenfor their support.
Last but not the least, I would like to offer my humble gratitude to the faculty and staff of Royal
Institute of Management from whom required information were collected with kind cooperation.
Finally, my gratitude and appreciation goes to one and all who have directly or indirectly
contributed towards making this research a successful one.

I
 Abstract

This paper examines the level and impact of financial literacy on individual saving and spending
habits. The survey data was obtained from 72 faculty and staff of RIM using a structured
questionnaire. In this study, the level of financial literacy was measured using the questionnaire
of OECD pilot questions of financial literacy 2010.Thequestionnaire was divided into four
sections.The first section covers demographic variables. The second section includes the
questions to measure level of financialliteracy. The third and fourth section is devoted to identify
saving and spending habits. The findings show that, the financial literacy level is found to be
affected by income level and not by age, gender and marital status. High-income respondents
hold high educational degrees and had as expected higher financial literacy level than
others.The results also indicate that, there is significant difference between those who are
perceived to have higher financial literacy level compared to those who are perceived otherwise.
The respondents who are higher financially literate had a better saving and spending habits.It
can be concluded that financial literacy influences saving and spending habits of individual. It is
recommended that individuals should try to acquire some basic level of financial literacy to
better manage their saving and spending habits.
Keywords: Financial Literacy, Saving, Spending, Income

II
Contents
Chapter 1: Introduction ............................................................................................................... 1
Introduction ................................................................................................................................. 1
Problem Statement ...................................................................................................................... 2
Research Objective ..................................................................................................................... 2
Research Questions ..................................................................................................................... 3
Significance of the study............................................................................................................. 3
Conceptual Framework ............................................................................................................... 4
Chapter 2: Literature Review ...................................................................................................... 6
Description .................................................................................................................................. 6
Importance of financial literacy .................................................................................................. 6
Measurement of financial literacy .............................................................................................. 7
Impacts of financial literacy on saving ....................................................................................... 8
Impacts of financial literacy on spending ................................................................................... 8
Chapter 3: Methodology............................................................................................................. 10
Questionnaire Design ................................................................................................................ 10
Sampling and Data Collections ................................................................................................. 10
Data Analysis ............................................................................................................................ 11
Ethical consideration ................................................................................................................. 11
Chapter 4: Analysis and Discussion .......................................................................................... 12
Participants Demographics ....................................................................................................... 12
Means of spending monthly income ......................................................................................... 13
Financial Literacy Level ........................................................................................................... 14
Overall Score of financial literacy ........................................................................................ 15
Differences of financial literacy level base on demographic variables .................................... 16
Saving Habits ............................................................................................................................ 18
Spending Habits ........................................................................................................................ 20
Chapter 5: Conclusion and Recommendation ......................................................................... 22
Conclusion ................................................................................................................................ 22
Recommendation ...................................................................................................................... 23
Limitations of the study ............................................................................................................ 23
Reference ..................................................................................................................................... 25
Appendix: Questionnaire .......................................................................................................... 27

III
 Glossary of Abbreviations

RMA Royal Monetary Authority

OECD Organizations for Economic Co-operation and Development

BEFIT Bhutan Economic Forum for Innovative Transformation

RIM Royal Institute of Management

BLSS Bhutan Living Standard Survey

SAARC South Asian Association for Regional Co-operation

INFE International Network on Financial Education

SPSS Statistical Package for the Social Sciences

IV
 List of Tables

Table 1: Demographic Information.................................................................................... 12

Table 2: Percentage of correct answer for financial literacy questions .................................. 14

Table 3: one way ANOVA test for demographic variables on financial literacy level ............... 16

Table 4: Crosstabulations of financial literacy level and monthly income .............................. 17

Table 5: Saving habits of respondents by category .............................................................. 18

Table 6: Spending habits of respondents by category ........................................................... 20

List of Figures

Figure 1: Means of spending monthly income ..................................................................... 13

Figure 3: Average score of different variables .................................................................... 15

V
 Chapter 1: Introduction
Introduction
Royal Monetary Authority(RMA)is working to make people financially literate by
launching various programs such as books, website and series of articles as our people have a
poor saving culture. It is because we spend heavily on improving living standards or we are not
able to explore investment avenues resulting from poor financial literacy. According to the
survey of financial inclusion 2013, it pointed out that most of the family income is spent on
consumption for purchase of food items and electrical appliances.
The same survey also revealed that, of those whosaved money, only 10 percent deposited
money inbanks, and had saving accounts. This is why the Royal Monetary Authority has launch
financial literacy program to teach about the financial services thatare available, the importance
of saving money, thesources of acquiring loans and micro-financing,about paying back money
on time andavailability on the digital financing today.
The education ministry is also working on integrating the national financial literacy
school curriculum into the formal education curriculum to promote financial education and
inclusion among the youth.Financial literacy curriculum would educate the future generation for
smart and informed decision-making. The students will be educated on learning to earn before
learning to connect with any financial institutions.
It is posited that higher levels of financial literacy have positive impact on saving
amongst individuals andmindful spending, because increased literacy implies that individuals
who have better understanding of their financial circumstances, would be able to plan their future
finances better, hence make more informed financial decisions.Therefore, I am intrigued by the
phenomenon that financial literacy effects the saving and spending habits of individual and the
differences of saving and spending habits between those perceived to have higher level of
financial literacy and lower level of financial literacy.

