Financial literacy of Slovak universities' students - Papers.ssrn.com

2 downloads 0 Views 561KB Size Report
level of financial literacy, therefore it is appropriate to search this issue in depth. ... on financial literacy, than we provide selected surveys in this area and make ...
www.business-systemsreview.org

ISSN: 2280-3866

Business Systems Review

Volume 3, Issue 1 January-June 2014

Financial literacy of Slovak universities’ students Michal Pružinský Professor Ing. CSc., University of Economics in Bratislava, Faculty of Business Economics in Košice, Slovakia. e-mail: [email protected]. Corresponding author Bohuslava Mihalčová Professor Ing. PhD., University of Economics in Bratislava, Faculty of Business Economics in Košice, Slovakia. e-mail: [email protected]. Submitted: March 11, 2014 / Accepted: April 15, 2014 / Published online: April, 18, 2014. DOI: 10.7350/BSR.D04.2014 – URL: http://dx.medra.org/10.7350/BSR.D04.2014 ABSTRACT Many of us understand the ability to read or write also within the term of financial literacy (Zarcadoolas, Pleasan & Greer 2006). But we may see the numbers of areas in which people show functional literacy, for example cultural literacy, emotional, media, financial, health literacy and so on. A key element in people’s decision making in all areas of their lives is financial literacy. Ability to understand financial products which normally people come into a contact is a reflection of financial literacy of everyone. General problem of society is inadequate level of financial literacy, therefore it is appropriate to search this issue in depth. Within the first part of this paper we deal with defining literacy in a general way, further we explore more details on financial literacy, than we provide selected surveys in this area and make proposals and measures for improving of financial education. In case those university students have a higher level of financial literacy they may be a contribution to whole society in sharing the knowledge within their environment. Keywords: financial literacy, financial education, financial product, survey.

1. INTRODUCTION Education is an important part of our everyday life. It has been available for people in various business, social and economic areas since ancient times. Therefore, adequate attention has to be given to this important issue. Education is also a process which is the gateway to literacy. Financial education is an important type of education. Financial education is becoming a key aspect in decision making on all the issues related to our day-to-day life (Lusardi & Mitchelli, 2007). The low level of financial literacy is a worldwide problem, and it is more than appropriate that such an in-depth study of this issue be performed. The acquisition of financial literacy is not This work is licensed under the Creative Commons Attribution 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by/3

48

Business Systems Review, ISSN: 2280-3866 Volume 3, Issue 1 January - June 2014

just about skills, we identify manage their finances, but also on knowledge of facts and technical terms from the field. The aim of the present paper is, first of all, to define in general terms financial literacy, deal with financial literacy and selected surveys in this area as well as to define indicators of financial education and financial literacy. This contribution is part of the starting points of the scientific project VEGA 1/0474/12 financial literacy of university students in Slovakia.

2. FINANCIAL LITERACY AND FINANCIAL EDUCATION Already in the 70s of the last century took place heated discussion on the issue of how to build literacy, which is not only trans-disciplinary problem, but it becomes a lifelong phenomenon. The idea of financial education was part of the European agenda long before the birth of the crisis, but was received with understanding. Politicians in national policy making are employed much more "important" issues to better inform and protect consumers. Therefore they did take no steps to ensure long-term financial education. Fluctuations and pressures on the world's financial and capital markets, as well as insurance and bank failures in the context of the global financial crisis, but they precede new consumer issues. Negative indicators in the field of employment – unemployment rate in the euro area in 2010 increased to 10% and in 2011 reached 9.9%. This is the highest growth rate since 2000, suggesting weakness and instability brought economic growth. The threat is uncertainty in the financial markets, the problem with the deficit and public debt in the EU. State of public finances in the European Union countries during the crisis worsened. The average deficit reached 7% of GDP and the debt ratio over 80% of GDP, well above the reference value of the Maastricht criteria of 3% and 60%. (Kubátová 2011; Obadi et al., 2011). 2.1 Financial literacy and households’ debts It’s also necessary to mention the impact of the economic crisis on the ever increasing indebtedness of households in the world. We show in Table 1 (see appendix). households’ debts in relation to GDPs in the euro zone countries. According to the Eurostat measurements the indebtedness of Slovak households in the year 2011 was the lowest among 17 euro zone members. Bank lending’s to households in proportion to GDP is 24.9%. Why so? One of the likely factors may be lower incomes of families that in comparison with other euro zone countries make it impossible for Slovak population to get loans in the same amounts as in the countries with higher average salaries. Another factor is in minds of the people who did not use loans for households very often. Even for buying the apartments. It was not possible to buy an apartment during the socialistic collective economy. The apartments were given to the families just for use of them. People may build the houses just for themselves, but on the land (property) belong to the state. They built the houses for themselves primarily on the countryside. They built the houses but they had to rent the land under the house (e. g. for 100 years). The loans for inhabitants were provided mainly for furnishing of the apartments, because percentage of people who built the house was app. 3 %. The interest was very low (below 6%) at that time. Young couples who furnished the apartments did have more extras from the government (e. g. special loan with 2% interest, discount for each child born within the loan period). But people did not own the

This work is licensed under the Creative Commons Attribution 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by/3

