99636 June 2015 PHILIPPINES FINANCIAL INCLUSION AND CAPABILITY SURVEY SUMMARY OF RESULTS  About 10 million adults report saving money but do not have an accounts with a formal financial institution. Significant opportunities for expanding inclusion exist among low income group - 98% of those reporting that they save money but do not have an account earn less than PhP50,000.  23 million adult Filipinos or 55% report that their households run out of money for food and other necessary items. Even among those earning more than PhP50,000 – 23% state that they run short of money for basic necessities. Among the households that report that they run short of money for basic necessities the use of credit is near universal - 94% borrow to cover costs.  Those who plan their expenditures or budget are more likely to report that they have money left after paying for basic necessities and less likely to say that they have borrowed more than they can afford. All relationships are significant after controlling for income and other socio-economic characteristics. 59% of Filipinos report that they plan how they will spend the money they receive, and 86% of those responding positively state that they stick to the plan.  Filipinos are more likely to use informal credit and saving services than formal financial services. Only 4% of respondents report having a mortgage, 5% a credit card and 10% a credit product from a formal financial institution. At the same time more than a third rely on informal savings and credit.  Those with higher financial literacy scores are more likely to report that they have money left over after paying for basic necessities and less likely to say that they have borrowed beyond their means. Higher financial literacy scores are strongly correlated with the level of education. There are no consistent patterns between levels of financial literacy and income, gender, rural or urban location, employment and age. Data: World Bank Survey on Financial Inclusion and Capability in the Philippines Date of survey: February-September 2014 Sample: 3000 adults Full report and data at: http://responsiblefinance.worldbank.org/ Author info: Nataliya Mylenko Finance & Markets Global Practice East Asia &Pacific nmylenko@worldbank.org SAVINGS About 10 million adults report saving money Does your household have money left over after you but do not have an accounts with a formal have paid for food and other necessities? financial institution. About half of Filipino adults Money left over, (51%) report that they have money left over save but NO No money after they have paid for food and other account, 23% left over, necessities. Among these, 94% or about 20 49% million adults, report that they save. Only about half of those who report saving also report having a bank account.  Significant opportunities for expanding inclusion exist among low and lower-middle income group - 98% of those who save but Money left over, don’t have accounts earn less than save & have an account, 25% Money left over but do PhP50,000 per month. not save, 3%  Formally employed represent 20% of those without accounts and should be a relatively easy to reach segment. Have account 13 30 46 12 Those without accounts are mostly in low and No account 38 39 21 2 lower-middle income group. Filipinos earning PhP 20,000-50,000 represent almost half of the Less than Php 10,000 PhP 10,000-20,000 population with accounts, yet at the same time PhP 20,000-50,000 More than PhP 50,000 21% of those without an account have monthly income of PhP 20,000-50,000. Low income group is the most underserved. Majority of savers without accounts are men. Have account 65 35 65% of savers with accounts are women while 57% of those without accounts are men No account 43 57 Female Male Savers with accounts are mostly in urban areas Have account 34 66 (66%) while those without accounts are slightly more likely to be in rural areas – 52% in rural No account 52 48 compared to 48% in urban Rural Urban Overall structure of those with and without Have account 16 8 58 18 accounts in terms of employment is similar. Surprisingly 20% of those without accounts are formally employed. No account 20 11 53 16 formal informal self employed not work 1 Characteristics of those that have money left over after paying for basics and those who do not Majority (78 %) of those reporting that no Money left 26 34 34 7 money is left over after paying for basic necessities earn less than PhP20,000 per No money left over 40 38 20 2 month. Less than Php 10,000 PhP 10,000-20,000 PhP 20,000-50,000 More than PhP 50,000 No difference by gender. Share of men and women reporting having no money left after Money left after 55 45 paying for basic necessities is broadly equal necessities (no statistically significant difference) No money left over 53 47 Female Male Rural residents are more likely report having no money left after paying for basic Money left after 42 58 necessities – 56% in rural area compared to necessities 44% in urban. Difference is significant after controlling for income and other parameters No money left over 56 44 Rural Urban There are no significant differences across employment types in terms of reporting on Money left 18 9 56 17 having money left after paying for basic necessities. No money left over 20 10 55 16 formal informal self employed not work Do you have money left over after you buy food and Those who plan expenses are more likely to other necessities? have money left over after paying for necessities. 