1|Page
Problem Statement

The creation of an enabling environment to advance financial literacy is important to

promote sustainable and inclusive growth, reduce poverty and increase employment (BEFIT,
2017). Those who have financial knowledge to make right choices about money and to live
within their means are less likely to face financial difficulty and more likely to display healthy
financial behaviors, such as saving for future, paying off credit cards in full each month, or being
able to prioritize spending according to needs, not wants (Endo & Chinen, 2012).
However, poor financial literacy impedes the saving culture where people spend heavily
in improving their living standards and buying luxuries goods. According to the Bhutan Living
Standard Survey Report (BLSS) 2017, about 77% of households have saving accounts and 28%
of households use debit/credit/ATM cards. One-fifth (21.3%) of households do not use any
banking products. This indicates that most of the Bhutanese people are still not aware of saving
and its importance. Moreover same report also pointed that, bank loans are primarily used to
purchase vehicles (27%), construct houses (25%) and for personal consumption (15.9%).This
shows that Bhutanese spend more on luxury goods which impedes the saving culture and makes
people more vulnerable to financial disasters.
There are early researches which are done to check the level of financial literacy in
Bhutan but not about their impact on spending and saving habits. Therefore, this research aspires
to explore the level of financial literacy and assess the impact on their spending and saving habits
of a particular organization.

Research Objective:to explore the level of financial literacyand its impact on individual
saving and spending habits among faculty and staff ofRoyal Institute of Management (RIM).

2|Page
Research Questions
This study attempts to answer the following questions:

1. How does the saving habit of those with lower financial literacy level differ from those
with higher financial literacy level?
2. How does the spending habit of those with lower financial literacy level differ from those
with higher financial literacy level?
3. Are there differences in financial literacy level between male and female participants?

It is based on assumption that answering the first two questions will help to explore the
differences between saving and spending habits of those who have higher financial literacy and
those who have lower financial literacy level. It is also assumed that answering the last question
willhelp to find out whether there is gender difference in financial literacy level.

Significance of the study

It is expected that the study will contribute in determining the impacts of financial
literacy in an educated institution. The study will contribute to expanding knowledge about
whether financially literacy has impact on individual saving and spending. As more is known
about the relationship of financial literacy to such areas as individuals saving and spending
habits, it will be possible to come up with specific recommendations to improve financial
literacy.
It would help the concerned organizations/ministries/education sector in understanding the
effects of financial literacy and plan strategies for integrating financial literacy curriculum.

3|Page
Conceptual Framework
The conceptual framework for this study depicts the outcome of financialliteracy as
defined in the study by various scholars. The framework is consistent withmany researchers who
argue that financial literacy leads to financial knowledge and skillsacquisition, which in turn
influences effective financial decision making ability, behavior,and wellbeing of the individual
(Lusardi, 2012; Mandell and Klein, 2009; Schuchardt etal., 2009).

Financial literacy

IN

Literacy Concepts
Numeracy, stock/bonds, Inflation/interest rates, Money
management, Debt/risk management, and Investment
alternatives/opportunities
Result In

Lead to
Transformed behavior/attitude toward: Money
management, debt reduction, savings/investment, risk
management, and independent financial decision
making.
+ +

Acquired Acquired Informed

Knowledge Skills Actions

Makes
a
Financially Literate Person

4|Page
 While financial education in two or more of the literacy areas may lead to theperceived
financial literacy outcome, a financially educated person is believed to be onewho not only
acquires the necessary knowledge and skills, but also puts them into makinginformed decision or
action (Hogarth, 2006, Norman, 2010). The perception is that a financially literate individual,
having acquired knowledge and skills, will begin to develop positive attitudes towardsuch
practices as money management, savings, debt reduction, and risk management.

5|Page
 Chapter 2: Literature Review
Description

The Organization for Economic Co-operation and Development (OECD) has defined
financial literacy as “a combination of knowledge, skill, attitude and behavior necessary to make
sound financial decisions and ultimately achieve individual well being”.
It is important to spot the misconceptions about financial literacy. Financial literacy is not
about gathering great wealth but it is about having the resources to reach one‟s goals in life,
identifying and managing risk, and it is about understanding the decisions to be made in setting
up for when one is near life‟s end (Lynch, 2016).
Al-Tamimi and Kalli (2009) surveyed 290 of UAE national investors and results of the
survey indicated that the lowest levels of financial literacy were related with people who have
lower education, unemployed or unqualified workers, and people with low income, single
people, and those at both extremes of the age profile.
The financial system in Bhutan is currently in the process of development. Earlier before
the emergence of the monetary system in 1974, the financial literacy was purely based on barter.
Even today, modern banking is still not accessible in the remote areas of the country, and thus
the old system of barter is being carried out. About the payment scheme, people still have a
preference to use cash and paper based instruments for all types of payment transactions, both in
rural and in urban areas which incurs considerable costs to the financial service
provider(SAARC FINANCE Group, 2013).