49

Business Systems Review, ISSN: 2280-3866 Volume 3, Issue 1 January - June 2014

apartments. They were just the users of flats, which were belonging to the country collective ownership. These conditions were simple, but very strict and had to be obeyed by all. Since 1989 velvet revolution the situation had changed and people have to buy apartments. People do not have experience and relationship towards the properties. There is a majority of people who do not exercise proper way have to care for the property (e. g. acquisition, construction, reconstruction). They are very often targeted by non-bank subjects who offer them unfair loans. Unfortunately the result of that is the people are losing the property. We may observe a lack of knowledge in this field. That is the reason why a significant part of the debt is incurred by mortgage loans for housing; then they are bank consumer loans and non-bank loans. Indebtedness of households doesn’t have to be assessed as a negative phenomenon, as they can increase their consumption alongside uneven development of their incomes. While the level of household indebtedness in relation to GDP in Slovakia is still satisfactory, it is assessed as being high in relation to the financial assets. Households have not been able to increase the profitability of financial assets for a long time, the reason for which lies in certain models of households’ behaviour characterized mainly by conservatism with strong orientation to cash and current or savings bank accounts. So, why mention all this? Because of its close relation to financial literacy, for example, what type of credit to accept, which institution to go for, how to behave in relationship with a credit provider, which model of behaviour to follow, etc. 2.2 Financial literacy in selected countries and Slovakia The term literacy encompasses many areas and is called using a general term functional literacy. Functional literacy (Kirsch, 1986) is the ability to use printed and written material to fulfil one’s different needs at home, to function in society, to achieve one's personal and professional goals, etc., it is also a tool to broaden knowledge and develop one’s potential. The components of functional literacy include e.g. health, institutional, cartographic, media, emotional, cultural, digital literacy and, naturally, financial literacy which is the focus of our attention in this paper. Financial literacy can be defined as the ability to use knowledge, skills and experience of an individual to make effective decisions regarding the use and management of their own finances to provide life-long financial security for themselves and their families. Therefore, it means having an ability to understand basic financial products people deal with in their everyday lives that considerably affect their economic situation and welfare. Whatever the definition of financial literacy is, its importance is ever growing. The level of financial literacy varies a lot across the EU. Most educational systems in this field surveyed in Great Britain, Germany, Austria, Holland and France. They are modern and provide high quality education. In spite of that in certain areas they have proved to be inefficient. But situation in Eastern Europe is not the same. Poland is the most active Member State in Eastern Europe in terms of financial education activities. Bulgaria, Latvia, Luxemburg, Slovenia, Slovakia and Romania seem to be active but only in the areas related to the EU multinational programs. Evaluation of the 2004 survey showed a very low value of the level of financial literacy – the sixpoint scale to the Quartet (the unit was excellent understanding of financial terms and their adequate application in practice). The survey results also yielded interesting findings regarding the status of financially literate people – are mostly elderly, have multiple higher incomes than people financially illiterate, increasingly are married or married, have children and are the owners This work is licensed under the Creative Commons Attribution 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by/3

50

Business Systems Review, ISSN: 2280-3866 Volume 3, Issue 1 January - June 2014

of a credit card and a bank account. Rarely pumped limit credit card and do not get into debt. The survey confirmed the difference in financial literacy between men and women (Baláž 2006). Research conducted in 2010 focused on the comparison of financial literacy EU Member States identified 216 programs to improve financial literacy in the Member States. Most of these programs are implemented in schools or universities. The main objective is to enable participants to understand the nature of money and provide management information and financial planning. An example of this type of system is Finanzführerschein (Financial Driving Licence) in Austria. Generally, 25% of programs are targeted at low-income groups or Group of little education. Most of them are conducted by non-profit associations or consumer protection bodies (e.g. Blijf Positief in the Netherlands, Money and Help in the UK and My Finances in Poland). Bank rate rating company regularly reviews financial literacy in the United States. Those programs use typically multiple tools and channels for communicating their ideas: - 48% use four or more channels/tools, - 17% use six or more channels/tools (e. g, Finance & Education in France). The most commonly used channels are websites, flyers/brochures, printed manuals and training. Schemes are usually at the national or regional level within a country. This is understandable, since a large part of the contents depend on the language. Very few programs are operating across national borders (Hlavatý, 2011). The survey are generally interested in the search of the most favourable mortgage interest, understanding savings, monthly expenditure structure, the tax return, living fuses, functioning of credit cards and the repayment obligations. The results of similar surveys in Japan indicated a low level of financial literacy, while 57% of people do not understand how to use the financial products, 29% of people have no knowledge of life insurance and 71% of the population cannot deal with securities. In Australia 67% of respondents claimed they know what it is compound interest. However, in presenting a concrete example just 28% respondents really understood what is going on. An example of financial education in the Czech Republic is an integration of it into school curriculum. The main target groups for financial education are both the children and young adults. At present one of the most important tools of financial education is the Internet. Another fact is that every sixth system of financial education is operated by private providers of financial services. The providers mostly focus on their customers; however, its contents remain disinterested. In Slovakia is situation very similar. There were several try to provide financial education within the curriculum at the basic and middle schools for both the children and young adults. But results were only partial, because only small part of topic was shared within civic courses (subjects) of the curriculums. Like in Czech Republic the price for internet connection in Slovakia is low in comparison to another EU countries (e. g. €15 per month for three play service (TV channels, IP phone and internet) via optic cable or Wi-Fi receiver, or €8 per month access with no data limit by mobile network providers). Another fact is that every sixth system of financial education provided by any means is operated by private providers of financial services. The providers mostly focus on their customers; however, its contents remain disinterested. The financial literacy in Slovakia is agenda also for governmental bodies. Ministerial expert group developed draft material on financial literacy in 2008. The group was created by experts from the Slovak Ministry of Education, Science and Sports (further “MESSSR” only) and Slovak Ministry of Finance This work is licensed under the Creative Commons Attribution 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by/3