57% 57% of those that report that they plan their expenditures or budget report that they have 42% money left over after paying for basic expenditures compared to 42% of those that do not plan their expenditures. The difference is statistically significant after controlling for income and other characteristics. Do not plan Plan 2 SPENDING & BORROWING Does your household ever run short of money for food or other necessary items? (%) Yes, regularly, 26 No, 45 23 million adult Filipinos or 55% report that their households run out of money for food and other necessary items. Yes, sometimes, 29 Income is the most significant covariate. Two Share responding “Yes” by income category thirds of households earning less than PhP 10,000 report not having enough money for Less than Php 67% food and basics. But even among those who 10,000 earn more than PhP 50,000 - 23% report PhP 10,000- running short of money. Regressions result 56% 20,000 controlling for a range of socio-economic characteristics indicate that those more likely PhP 20,000- 44% to run short of money have lower income, 50,000 larger household size, and are males. Those More than PhP with tertiary education, aged 55 and older and 23% 50,000 self-employed are less likely to report running short of money. 3 Reasons for running short of money for necessary items The most common reason for running short of money across 55% Insufficient/unreliable income 64% all income groups is insufficient or unreliable income – 64% of No work/business losses 51% respondents in the lower income 32% quartile and 55% in the top Overspending 44% 24% income quartile. Provide financial help to others 44% Failure to plan ahead or budget 29% is the least likely reason 35% Unexpected expenses 27% identified– across all income categories – 22% in the top 32% Increased costs of basic items 29% income group and 17% in the lower income quartile. 27% Sick/look after family 35% There are no notable differences Failure to plan ahead/budget 22% in terms of responses by gender, 17% urban/rural, age and other characteristics. Top 25% by income Bottom 25% by income 70% of respondents say that they buy About 60 % of those earning Php 10,000-50,000 items that are not necessary and report buying items that are not necessary and unaffordable. not affordable regularly or sometimes. How often do you buy things that are not necessary even though you know you can't afford them? More than PhP 50,000 17 10 26 48 Regularly, Never, 30 27 PhP 20,000-50,000 24 29 18 29 PhP 10,000-20,000 31 32 16 21 Rarely, 15 Sometimes, 28 Less than Php 10,000 26 28 12 34 Regularly Sometimes Rarely Never 4 Overall, 52% or about 22 million adults report What does your household do when they run that their households borrow for basic short of money for food and basic necessities? necessities. Among the households that report that they run short of money for basic necessities Borrow 95% the use of credit is near universal - 94% borrow to 92% cover expenses. The second most common strategy is spending less – used by 62% of those in Spend less 62% the top 25% by income distribution and 42% in the 42% lowest income group. Households across all income groups also rely on cash gifts – 45% among top income group and 38% for the lower income. Cash gift 45% 38% Do you ever borrow for basic necessities? Pawn jewellery 30% 23% Use savings 27% 26% No, 48% Sell something 25% Yes, 52% 19% Find extra work 18% 17% Top 25% by income Bottom 25% by income 56% report that they borrow to repay debts Among those with loans, more than a half have debt equivalent of 12 months of income or more Do you ever borrow to repay debts? How much debt do you currently have compared to your total monthly household income? Less than one month of income, 15 2 - 12 months of income, 9 No, 44% No debt , 48 Yes, 56% More than 12 months of income, 28 5 Levels of debt and perceptions of affordability more than 12mo 52% of those who currently have loans income 28% 13% 14% report that they can afford borrowing more while 28% say that they have borrowed to the limit and 20% that they 2 -12 mo income 9% 4% 3% have borrowed more than they can afford. Among those holding debt in the amount of 12 month of income or more about equal share believes that they can afford more less than 1mo 16% 10% 3% debt (28%) and those who believe that they income have borrowed to the limit or more than Can afford more borrowed Borrowed more they can afford - 27% of all borrowers. borrowing to limit than can afford Share stating that they have borrowed more than they can afford (%) 25 Those who report planning their expences 17 are less likely to report that they have borrowed more than they can afford – 25% compared to 17%. The relationship is statistically significant after controlling for income and other socio-economic charateristics. Do not plan Plan 6 Use of financial products, % adults Filipinos are more likely to use informal credit and informal credit 38 saving services than formal financial services . Only informal savings 34 4% of respondents report having a mortgage, 5% a credit card and 10% a credit product from a formal insurance(car, property) 24 financial institution. At the same time more than a insurance (health, life) 17 third rely on informal savings and credit. Investments (shares,… 17 Among those using informal credit, microfinance and formal credit, vast majority (78%) use informal formal savings 17 financial services and 56% use informal credit only, mobile fs 16 followed by microfinance (13%) and those mixing formal and informal credit (12%) and informal and money transfer 15 microcredit (10%) private pension 15 Share of those using informal savings is even greater microcredit 13 – 81% and 61% using only informal savings products. debit card 13 Among 39% using formal services about half mix them with the use of formal financial services. formal credit 10 credit card 5 mortgage 4 Use of credit products: informal, formal and micro Use of savings products: informal and formal Informal Micro&formal, 1 µ&formal Micro only, Informal &formal, ,5 13 Formal 20 only, 4 Infomral µ, 10 Informal Formal only, 56 Informal Informal only, 19 &formal, only, 61 12 7 There are no major differences by income among those who rely on formal and informal credit and savings products, though those earning PhP20,000-50,000 are more likely to have access to formal credit. Urban residents are significantly more likely to use informal credit while rural residents are majority users of informal savings products. Adults of 55 years of age and older are less likely to use informal borrowing but more likely to use informal savings. There are no differences in the use of formal and informal financial services by employment type. Using informal