Importance of financial literacy

While examining the financial literacy and its impacts, it is necessary to discuss about
importance of financial literacy. If there is proper financial management supported by good
financial literacy, the standard of living is expected to boost, because no matter how high a
person's income level but without proper financial management, financial security will be hard to
achieve. The importance of financial literacy is not due to the difficulty in using the money they
have, but individual is expected to be able to enjoy their life by using their precisely owned
financial resources (Damayanti, Murtaqi, & Pradana, 2018).

6|Page
 According to Amoah (2016) financial literacy is required to enable decision making and
the adoption of complicated financial markets and products in recent times as developed and
emerging economies have been experiencing growing and increasingly financial markets.
On the other hand, in the world of economic uncertainty low financial literacy is related
with poor financial decisions in equity investment, debt financing, as well as long term
retirement planning and these decisions can lead to decrease in welfare, high indebtedness and
low wealth accumulation (Chu, Wang, Xiao, & Zhang, 2016). This assumption was supported
by Amoah (2016) posited that, “anyone with difficulties related to money must have a lack in
financial knowledge, or the difficulties would not have occurred” (p. 670).
Te‟eni-Harari (2016) asserts that according to OECD, educational systems worldwide are
also addressing the issue and have recognized the importance of integrating financial literacy
content into the curriculum. An increasing number of countries have developed and implemented
national strategies for financial education to improve the financial literacy of their populations in
general, often with a particular focus on the younger generation.

Measurement of financial literacy

The main problem in measuring financial literacy has been that there are a variety of
definitions, and these definitions have changed as the economy has changed.Researchers of
personal finance are still functioning on creating a uniform method of measuring financial
knowledge. Till date, researchers are using key educational variables such as numeracy and
knowledge of compound interest, stocks and bonds, inflation, and interest rates as independent
variables to measure financial literacy (Amoah, 2016)
This study has measured financial literacy using the OECD core questionnaire which
includes questions to test levels of knowledge, behavior and attitude. A financial literacy score
are created by counting the number of correct responses given by each respondent. A score of
median 12 or more correct responses exhibits a relatively high level of financial literacy. Similar
measures were adopted in a pilot study of the OECD, and its INFE to compare the proportion of
people in each country who correctly answer 12 or more out of 19 questions. The questions test
the knowledge, behavior and attitude of individual in relation to financial literacy (Atkinson &
Messy, 2005)

7|Page
Impacts of financial literacy on saving
The impact of financial literacy on saving habits of individual should also study as there
is a huge need for saving because such savings could protect people against future economic
shocks as well as pay for relevant services like healthcare and higher education. Financial
illiteracy could let the youth to choose the unsuitable financial products and save less than they
should (Yong & Tan, 2015).
Amoah (2016) have measured the saving behavior of African-Americans to determine
their attitude toward savings and the result was found out that most of the participants saved
toward one reason or the other in which they specifically save towards investment.
Today, many developed societies are less savings-oriented and more consumption-oriented than
they were in the past. This influences the negative savings rate and inadequate savings for
retirement in many societies (Frączek & Klimontowicz, 2015).
Financial literacy affected significantly the investment decisions of the individual
investors. It has been proven that highly literate investors prefer to use financial publications,
while low-literacy investors impart more on advice from family, friends, and stockbrokers (Al-
Tamimi & Kalli, 2009).
Financial knowledge has been linked with constructive financial behaviors such as
having a checking account, paying bills on time, tracking expenses, having a savings account,
and having an emergency fund.Having investments and saving for the long term also was related
with higher levels of financial knowledge (Henager & Cude, 2016).

Impacts of financial literacy on spending

Spending in excess of their earnings is one of the most common problems faced by
people today. Majority of people are more interested in accumulating material assets than saving
money and this leads to the effect of making impulsive purchasing decisions resulting in
overspending and shortage of money.Irrespective of genderfinancial illiterate people who have
developed „buy now, think later‟ consumption behaviors for immediate satisfaction are
potentially good customers for the credit card industry (Chinen & Endo, 2012).

8|Page
 In the Asian subcontinent, new trends in fashion, electronic gadgets, sports, video games,
mall culture and music are significant contributors to inefficient spending among the youth
(Pillai, Carlo, & D‟souza, 2012).
Increasing number of teenagers have a high spending rate when using cash, checks, or
credit cards, and the age at which young adults receive credit cards is dropping. On the other
hand, unfortunately their financial literacy is insufficient and they are not ready to the difficulty
of the financial world and full of threats the modern financial lives. As a result, they often make
their financial decision base on the advertisements and promotions, rather than on calculations
and financial analysis (Frączek & Klimontowicz, 2015).
It is vital to equip people with basic comprehension and management skills in finance
such as financial decision making, earning and spending money, budgeting and using financial
services. Such important elements of financial literacy like financial knowledge and skills create
their financial awareness. These factors help young people to manage their money, using the
credit effectively, building wealth, making informed and good financial decisions and in this way
ensuring or improving their financial well-being (Pillai, Carlo, & D‟souza, 2012)

9|Page
 Chapter 3: Methodology
Questionnaire Design
The study has employ a questionnaire from OECD financial literacy question to find the
level of financial literacy and difference between level of financial literacy in case of saving and
spending.
The questionnaire isdivided into four sections. Section A covers demographic and
socioeconomic variables of age, gender,and marital status (includes whether participants have
taken financial courses or not).
Section B of the questionnaire includes the questions from OECD about the level of financial
literacyof the individual.
Section C identifies the saving habits of participants with higher or lower level of financial
literacyusing a five-point Likert scale ranging from 1 (strongly disagree) to 5 (strongly agree).
The last partSection D identifies the spending habits of participants with higher or lower level of
financial literacy using a five-point Likert scale like the third part.
Since respondents rated their saving and spending habits towards variables on each item from
“Strongly Disagree” (1) to “Strongly Agree” (5), the range of possible mean scores for individual
saving and spending habits and all the independent variables was between one and five, with
higher scores indicating more positive habits towards saving and spending.