51

Business Systems Review, ISSN: 2280-3866 Volume 3, Issue 1 January - June 2014

(further “MFSR” only). It prepared the document “The National standard of financial literacy version 1.0”. The document determines the extent of knowledge, skills and experience in the area of financial education and management of personal finances. Another active organisation in the field of financial education is the Slovak Banking Association. It conducted a survey of financial literacy of the Slovak citizens on a poll of 1107 respondents. The data were collected through onsite face-to-face interviews in the respondents’ households by trained interviewers of the MVK agency (Slovak reputable agency offering market research, media and public opinion). The survey showed that there existed a relatively close relationship between the respondents’ real level of financial literacy and their self-assessment. Respondents’financial literacy was lower than level of self-assessment. The average index value of respondents’ financial literacy scored by the survey was 0.56 points which reflected an average knowledge of personal finances. In August 2012 „Partners Group” in cooperation with the Focus agency (another Slovak reputable agency offering market research, media and public opinion) conducted a survey of financial literacy among Slovaks (720 respondents over age 18). The data confirmed that the level of Slovaks’ financial knowledge is the same problem as in many countries worldwide. The questions were focused once again on basic financial knowledge in the area of economics and finances based on common financial terms we deal with on a daily routine. According to this survey the average level of financial literacy of Slovaks was 62.50%. The knowledge on investments and bank products were identified as the weakest areas. Better results were obtained in the areas of pensions and insurance. More than half of the respondents were not able to judge if a loan was worth taking or not and did not know that the amount of gains was dependant on the size of the risk. Furthermore, over 70% had a problem to differentiate between various types of investments and the risks associated with them and almost half of the interviewed people did not save absolutely anything from their monthly salaries. Comparison of the results of surveys carried out in the year 2007 and 2012 shows that financial literacy has somewhat improved (scores rose from 56% to 62,5%) as well as the trend of financial education and more responsible approach of consumers themselves. In spite of that fact the level of financial education in the Slovak Republic is below European average (approx. 75%).

3. FINANCIAL LITERACY WITHIN COLLEGE STUDENTS AT DIFFERENT SLOVAK UNIVERSITIES We do believe that increasing of financial literacy in the future within the society may be significantly influenced by the university graduates. They could simply share their knowledge in this field with their family members, and people who will work for them. They also use very often the communication and we may say in many ways educative channel we did not meant yet very powerful system of the social networks. Spreading of information via this tool is very wide and quick. That is a primarily reason we do research and use extensive survey on the level of financial literacy of college students. Once their score is high they could positively increase the knowledge of majority of society. We search for student opinions by distributing questionnaires in the fall of summer semester of academic year 2012/2013 under the supervision of the authors at selected colleges in Slovakia. The targeted groups were student of major study fields in Economics and

This work is licensed under the Creative Commons Attribution 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by/3

52

Business Systems Review, ISSN: 2280-3866 Volume 3, Issue 1 January - June 2014

Management. Within the questionnaire we also tested the level of knowledge, or opinions on four aspects: a) Management of finances – to be able to develop a family budget and check income and expenses categories; b) Planning of financial income and expenses – to incorporate future needs, both expected and unexpected, into the budget; c) Choice of suitable banking products – every now and again to monitor products, analyse them and choose the right ones to suit particular needs and circumstances; d) Database of product providers – a consumer should be informed about the provider of the service. He or she is interested in and under what circumstances it is possible to make a request. What service package will the given to the customer by provider offer within a particular category management. We have distributed questionnaire within student at four universities. Respondents to a questionnaire survey on the level of financial literacy of university students were as follows: where the student has the opportunity to study Economics and Management: 1. University of Technology in Košice, Aeronautic Faculty (further “College 1” only): (59 Bachelor students and 25 Master degree students). 2. University of Technology in Košice, Faculty of Mining, Ecology, Process Control and Geotechnology (further “College 2” only): (26 Bachelor students and 31 Master degree students). 3. Catholic University in Ružomberok, Faculty of Education (further “College 3” only): (53 Bachelor students and 38 Master degree students). 4. University of Economics in Bratislava, Faculty of Business Economics in Košice (further “College 4” only): (51 Bachelor students and 61 Master degree students. 3.1 Queries, primarily research outcomes and methodology We organized questions in three parts, in which the students commented on the following areas: Part 1 – Relationship to finance - questions from 1 to 6. Part 2 – Knowledge - questions from 7 to 16. Part 3 – Demographic - questions from 17 to 22. We assumed the answers within Part 1 and Part 2 are the most important to financial literacy. They provide factual material for conducting analysis and formulating solutions. Questions of demographic circuit within Part 3 allowed us to get a better overview and efficient processing and understanding the data obtained from respondents. The questions are as below: Part 1:  1 What do you mean by financial literacy? (Please write your opinion)  2 What is your relationship to savings? This work is licensed under the Creative Commons Attribution 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by/3