credit only compared to those Using informal savings only compared to those using formal or mixed sources using formal or mixed sources Only informal 22 30 41 7 Only informal 21 29 44 5 Formal and mixed 15 29 50 6 Formal and mixed 20 31 42 7 Less than Php 10,000 PhP 10,000-20,000 Less than Php 10,000 PhP 10,000-20,000 PhP 20,000-50,000 More than PhP 50,000 PhP 20,000-50,000 More than PhP 50,000 Only informal 56 44 Only informal 53 47 Formal and mixed 63 37 Formal and mixed 58 42 Female Male Female Male Only informal 39 61 Only informal 55 45 Formal and mixed 51 49 Formal and mixed 43 57 Rural Urban Rural Urban Only informal 17 27 46 10 Only informal 14 33 34 19 Formal and mixed 16 35 30 19 Formal and mixed 19 26 43 13 age <25 25 to 35 35 to 55 >55 age <25 25 to 35 35 to 55 >55 8 PRODUCT SELECTION What is the main reason you do not have an account Most frequently identified reason for not with a formal financial institution? having account is not having enough money. At the same time among those who say that they do not have enough money to have an I do not have enough 20 money account, 89% report saving money. I do not need it 18 A relatively high share (18%) report that they do not trust financial institutions which is I do not trust them 17 somewhat surprising in the Philippines economy where financial sector is broadly They are too far away 16 stable. I do not have the 10 In addition to the categories in the graph less necessary documents than 1% each also selected the following The bank personnel do 9 reasons: I do not know how to open an not treat people well account; I prefer to use cash; Someone else in They are too expensive 9 my family already has an account; Because of religious reasons. More than half report that they did not search for additional information about a financial product prior to acquiring it. Among those who looked for 78% report that they have studied terms and additional information sources are evenly split conditions of the product before purchasing it. between advertisement, family and friends, and provider. How did you learn about the product? Did you check the detailed terms and conditions of the product before you got it? Advertisement, 13 Employer, 1 No, 22 Yes, carefully, Family or 43 friends, Did not seek 14 information, 56 Yes, to have a rough idea, 35 Provider, 17 9 FINANCIAL KNOWLEDGE AND CAPABILITY Do you know about the services offered by the following institutions? Insurance companies 69% Respondents are more familiar with insurance Money transfer 65% companies, money transfer agents and money Money changer 63% changers – over 60% report that they are familiar with these institutions. Only 18% say Banks 56% that they know about e-money agents though Microfinance organization 44% this could be a definition issue as research on Broker 40% mobile money use indicates. Other non-bank FI 37% E-money agent 18% Have you heard of the following concepts? Insurance 75% Over 70% are familiar with the concept of insurance and interest rate. Relatively small Interest 70% percentage (36%) is familiar with stock shares or inflation (40%). Those in the low income group Exchange rate 55% are less likely to report that they know all concepts with the exception of insurance. The Inflation 40% familiarity with insurance despite relatively low level of usage deserves further study. Shares 36% Share of respondents answering the question correctly Simple division 78% Simple interest 51% Higher financial literacy scores are strongly correlated with the level of education. There Purpose of insurance 49% are no consistent patterns between levels of Inflation calculation 49% financial literacy and income, gender, rural or urban location, employment and age. Those Risk and return 33% with higher financial literacy scores are more Compare bargain 31% likely to report that they have money left over Risk diversification 30% after paying for basic necessities and less likely to say that they have borrowed beyond their Compound interest 30% means Inflation impact on price 28% 10 PLANNING 59% of Filipinos report that they plan how they When your household receives money, do you will spend the money they receive, and 86% of plan how it will be used? those responding positively state that they stick to the plan Yes, regularly, 75% of those earning PhP50,000 or more report 26 No, 45 planning expenses and budgeting. Less than 60% of those earning under PhP20,000 report that they plan their finances. Women are more likely to report that they plan expenditures (61%) than men (56%). These differences are statistically significant after controlling for other socio- economic characteristics. Those 55 years of age and older also significantly more likely to plan. Yes, There are no statistically significant differences sometimes, across rural and urban residents or across 29 education and employment forms. Planning expences: by income quartile Planning expenses: by gender 61% More than PhP 75% 56% 50,000 PhP 20,000-50,000 65% PhP 10,000-20,000 53% Less than Php 10,000 57% Female Male 11 KNOWLEDGE AND BEHAVIOR PLANNING Those who plan their expenditures or budget and those who are more financially literate are more likely to report that they have money left after paying for basic necessities, less likely to say that they have borrowed more than they can afford and less likely to buy things they cannot afford. All relationships are significant after controlling for income and other socio-economic characteristics. Probability of: if budget if finanicaly literate Buying things -12% -24% that can't afford Overborrowing -5% -11% Having money left after paying 9% 20% for food and basic necessities Note: marginal effects based on logistic regressions controlling for income, gender, age, location, and other socio-economic characteristics. Budget is a binary variable equal 1 if respondent reports budgeting and planning expenses. Financial literacy is a binary variable equal 1 if the respondent answered correctly all 7 financial literacy questions in the survey, and 0 if none of the answers are correct. All relationships are statistically significant. 12