Sampling and Data Collections

This research was studied base on particular organization and the populations from which
sample are selected are faculty and staff of Royal Institute of Management(RIM). RIM is chosen
as population because of its conveniences to reach the respondents, it is a training institute where
there is mix of both financially literate and otherwise, various ranges of income and employees at
all levels of number of years in service and age. The total population sampling has been taken
because of less number of populations.
For this studyquantitative methodology is applied in collecting data and
information.Structured survey questionnaires are used and these survey questionnaires have been
distributed to participants through email of institute and for those who cannot read and write data
is collected through an interview.

10 | P a g e
Data Analysis
The raw data has beencoded and develop into themes using the Statistical Package for the
Social Sciences (SPSS) software.Descriptive statistics tables are developed for participants‟
demographics including gender, age, marital status, and scores. For purpose of analysis,
otherdescriptive statistics tables are developed for participants‟ responses to each of the
questionnaire items.In order to study the significant difference in financial literacy score base on
demographic variables one way ANOVA was used to examine the significant difference.
Additionally, the means were calculated and independent samples T test was run to compare the
means of two independent groups.

Ethical consideration
Protecting research participants is an importantconsideration in this study. Their privacy
and confidentiality were protected as participants. Participation in thisstudy was voluntary and
this allowsthe participants not to feel obliged or pressured toparticipate.In this study only
respondents of ages 18 years or older are recruited toparticipate.

11 | P a g e
 Chapter 4: Analysis and Discussion
Participants Demographics
The questionnaire asked each respondent to provide demographic data that included
gender, age, marital status and income. Table 1 provides descriptive statistics for the
respondents‟ characteristics.
About 72.2% of the respondents were males and 27.8% were females. With respect to age, 8.3%
were 20-30 years old, 44.4% were 31-40 years old, 41.7% were 40-50 years old and the
remaining 5.6% were over 50 years old. About 15.3% of respondents were single whereas 81.9%
were married and 2.8% were divorced. Also in case of monthly income, about 37.5% of the
respondents earned below 15,000, 31.9% earned 16,000-25,000, 19.4% earned 26,000-35,000
and 9.7% earned over 35,000.
Table 1:Demographic Information

Variable Frequency Percentage

Gender:
Male 52 72.2%
Female 20 27.8%
Age:
20-30 6 8.3%
31-40 32 44.4%
40-50 30 41.7%
Over 50 4 5.6%
Marital Status:
Single 11 15.3%
Married 59 81.9%
Divorced 2 2.8%
Income:
Below 15,000 27 37.5%
16,000-25,000 23 31.9%
26,000-35,000 14 19.4%
Over 35,000 8 9.7%

12 | P a g e
Means of spending monthly income
The graph below summarizes the means of spending monthly income by respondents.
Findings shows that respondents spend majority of their monthly income on food with the mean
of 2.96 compared to other means of spending and lowest spend on other expenditure which is not
included in the list with the mean of 1.29.
Saving of monthly income is recorded on fourth with the mean of 2.21 which indicates that
respondents spend more on food, house rent and transportation as compared to saving.

Means of spending monthly income

3.50
2.96
3.00
2.58
2.50 2.23 2.21
2.00 1.78 Foods
House rent
1.50 1.29
Transportation
1.00
Saving
0.50 Entertainment

0.00 Other expenditure

Figure 1: Means of spending monthly income

The findings illustrate that respondents spend more on food items, house rent and transportation
rather than saving. This is consistent withthe findings of Bhutan Living Standard Survey (BLSS),
2017.

13 | P a g e
 Financial Literacy Level
Financial literacy measures respondents‟ knowledge on various personal finance issues,
financial behavior and attitudes. In order to determine respondents‟ financial literacy, their
correct responses were added to become a total score. The higher score indicates higher literacy
level. Responses therefore range between 0, where all responses are incorrect, to 19, where all
responses are correct.