53

Business Systems Review, ISSN: 2280-3866 Volume 3, Issue 1 January - June 2014

 3 What is your relationship to debt?  4 What is your relationship to insurance?  5 What is your relationship to invest?  6 Who is your adviser in managing own finances?  7 Which aims to increase living standards are important to you (sort by priority from 1-5)? Part 2:  8 What mean the terms real and nominal pension?  9 What type of insurance is more appropriate for people who expect the insurance greater stability and lower risk?  10 Can a limited liability company to provide consumer credit?  11 If the consumer repays the credit to the consumer prior to maturity, the creditor is entitled to reimbursement of costs, namely:  12 Whichever is for you to decide on the loan authoritative?  13 When withdrawing cash from an ATM by debit card you need:  14 Deposit is:  15 Leases - leases generally mean:  16 When paying by credit card in a store or withdrawing funds from an ATM Part 3:  17 Sex:  18 Age:  19 Form of study  20 Level of study  21 Specify the name of the city/town in which you study...  22 Indicate the name of the university, respectively college at which you are studying. We provide variable answers in the columns from a to e in Table 2 (see appendix). We wrote short form of variables answers within table columns. According to meaning of each question we offered in some question 2, or 3, respectively 4, or 5, and for 2 questions 6 variable answers. Data from the first part of questionnaire proved that the very concept of financial literacy was understood by most students of all schools surveyed. For example open question 1: What do you mean by financial literacy? The students showed lots of opinions that proved they have adequate knowledge that generally correlate with its definition. 81% of respondents’ surveyed schools have managed properly defined. There is also another open question 7: What are the goals of increasing living standards are important to you (sort of priority from 1-5). The students most of time marked responses: b, c, or e. It means they prioritized securing the future of their children, secure their old age and an increase in income. We provide correct answers on questions within part 2 of the questionnaire bellow. These questions helped us to test students’knowledge. Proper answers are as follows: question 8 - b, question 9 - a, question 10 - a, question 11 - a, question 12 - c, question 13 - b, question 14 - a, question 15 - a, and question 16 - b. We provide a collection of answers of bachelor studies in Table 2. Because of significant amount of data we use in this article only data from bachelors students. We analysed data in order to find solutions and recommendations to improve the state in financial literacy of university students, and identify the fields for development. We did not include into Table 2 the answers for open This work is licensed under the Creative Commons Attribution 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by/3

54

Business Systems Review, ISSN: 2280-3866 Volume 3, Issue 1 January - June 2014

questions. Even they are important the diversity is so significant and wide that it is not preferable to use them for statistics. Further we did not include data on unique question 21: Specify the name of the town in which you study. Answers on these questions helped us in data processing, but they are not influencing the research results in the financial literacy field. The same we may say regarding to question 22: Indicate the name of the university, respectively college at which you are studying. 3.2 Results and findings based on elaboration of data from questionnaires We processed the data from questionnaires. We compared occurrence variable answers on each question from different colleges’ students. We have got numerous variations that do not allow us to explore all of them in this article. We explain further steps on example of data for the 2nd question obtained from bachelor students. In Table 3 (see appendix) we provide the percentages of variable answers. We show graphical visualisation of percentages of variable answer on question No 2 in Graph 1 (see appendix) like an example of comparing the data. The students from three colleges have the like percentage for 3 variable answers. Only students from University of Economics in Bratislava, Faculty of Business Economics in Košice (see light blue coloured x line) answered this question with significant difference. Their charged variant a) “I do not know how, or not able to save” 7 more times than students of 2 others colleges. If we look at variable answer d) “I always put aside some part of income and I live from what I remain” of 2nd question (see Table 2. 4th line 5th column) we observe similar percentage appearance of this variable answer. Maximum difference between colleges is 9.5%. This is an example how we found out in states, similarities and bigger differences between colleges’ students financial literacy. We may closely look to Table 2. and to see differences in answers and evaluate percentage and also ratio differences between colleges. We show in Table 4 (see appendix) an example of variable answers on question No 2 “What is your relationship to savings?”. Significant correlation 0,90 is between answers from students of Catholic University in Ružomberok, Faculty of Education and students of Technical University in Kosice, Faculty of Aeronautics. When we have had been solving the correlations of answers on Question 3 “What is your relationship to debt” we found the strongest answers correlation 0,98 between 2 colleges from Technical University in Kosice, Faculty of Aeronautics and Faculty of Mining, Ecology, Process Control and Geotechnology. Majority (47.5% students) be aware of debt. 36,2% of students loan only if it is necessary. Question No 4 “What is your relationship to insurance” was answered with high correlation 0,99 again between 2 colleges mentioned above. Substantial majority 60.1% students insure themselves for secure of unexpected situation. Also question No 5 “What is your relationship to invest” was answered with the highest correlation between 2 colleges mentioned above. Testing confirmed correlation coefficient 0,73. Students on average 44.2% of them invest of non spent income. If we want learn more details for example in the student managing own finances we followed answers on question No 6: Who is your adviser in managing own finances” High percentage of student within colleges (e.g. from 25.4% to 34.6%) in average 29.8% tries to find information from non/depended bodies. We may observe wider scale of students’ intent in finding recommendation from financial institution (e.g. from 20.3% to 38%) in average 28.2%. Surprisingly for us students prefer rather information from media (e.g. from 17% to 34%) in average 26.8% then friend’s references (e.g. from 5.9% to 20.3%) in average 15.1%. After the This work is licensed under the Creative Commons Attribution 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by/3

55

Business Systems Review, ISSN: 2280-3866 Volume 3, Issue 1 January - June 2014

evaluation and comparisons of variables from the entire questions we search for significant correlations between colleges. The highest correlation 0,87 is between students from Catholic University in Ružomberok, Faculty of Education and University of Economics in Bratislava, Faculty of Business Economics in Košice. Question No 7 “Which aims to increase living standards are important to you (sort by priority from 1-5)” was comparatively answered by students from 2 colleges mentioned above with correlation 0,79. The most students (in average 37.7%) want a provision for older age. On question No 8 “What mean the terms real and nominal pension” we got highest correlation 0,99 between students of Catholic University in Ružomberok, Faculty of Education and Technical University in Košice, Faculty of Aeronautics. On average 56.3% answered that is the real income, which for a given amount of money can buy, the nominal pension expressed in monetary terms. Following questions with just two variable answers we did not examine for correlations. Question No 9 “What type of insurance is more appropriate for people who expect the insurance greater stability and lower risk” was answered by 65.7% students in favour of capital insurance and rest of them for investment insurance. Question No 10 “Can a limited liability company to provide consumer credit?” majority 62.9% students properly answered that there is not a possibility to obtain consumer credit from L.td. enterprises. Question No 11 “If the consumer repays the credit to the consumer prior to maturity, the creditor is entitled to reimbursement of costs, namely” majority of students 66% answered properly that amount of compensation cost may not exceed 1 % of the paid-up consumer loan before maturity. On question No 14 “Deposit is” majority 68.7% students properly answered that deposit to be paid before the goods or services. Question No 17 “Sex:” provide for us interesting findings. 63.5% of respondents were girls and 36.7% boys. The majority of all respondents within all of the colleges were girls. Question No 16 “When paying by credit card in a store or withdrawing funds from an ATM” majority 59% students properly answered: the credit card holder used his/her own funds as in the case of debit cards. Question No 18 “Age” confirmed that majority 90.2% students are aged from 18 to 23 years. The most students 96.1% in this age study at the Technical University in Kosice, Faculty of Aeronautics. Question No 19 “Form of study” 100% students answered full time study at all of the colleges. Answers on question No 20 “Level of study program” was 100% bachelor level of study from all of the colleges. The answers on these questions clearly stated the percentage of proper or preferred answers. In other words the answers declare financial literacy indexes. Question No 12 “Whichever is for you to decide on the loan authoritative?” was comparable answered with correlation 0,96 by 2 colleges from Technical University in Kosice, Faculty of Aeronautics and Faculty of Mining, Ecology, Process Control and Geotechnology. There are 36.5% students who favour interest rate in questioning on decision the loan authoritative. Question No 13 “When withdrawing cash from an ATM by debit card you need” was answered with high correlation 0,99 between, in this case, 3 colleges: Catholic University in Ružomberok, Faculty of Education, Technical University in Kosice, Faculty of Aeronautics, and University of Economics in Bratislava, Faculty of Business Economics in Košice. Majority 96.8% students answer properly that for withdrawing cash from an ATM by debit card they need PIN code. Students answered question No 15 “Leases - leases generally mean” with high correlation 0,96 between students of Catholic University in Ružomberok, Faculty of Education and Technical University in Košice, Faculty of Mining, Ecology, Process Control and Geotechnology. Majority 52% students answered question Leases - leases generally means the form of credit.

This work is licensed under the Creative Commons Attribution 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by/3

56

Business Systems Review, ISSN: 2280-3866 Volume 3, Issue 1 January - June 2014

4. IMPROVING THE LEVEL OF FINANCIAL LITERACY We found out that the most of correlations occurred 4 times (for questions 3, 4, 5, and 12) between 2 colleges of Technical University in Košice, Faculty of Aeronautics and Faculty of Mining, Ecology, Process Control and Geotechnology. Then 2 times (for questions 2, and 8) between students of Catholic University in Ružomberok, Faculty of Education and students of Technical University in Kosice, Faculty of Aeronautics and 2 times (for questions 6, and 7) also between Catholic University in Ružomberok, Faculty of Education and University of Economics in Bratislava, Faculty of Business Economics in Košice. We observed just 1 time of the highest correlation between answers for question 15 between Catholic University in Ružomberok, Faculty of Education and Technical University in Košice, Faculty of Mining, Ecology, Process Control and Geotechnology. We observed the highest correlation on question 13 between 3 colleges University of Economics in Bratislava, Faculty of Business Economics in Košice, Technical University in Kosice, Faculty of Aeronautics, and Catholic University in Ružomberok, Faculty of Education). We did not find highest correlation between Technical University in Košice, Faculty of Aeronautics and Faculty of Business Economics in Košice and between Technical University in Košice, Faculty of Mining, Ecology and University of Economics in Bratislava, Faculty of Business Economics in Košice. Our evaluation of level of the knowledge on financial literacy between university students proved that they have to be prepared for present EU strategy that identifies a vision for the next decade based on three driving forces of economic growth: smart growth (support development of knowledge, innovation, education and digital society), sustainable growth (resource efficiency and promoting a competitive low – carbon economy), and inclusive growth (raising employment rates and poverty reduction). At EU level, considering the five main objectives that Member States will have to be translated into national targets: employment indicator (employment rate of the population aged 20-64 years is expected to reach 75%), funding research and development (level of investment in science and research should reach 3% of GDP) targets on climate and energy (should reach 20-20-20) ; area of education (reducing the proportion of people who leave school early and increase the number of people with university education); area poverty (the number of people at risk of poverty) (Europe 2020, p. 5). As part of the strategy and its momentum “smart growth” is the task of us all enhance the level of financial literacy. For the system of education in this area functional, it is necessary that training covered all market segments and target groups. The way in education of people by university graduates is very effective and brings the knowledge within the relatives and future subordinates. This is an advantage in comparison with the official channels who address mainly primary and secondary schools. The graduates should be effective in sharing the knowledge within elderly (senior age people), or socially disadvantaged families, because these segments are perhaps the most affected. As can be seen from the surface of the demographic development in Slovakia (the population is projected to decline to 4.8 million people by 2050 from the recent 5.42 million inhabitants), the consequences are fatal (e.g. retirees will not be able to rely on their welfare state), so be it “today” to begin the process of financial education. As for low-income families, they are given the reliance on consumer loans where no collateral is needed, getting into a debt spiral. Most of the inhabitants of this group are not able to responsibly assess their financial capabilities.