Table 2: Percentage of correct answer for financial literacy questions

Statement % %
Correct Incorrect
Imagine
1 that five brothers are given a gift of Nu.1000. If the brothers have to share 81.9 18.1
1 the money equally how much does each one get?
Now2 imagine that the brothers have to wait for one year to get their share of the X. 59.7 40.3
2 In one year‟s time will they be able to buy:
You3 lend X to a friend one evening and he gives you X back the next day. How 43.1 56.9
3 much interest has he paid on this loan?
Suppose
4 you put Nu.100 into a savings account with a guaranteed interest rate of 65.3 34.7
4 2% per year. You don‟t make any further payments into this account and you don‟t
withdraw any money. How much would be in the account at the end of the first
year, once the interest payment is made?
And5 how much would be in the account at the end of five years? Would it be: 59.7 40.3
5
6 An investment with a high return is likely to be high risk 34.7 65.3
7 High inflation means that the cost of living is increasing rapidly 87.5 12.5
8 It is usually possible to reduce the risk of investing in the stock market by buying a 48.6 51.4
wide range of stocks and shares.
Behavior:
9 Before I buy something I carefully consider whether I can afford it 81.9 18.1
10 I pay my bills on time 59.7 40.3
11 I keep a close personal watch on my financial affairs 43.1 56.9
12 I set long term financial goals and strive to achieve them 65.3 34.7
13 I purchase a financial product after gathering information about it. 40.3 59.7
14 Who is responsible for day-to-day decisions about money in your household? 65.3 34.7
15 Sometimes people find that their income does not quite cover their living costs. In 17.5 82.5
the last 12 months, has this happened to you?
16 In the past 12 months have you been [personally] saving money in any of the 48.6 51.5
following ways, whether or not you still have the money?
Attitude:
17 I tend to live for today and let tomorrow take care of itself 40.3 59.7
18 I find it more satisfying to spend money than to save it for the long term 50 50
19 Money is there to be spent 30.6 69.4

14 | P a g e
Table 2 summarizes their response on each statement. For each statement, correct answers were
summed up, while incorrect answers or uncertain answers were not counted.
In terms of financial knowledge, a majority of the respondents responded correctly to
statement 7, i.e. the definition of inflation, whereby more than 87.5% of them responded to this
statement correctly. On the other hand, a majority of respondents (65.3%) could not provide
correct responses to return and risk (statement 10, 65.3%). This indicates the lack of
respondents‟ knowledge on return and risk of investment.
Whereas in terms of behavior, majority of respondents (81.9%) were considering the
affordability before they purchase something and on the other hand majority of the respondents
(82.5%) responds their income doesn‟t cover their living in last 12 months.
Likewise in terms of attitude, majority of respondents(69.4%) answered money is there to be
spend (statement 19) and half of the respondents (50%) agrees it is satisfying to spend money
than to save it for the long term (statement 18, 50%). The results demonstrate that on average
participants answered 53.84 percent of questions correct and 46.15 percent of questions
incorrect, suggesting that the respondents haveadequate financial literacy.

Overall Score of financial literacy

Score of different varaibles

40.30% Knowledge
59.90%
Behavior
Attitude
52.70%

Figure 2: Average score of different variables

The findings show that overall;respondents have more financial knowledge with average score of
59.9% correct answer but low in financial behavior and attitude with average score of 52.7% and
40.3% respectively.

15 | P a g e
Differences of financial literacy level base on demographic variables
To determine if there is a significant difference in financial literacy level among different groups
of respondents according to age, gender, marital status, and monthly income, a one-way
ANOVA was ran.

Table 3: one way ANOVA test for demographic variables on financial literacy level

Between Sum of Mean

Groups Squares Df Square F Sig.
Gender 2.657 1 0.204 1.006 0.458

Age 9.419 3 0.725 1.482 0.152

Marital 2.004 2 0.154 0.906 0.552

Status

Income 26.082 3 2.006 2.665 0.006

Table 3 indicates that there is no significant difference in financial literacy among

different groups of respondents according to their gender, age and marital status. It can be
concluded that there is no significant difference in the level of financial literacy of RIM faculty
and staff according to their gender, age, and marital status. Thus, answering the third research
question that there is no significant difference in financial literacy level base on gender.
On the other hand, the results reveal significant difference in financial literacy level based on
monthly income.

16 | P a g e
To specify which income level has the lowest financial literacy level, we examined the
crosstabulations statistics between the financial literacy level and the monthly income level.

Table 4: Crosstabulations of financial literacy level and monthly income

Monthly Higher Lower

Income Financial literacy financial literacy Total
Below 15,000 3 24 27

16,000-25,000 11 13 24

26,000-35,000 9 4 13

Over 35,000 6 2 8

Table4, shows that majority of the respondents who are perceived to have lower level of
financial literacy are respondents who earn less monthly income.
Thus it can be concluded that more respondents with lower income level has lower financial
literacy as compared to respondents with higher income level.

17 | P a g e
Saving Habits
Saving is defined as what is left out of personal disposable income. Alternatively,
personal disposable income is defined as income after taxes are paid (Urban Institute,
2008). Saving may also be seen as the difference between income and consumption. Thisimplies
that savings automatically decline as consumption increases (Lusardi, 2003).
The respondents are classified into two subgroups, using the median percentage of
correct answers of the sample. Respondents with scores higher than the sample median are
classified as those with relatively higher financial literacy. Respondents with scores equal to or
below the median are classified as respondents with relatively lower financial literacy.
Thefollowing table represents a summary of the responses on saving:
Table 5: Saving habits of respondents by category
Lower Higher Financial
Financial Literacy
Practice Literacy
I save / invest out of each money I receive 3.34 3.72
I save at least 10 percent of my gross monthly income 2.24 3.09
I am interested in setting saving goals 3.03 3.24
I increase my savings when I receive increase in salary 3.10 3.51
I am the kind of person who always looks to save money 2.45 3.84
I am satisfied with my present rate of savings and 2.24 2.63
investment accumulation.
I am prepared to risk some of my own money when saving 2.76 2.98
or making an investment
I set aside funds for the expenses I think I will have to 2.09 3.02
cover in the future

The research finding shows that a majority of the respondents save out of each money
they receive with the mean of 3.72 and 3.34 of respondents with higher financial literacy and
lower financial literacy respectively. Both categories are interested in setting saving goals
without much difference in mean with 3.24 for financially literate and 3.03 for not financially
literate. A very small percentage in both categories; were satisfied with their present rate of
savings recording a mean of 2.63 and 2.24 respectively. Similarly both categories were not
prepared to risk their money for saving/ making investment with mean of 2.98 and 2.76
respectively.

18 | P a g e
 It shows that respondents who are more financially literate always looks forward to save
money with a mean of 3.84 compared to less financially literate with mean 2.45. Likewise, those
who are higher financially literate save at least 10% of their monthly recording the mean of 3.09
compared to counterparts recording the mean of 2.24. Both categories however display similar
trends when it comes to increase saving with increase in salary with means of 3.07 and 3.01
respectively.
Findings show that most respondents embrace a savings culture displayed as by their
setting aside of some money out of each payment they receive. There is a significant difference
between the means of the respondents with higher financial literacy and the respondents lower
financial literacy. Those who were financially literate recorded a mean of 3.12 while those who
are not had a mean of 2.65 out of the maximum 5.0 points. Higher financially respondents were
always looking for other opportunities to save money, setting aside money for future needs, and
saving out of each payment they received unlike their counterparts.
The independent t-test of equal means gives a p-value of 0.02 at a 5% significance level;
clearly indicating that there is a significant difference between the saving practices of
respondents with higher financial literacy and lower financial literacy.

19 | P a g e
Spending Habits
A report by the National Foundation for Credit Counseling (2007) suggests that many
financial experts agree that having a household budget is a characteristic of good
financial management practice. Table 6 summarizes expenditure practices by respondents.
Table 6: Spending habits of respondents by category

Higher Financial
LowerFinancial
Practice Literacy Literacy
I track some or all my expenses 2.14 3.48
I compare prices for major expenses 3.09 3.97
I use a spending plan or budget 2.38 3.05
I spend less than income 3.48 2.91
I closely watch the amount I spend 2.55 3.19
I purchase only what I need 2.07 2.01
I purchase a financial product after gathering 3.01 3.07
information about it.
I keep record of my expenses 2.04 2.97

The research findings showed that more respondents who are more financially literate
compare prices for major expense with a mean of 3.97 compared to their counterparts who
registered a mean of 3.09. Both categories however display similar trends when purchasing a
financial product after gathering information with means of 3.07 and 3.01 respectively.
The best way to really know where the money is going is by tracking spending each
day.Only then can spending change. Those with higher financialliteracy recorded a mean of
3.48compared to 2.14 for those who are not. A very small percentage in both categories;
purchase only what they need recording a mean of 2.01 and 2.07 respectively.
Spending more than one makes can lead to unnecessary debt burdens for the
individuals.Debts and especially consumption debt can negatively change the course of one‟s
life(Monyoncho, 2007). It shows that respondents with lower financial literacy spend less than
income with a mean of 3.48 compared to higher financial literacy with mean 2.91. On the other
hand, those with lower financial literacy recorded a mean of 2.04 for keeping record for their
expenses compared to 2.97 for those with higher financialliteracy.

20 | P a g e
 Our findings show that most respondents embrace good expenditure practices
especiallyin the area of comparing prices for major expenses. Statistically, there is a
significantdifference between the means of the respondents with higher financial literacy and
lower financial literacy.Those with higher financialliteracy recorded a mean of 3.08 while those
with lower financial literacyhad a mean of 2.59 out of the maximum 5.0 points.The independent
t-test of equal means gave a p-value of 0.012 at a 5% significance level indicating that there is a
significant difference between the expenditure practices of respondents with higher and lower
financial literacy.

21 | P a g e
 Chapter 5: Conclusion and Recommendation
Conclusion
In this study the financial literacy level and its impact of saving and spending habits
among the faculty and staff of Rim were examined. Generally, the level of financial literacy
among faculty and staff in RIM is not high. Respondents have generally demonstrated relatively
low levels of financialbehavior and attitude as compared to knowledge during the study.
The findings of this research show that the practices of those perceived to have higher
financial literacy seem to agree with the current literature. However it is also observed that there
is no significant difference in level of financial literacy base on gender, marital status and age but
there is significant difference in financial literacy level base on income level. Higher income
level has higher level of financial literacy as compared to lower income level.
The findings of this research established that there are more people interested in saving
out of each payment they receive. Those with higher financial literacy tended to save aside the
funds for future needs as compared to with lower financial literacy. More of those whohave
higher financial literacy closely watched what they spend compared to their counterparts.The
respondents with higher financial literacy seemed to manage expenditure better than their
counterparts probably because they understand the importance of planning, tracking of
expenditure, and watching the amounts they spend unlike their counterparts.
Overall however, the respondents with higher financial literacy had a better saving and
spending habits and we can therefore conclude that financial literacyleads to better personal
financial management practices.