This work is licensed under the Creative Commons Attribution 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by/3

57

Business Systems Review, ISSN: 2280-3866 Volume 3, Issue 1 January - June 2014

Students should be able to develop a family budget and check income and expenses categories; incorporate future needs, both expected and unexpected, into the budget; monitor products, analyse them and choose the right ones to suit particular needs and circumstances. The consumers generally should be informed about the provider of the service and under what circumstances it’s possible to make a request and what service package will the given provider offer within a particular category management. Apart from these indicators we recommend to master the relationship between the necessaries of life and finances, learn basic ethical relationship between wealth and poverty, understand the issues relating to an individual and family in the economic sphere, learn what it means to live economically as well as to understand the term risk and be able to identify its basic types. By educating a person in the above-mentioned areas, he or she will be able to acquire competencies essential for financial literacy such as: - Be able to assess life’s priorities and determine basic resources to provide the necessaries of life, - Have the competency to differentiate between reliable and unreliable information about decision-making processes in the financial area, - Have competencies to manage finances, - Have the competence to organize personal finances, use the budget, and borrow money with the lowest risk rate as well as to assess directions of investment. 5. CONCLUSION Financial literacy is not an absolute state even within university students. It is a continuum of abilities that are subjects to variables such as age, family, culture, education, business, and residence. They refer to an evolving state of competency that enables each individual to respond effectively to new personal events and ever-changing economic environment. In today’s modern world it plays an important role being a gate pass to education, ability to gain and process necessary information or deal with a variety of other everyday life issues. The results of our surveys show that the level of knowledge and expertise in this area is above an average. They become the sources for sharing it within the society. Besides having the right to access transparent information, it is also a person’s responsibility to get familiar with it as well as to transform it into their day-to-day life. University graduates may be of hand in this effort. Even though various institutions are interested in educating clients in this area, the ability to make a correct choice among a new wide range of products and services offered by a whole lot of their providers as well as their implementation in practice depends to a great extent on consumer‘s motivation to train. University students may significantly motivate their relatives, subordinates even people from marginal groups in starting the process in getting better in financial literacy.

ACKNOWLEDGEMENTS The paper is part of the theoretical basis of the scientific project VEGA No 1/0474/12 Financial literacy of undergraduate students in Slovakia. Currently, an extensive survey aimed at determining the level of financial literacy of undergraduate students was conducted at higher This work is licensed under the Creative Commons Attribution 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by/3

58

Business Systems Review, ISSN: 2280-3866 Volume 3, Issue 1 January - June 2014

educational institutions in Slovakia with focus on the study fields of economics and management. Its results will be disseminated through conferences and in world renowned journals.

REFERENCES Baláž, V. (2006). Finančná gramotnosť je slabá : Čo všetko človek (ne)vie o svojich peniazoch? In Investor: sprievodca vo svete financií. Bratislava: FOND SHOP, marec 2006, roč. 7, č. 3, s. 33-35. Čarnogurský, J. (2011). Polícia otáča? [online]. [Cited 11.01.2013]. Retrieved from: http://blog.aktualne.centrum.cz/blogy/janarnogursky.php?blogid=164&archive=2011-02 Hlavatý, I. (2011). Podpora finančnej gramotnosti v krajinách EÚ. Finančná gramotnosť ako súčasť ekonomického vzdelávania. Zborník príspevkov z medzinárodnej vedeckej konferencie. Bratislava, NHF EU, s. 47-50. Huston, S. J. (2010). Measuring Financial Literacy. Journal of Consumer Affairs, Special Issue: Financial Literacy, 44(2): 296–316. Kirsch, I. S. (1986). Literacy profiles of America´s young adults. Research paper. Princeton NJ: Educational Testing Service. Kubátová, K. (Ed.) (2011). Verejné finance a monetární politika v EU a jejich vliv na mezinárodní podnikání. Praha: MATFYZPRESS, 2011. 119 s. ISBN 9788073781118. Lusardi, A., Mitchelli, O. (2007). Financial literacy and retirement preparedness: Evidence and implications for financial education. Business Economics, 42(1): 35-44. ŠTÁTNY INŠTITÚT ODBORNÉHO VZDELÁVANIA. (2008). Národný štandard finančnej gramotnosti. Retrieved 11.01.2014: http://www.siov.sk/narodny-standard-financnejgramotnosti-bwd/16534s. Obadi, S. H., Brzica, D., Bujňáková, T., Hošoff, B., Hvozdíková, V., Pauhofová, I., Staněk, P., Šikula, M., Šikulová, I. & Vokoun, J. (2011). Vývoj a perspektívy svetovej ekonomiky. Spomalenie rastu a vysoká nezamestnanosť. Bratislava: Ekonomický ústav SAV, 261 s. ISBN 978-80-7144-185-4. Pastoráková, E. (2011). Výzvy a prekážky finančnej gramotnosti v oblasti poisťovníctva. In: Finančná gramotnosť ako súčasť ekonomického vzdelávania. Zborník príspevkov z medzinárodnej vedeckej konferencie. Bratislava, NHF EU, s. 128-132. Poštová Banka. 2013. Zadlženosť slovenských domácností je v rámci eurozóny najnižšia. Retrieved from http://www.postovabanka.sk/sk/o-nas/analyzy-trhu/zaujalo-nas/zadlzenostslovenskych-domacnosti-je-v-ramci-eurozony-najnizsia Slovak Banks‘ Association (2007). Finančná gramotnosť slovenského spotrebiteľa. Retrieved from: http://www.sbaonline.sk/files/subory/analyzy/verejne/fingram-IFIG.pdf Sovics, P. (2012). Quo vadis finančné vzdelávanie? Retrieved from: http://www.nbs.sk/_img/Documents/PUBLIK_NBS_FSR/Biatec/Rok2012/1-2012/02_biatec 12-1_szovisc.pdf This work is licensed under the Creative Commons Attribution 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by/3

59

Business Systems Review, ISSN: 2280-3866 Volume 3, Issue 1 January - June 2014

Zarcadoolas, C., Pleasant, A. F., Greer D. S. (2006). Advancing Health Literacy: A Framework for Understanding and Action. San Francisco: Jossey-Bass.