22 | P a g e
Recommendation
Based on the findings of this study, the following recommendations are proposed:
 The finding shows that there was significant difference in saving and spending habits
between respondents of higher financial literacy level and their counterparts. The
ramification of having low or no financial literacy could lead to negative saving and
spending habits such as low savings, bankruptcy and huge amounts of consumer debt.
Therefore, financial literacy programs and awareness should be createdto make people
more financially literate.
 Findings show that respondents have financial knowledge but they lack in behavior and
attitude. Thus in order to improve the level of financial literacy amongst the population,
financial education programs should not only aim at increasing financial knowledge of
the population but must also focus on developing positive financial behavior and
favorable financial attitudes among the population. Then only real benefits of any
financial education program can be achieved.
 The current research only focused on the impact of financial literacy on saving and
spending habits, but other dependent variables such as debt management and investment
can also be studied to know the impact of financial literacy on financial management.

Limitations of the study

 The study was done in a small scale which means the findings may not necessarily
represent the whole population. The findings of the study cannot be generalized for all
the organizations of the country because the study is conducted within Faculty and Staff
in Royal Institute of Management only.
 Since the study was done with salaried individuals, it cannot determine the financial
literacy level, saving and spending habits of other individuals without salary.
 In addition, this study was a survey based research where data obtaining was only limited
to predesigned questionnaire. One of limitations of this instrument (questionnaire) itself
is that a researcher is expected to get only the information prescribed in the questionnaire.
In the process, pertinent information very relevant to the topic is/are likely to be missed.
Therefore, inclusion of interview with selective respondents would have enriched the
quality of this study.

23 | P a g e
Reference
Al-Tamimi, H. A., & Kalli, A. A. (2009). Financial literacy and investment decisions of UAE
investors. The Journal of Risk Finance , 500-516.

Amoah, R. (2016). Assessing the Level and Impact of Financial Literacy on African Americans.
182.

Atkinson, A., & Messy, F.-A. (2010). Measuring Financial Literacy;RESULTS OF THE OECD /
INTERNATIONAL NETWORK ON FINANCIAL EDUCATION (INFE) PILOT
STUDY. OECD Publishing , 1-73.

Bhushan, P., & Medury, Y. (2014). An empirical analysis of inter linkages between financial
attitudes, finamcial behavior and financial knowledge of salaried individual. Indian
Journal of Commerce & Management Studies , 58-64.

Bhutan Economic Forum for Innovative Transformation . (2017). Equitable growth through
financial inclusion . washington, DC: International Finance Corporation.

Chinen, K., & Endo, H. (2012). Effects of attitude and background on students‟ personal
financial ability: A United States survey. International Journal of Management , 778-
791.

Chu, Z., Wang, Z., Xiao, J. J., & Zhang, W. (2016). Financial Literacy, Portfolio Choice and
Financial Well-Being. Springer , 799-820.

Damayanti, S. M., Murtaqi, I., & Pradana, H. A. (2018). The importance of financial literacy in a
global economic era. 7th International Conference on Business and Economic
Development (pp. 435-441). Institut Teknologi Bandung.

Endo, H., & Chinen, K. (2012). Effects of Attitude and Background on Students‟ Personal
Financial Ability: A United States Survey. International Journal of Management , 778-
789.

Frączek, B., & Klimontowicz, M. (2015). Financial literacy and its influence on young
customers‟ decision factors. Journal of Innovation Management , 62-84.

24 | P a g e
Henager, R., & Cude, B. J. (2016). Financial literacy and long- and short-term financial behavior
in different age groups. Journal of Financial Counseling and Planning , 3-19.

International Finance Corporation:. (2017). Equitable Growth throigh Financial Inclusion.

washington, DC 20433 uSA: International Finance Corporation.

International Network on Financial,OECD. (2011). Measuring Financial Literacy: Questionnaire

and Guidance Notes for conducting. 31.

International Network on Financial;OECD. (2011). Measuring Financial Literacy: Questionnaire

and Guidance Notes for conducting. 31.

Lynch, M. (2016). Financial literacy in college undergraduates following the 2008-2009

recession. 22-42.

Nandanan, P., & Fernandez, D. P. (2017). A Study on the Gender Differences in the Spending
Attitude and Behavior of IT Professionals in Urban Bangalore. International Journal of
Business and Management Invention , 55-59.

Nyamute, W., & Maina, J. M. (2007). Effects of Financial Literacy on Personal Financial
Management Practices .

Pillai, D. K., Carlo, R., & D‟souza, R. (2012). Financial prudence among youth. The Journal
Contemporary Management Research , 52-68.

Royal Civil Service Commission. (2015). Annual Report (April 2014 to June 2015): State of the
Royal Civil Service. Thimphu: Royal Government of Bhutan.

Royal Monetary Authority . (2018). National Fiancial Literacy Strategy 2018-2030. Thimphu.

SAARC FINANCE Group. (2013). A Half -Yearly Publication of the Regional Network of
SAARC Central Bank. Maldives Monetary Authority.

Te‟eni-Harari, T. (2016). Financial literacy among children: the role of involvement in saving
money. 197-208.

25 | P a g e
Yong, H.-N. A., & Tan, K.-L. (2015). The influence of financial literacy towards risk tolerance.
International Journal of Business and Society , 469-484.

26 | P a g e
 Appendix: Questionnaire
Respected sir/Madam,
The purpose of this study is "to explore the impact of financial literacy on individual saving and
spending habits in RIM". The information collected through this survey will be purely for
academic purpose and the confidentiality and anonymity of the respondents will be maintained.
The study shall ensure that respondent‟s personal information will not be used beyond the
research purpose. Therefore, I look forward to your earnest participation.
Phurpa Wangmo
PGDPA
RIM, Simtokha

SECTION A: DEMOGRAPHIC INFORMATION

1. What is your gender?

 Male [ ]
 Female [ ]

2. What is your age in years?

 20-30 [ ]
 31-40 [ ]
 41-50 [ ]
 Over 50 [ ]

3. What is your marital Status?

 Single [ ]
 Married [ ]
 Divorced [ ]
 Widowed [ ]

4. Please indicate your current level of earnings in ngultrum

 Below 15,000 [ ]
 16,000- 25,000 [ ]
 26,000-35,000 [ ]
 Over 35,000 [ ]

Please indicate how you spend your monthly income in the table below.

27 | P a g e
Sl.No Ways of Percentage of spending
. spending
Less than 16%-30% 31%-45% 46%-60% 61%-75% More than
15% 75%
1 House rent

2 Foods

3 Entertainment

4 Saving

5 Transportation

6 Other
Expenditure

28 | P a g e
SECTION B: FINANCIAL LITERACY
Knowledge

1. Imagine that five brothers are given a gift of Nu.1000. If the brothers have to share the
money equally how much does each one get?
Answer:
2. Now imagine that the brothers have to wait for one year to get their share of the X. In one
year‟s time will they be able to buy:
a) More
b) the same amount
c) less than they could buy today
3. You lend X to a friend one evening and he gives you X back the next day. How much
interest has he paid on this loan?
Answer:
4. Suppose you put Nu.100 into a savings account with a guaranteed interest rate of 2% per
year. You don‟t make any further payments into this account and you don‟t withdraw any
money. How much would be in the account at the end of the first year, once the interest
payment is made?
Answer:
5. And how much would be in the account at the end of five years? Would it be:
a)More than Nu.110
b) Exactly Nu.110
c) Less than Nu.110
d) Or is it impossible to tell from the information given
6. An investment with a high return is likely to be high risk
[True/False]

7. High inflation means that the cost of living is increasing rapidly

[True/False]

8. 8. It is usually possible to reduce the risk of investing in the stock market by buying a
widerange of stocks and shares.
[True/False]

29 | P a g e
Behavior
Tick only one option per statement. Use: 1- Strongly Disagree, 2- Disagree, 3- Neutral (Neither
Agree nor Disagree) 4- Agree and 5- Strongly Agree

6. Who is responsible for day-to-day decisions about money in your household?

Statements 1 2 3 4 5
1. Before I buy something I carefully
consider whether I can afford it
2. I pay my bills on time

3. I keep a close personal watch on my

financial affairs
4. I set long term financial goals and strive
to achieve them
5. I purchase a financial product after
gathering information about it.
Answer:

7. Sometimes people find that their income does not quite cover their living costs. In the last 12
months, has this happened to you?
 Yes
 No
a. What did you do to make ends meet the last time this happened?
Answer:

8. In the past 12 months have you been [personally] saving money in any of the following ways,
whether or not you still have the money?
 Saving cash at home or in your wallet
 Paying money into a savings account
 Giving money to family to save on your behalf
 I don‟t save

30 | P a g e
Attitude

Tick only one option per statement. Use: 1- Strongly Disagree, 2- Disagree, 3- Neutral (Neither
Agree nor Disagree) 4- Agree and 5- Strongly Agree
Statements 1 2 3 4 5
I tend to live for today and let tomorrow take care
of itself
I find it more satisfying to spend money than to
save it for the long term

Money is there to be spent

SECTION C: SAVING HABITS

Tick only one option per statement. Use: 1- Strongly Disagree, 2- Disagree, 3- Neutral (Neither
Agree nor Disagree) 4- Agree and 5- Strongly Agree
1 2 3 4 5
I save / invest out of each money I receive

I save at least 10 percent of my gross monthly income

I am interested in setting saving goals

I increase my savings when I receive increase in salary

I am the kind of person who always looks to save

money
I am satisfied with my present rate of savings and
investment accumulation.
I am prepared to risk some of my own money when
saving or making an investment
I set aside funds for the expenses I think I will have to
cover in the future

31 | P a g e
SECTION D: SPENDING HABITS
Tick only one option per statement. Use: 1- Strongly Disagree, 2- Disagree, 3- Neutral (Neither
Agree nor Disagree) 4- Agree and 5- Strongly Agree
Statements 1 2 3 4 5

I track some or all my expenses

I compare prices for major expenses

I use a spending plan or budget

I spend less than income

I closely watch the amount I spend

I purchase only what I need

I purchase a financial product after gathering

information about it.
I keep record of my expenses

32 | P a g e