This work is licensed under the Creative Commons Attribution 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by/3

60

Business Systems Review, ISSN: 2280-3866 Volume 3, Issue 1 January - June 2014

APPENDIX Table 1. Household debts in relation to GDPs Country/year 2011 Slovakia Slovenia Belgium Italy Estonia Austria France Germany Finland Greece Malta Holland Ireland Luxemburg Spain Portugal Cyprus Euro zone

Loans to households (bill. EUR) 17.2 9.5 108.5 618.6 7.0 144.0 1,069.2 1,435.8 110.0 127.6 4.0 419.3 112.7 33.5 859.7 140.6 23.9 5,241.1

Public debt of the country (bill. EUR) 29.9 17.0 361.7 1,897.2 1.0 217.4 1,717.3 2,088.5 93.0 355.6 4.6 392.5 169.3 7.8 735 184.3 12.7 8,215.3

Loans to households/GDP (%) 24.9 26.7 29.5 39.1 43.8 48.0 53.6 55.9 57.4 59.3 62.2 69.6 72.0 78.2 80.1 82.3 134.6 55.7

Public debt/GDP (%) 43.3 47.6 98.2 120.1 6.0 72.4 86.0 81.2 48.6 165.3 71.6 65.2 108.2 18.2 68.5 107.8 71.6 87.3

Source: Eurostat, ECB, calculations of Poštová banka

This work is licensed under the Creative Commons Attribution 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by/3

61

Business Systems Review, ISSN: 2280-3866 Volume 3, Issue 1 January - June 2014

Table 2. Answers on questions from bachelor students of 4 colleges. Question No/ a) [%] b) [%] c) [%] d) [%] Answers 2 (savings) do not now just in short time just for long term put aside part of average value [%] Φ 11.4% Φ 33.4% goals Φ38% income Φ 13.9% Colleges 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 [%] 5.1 0 5.1 35.3 40.7 23 40.7 29.5 41 54 40,7 16.9 13.5 23 13.5 15.6 3 (debt) loan the money loan only if it is beneficial interest Never average value [%] Φ 8.9% necessary Φ 36.2% Φ 8.9% Φ 47.5%

1

Colleges

1

1

[%] 4 (insurance) average value [%] Colleges [%] 5 (investment) average value [%] Colleges [%] 6 (managing own finances) Colleges [%] 7 (aims to increase living standards) Colleges [%] 8 (terms real and nominal pension) Colleges [%]

2

3

4

1

2

3

4

6.8 0 7.5 21.6 waste of money Φ 15.2% 1 2 3 4 8.5 7,7 15.1 29.5 never, afraid of loose Φ 25.7% 1 2 3 4 45.7 30.7 20.7 5.9 friend’s advice Φ 15.1% 1 2 3 4 20.3 19.2 15.1 5.9

27.2 30.7 38 49 bad experience Φ 12.2% 1 2 3 4 6.8 3.8 18.8 19.6 bad experience Φ 14.1% 1 2 3 4 5.1 16.6 15.1 19.6 information from media Φ 26.8% 1 2 3 4 34 26.9 17 29.5

ensure or improve housing Φ 2.1%

ensure the future of children Φ27.6%

1

2

3

4

1

5.1 7.7 7.5 15.6 use insurance Φ 12.4% 1 2 3 4 17 7.7 9.4 15.6 invest of not spent income Φ 44.2% 1 2 3 4 39 38 60.4 39.2 advice from finance. institution Φ 28.2% 1 2 3 4 20 19.2 38 35.6

2

4

60.9 61.5 47 13.8 secure unexpected situation Φ 60.1% 1 2 3 4 67.8 80.8 56.6 35.3 invest 10 % of income Φ 20.5% 1 2 3 4 1.2 14.7 30.7 35.3 non/depended bodies information Φ 29.8% 1 2 3 4 25.4 34.6 29.9 29.5

-

b) [%] investment insurance Φ 36.2% 1 2 3 4 26 23.1 56.6 31.3

1

2 1

3 2

4

3

4

3

4

3

4

1

2 -

1

2 -

1

2

increase revenue Φ 32% 1 31

2 33

3 30

4 34

4

1

2

3

4

e) [%]

-

-

-

2

3

4

1

2

2

2

3

4

1

2

3

4

1

2

3

4

1

2

3

4

3

4

3

4

3

4

1

2

-

the measure of Φ 17% 1 2 3 4

3

4

payback time Φ 16% 1 2 3 4

1

2

other (please specify) Φ 2.1% 1

2

This work is licensed under the Creative Commons Attribution 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by/3

62

3

d) [%]

1

4

3

1

2

2

3

c) [%]

not 62,9% 1 2 3 4 64 61.5 62.3 64 not Φ 66% 1 2 3 4 78 88.5 52.8 45 fees Φ 15.3% 1 2 3 4

4 3

2 -

shall provide for old ensure against loss of age Φ 37.7% income Φ 2%

1 2 3 4 1 2 3 4 1 2 3 4 1 1.9 2 3 1.4 25.1 29 28 28,6 40 38 37 36 1.9 regards synonyms is the real income expresses nominal Φ 4.7% Φ 56.3% pension Φ 38.7% 1 2 3 4 1 2 3 4 1 2 3 4 1 1.7 5.7 11.5 0 49.1 45.3 69.2 62.7 49 49 19.2 37.3

Questions/ a) [%] Answers 9 (kinds of capital insurance insurance) Φ 65,7% Colleges 1 2 3 4 [%] 74 76.9 43.4 68.7 10 (possibility of yes consumer credit Φ 45,2% from Ltd.) Colleges 1 2 3 4 [%] 36 36.5 37.7 70.6 11 reimbursement Yes cannot exceed 1% Φ 33.9% Colleges 1 2 3 4 [%] 22 11.5 47.2 55 12 which loan factor interest your favour Φ 36.5% Colleges 1 2 3 4

3

e) [%]

3

4

Business Systems Review, ISSN: 2280-3866 Volume 3, Issue 1 January - June 2014 [%] 13 (to withdraw from ATM by debit card you need) Colleges [%]

60 61.5 47.2 29.5 15 11.5 7.50 27.5 17 15.4 5.7 PUK code Φ 0%

1 2 3 4 0 0 0 0 deposit to be paid 14 (Deposit is) before the goods or average value [%] services Φ 68.7% Colleges 1 2 3 4 [%] 66.1 73 90.5 45 15 (Leases) Lease Φ 42.5% Colleges 1 2 3 4 [%] 22 65.4 37.7 45 16 (paying by credit client financial means card) Φ 59.1% Colleges 1 2 3 4 [%] 73 61.5 52.8 49 17 (Sex) male Φ 36.7%

PIN code Φ 96.8%

1 2 3 4 33.9 27 9.5 55 Credit form Φ 52.1% 1 2 3 4 71.1 34.6 52.8 50 client does not use own finance Φ 40.9% 1 2 3 4 27 38.5 47.2 51 female Φ 63.5%

Colleges [%] 18 (Age

1 2 3 4 1 2 3 4 43 26.9 37.7 39.2 57 73.1 62.3 60.8 18–23 yrs. Φ 90.2% 24–28 yrs. Φ 5.5%

Colleges [%] 19 (Form of study) Colleges [%] 20 (Level of study, where?) Colleges [%]

1 2 3 4 83 96.1 87.7 94.2 (full time) Φ 100% 1 2 3 4 100 100 100 100

1 0

(Bachelor) Φ 100% 1 2 3 4 100 100 100 100

2 0

the first instalment of the loan Φ 30.8%

2 3 3.9 5.7 2 3

2

11.6 39.6 11.8 6.9

3 5.7

1

2

4 0

1

2

3

4

1

2

4

4

1

2

3

4

1

2

3

4

1

2

3

4

-

-

1

2

3

4

1

2

3

4

1

2

3

4

1

2

3

4

1

2

3

4

1

2

3

4

29–33 yrs. Φ 2.4%

39–50 yrs. Φ 2.5%

over 50 yrs Φ 1%

1 2

1 5

1 2

1

2 2

3 5.6

4

2 5

2

2

3

4

2 2

3

4

1

2

3

4

1

2

3

4

1

2

3

4

3

4

3

4

-

3

4

1

2

Source: own processing

This work is licensed under the Creative Commons Attribution 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by/3

63

3

3

-

1

4

4

2

3

3

1

4

-

-

buying a car Φ 5.3% 1 2 3 4 6.9 0 9.5 5

4 5.8

1.7

-

-

1

1

PAN code Φ 5.2%

1 2 3 4 1 85 100 94.3 100 15

1 5

29

Business Systems Review, ISSN: 2280-3866 Volume 3, Issue 1 January - June 2014

Table 3. Percentages of variable answer on question No2. Question No2 What is your relationship to savings?

I always put aside I do not know I save only for short I can also save some part of how, or not able periods and then I on durable income and I live to save spend my savings targets from what I remain a) [%] b) [%] c) [%] d) [%]

[1] Technical University in Kosice, Faculty of Aeronautics Bc. level TU FA (Bc.) [2] Technical University in Košice, Faculty of Mining, Ecology, Process Control and Geotechnology Bc. level TU FMEPCGT (Bc.) [3] Catholic University in Ružomberok, Faculty of Education Bc. level CU FE (Bc.) [4] University of Economics in Bratislava, Faculty of Business Economics in Košice Bc level UE FBE (Bc.)

5,1

40,7

40,7

13,5

0

23

54

23

5,7

57

34

3,3

35,3

29,5

19,6

15,6

Source: own processing

This work is licensed under the Creative Commons Attribution 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by/3

64

Business Systems Review, ISSN: 2280-3866 Volume 3, Issue 1 January - June 2014

Graph 1. Percentage of students’ variable answers on question No 2 “What is your relationship to savings?” Percentage of Answers

60 50

CU FE Bc

40

TU FMEPCGT Bc TU FA Bc

30

UE FBE Bc

20 10 0 Source: own processing

Table 4. Correlations between answers on question No 2“What is your relationship to savings?”

[1] TU FA (Bc.) [2] TU FMEPCGT (Bc.) [3] CU FE (Bc.) [4] UE FBE (Bc.)

[1] TU FA (Bc.) 1 0,769738711 0,90552193 -0,222427656

[2] T U FMEPCGT (Bc.)

[3] CU FE (Bc.)

[4] UE FBE (Bc.)

1 0,4265723 -0,674348995

1 0,14593104

1

Source: own processing

This work is licensed under the Creative Commons Attribution 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by/3

65