PERCEIVED FINANCIAL LITERACY AND SAVINGS BEHAVIOR OF IT PROFESSIONALS IN KERALA

International Journal of Mechanical Engineering and Technology (IJMET) Volume 9, Issue 5, May 2018, pp. 943 949, Article ID: IJMET_09_05_104 Available online at http://www.iaeme.com/ijmet/issues.asp?jtype=ijmet&vtype=9&itype=5 ISSN Print: 0976-6340 and ISSN Online: 0976-6359 IAEME Publication Scopus Indexed PERCEIVED FINANCIAL LITERACY AND SAVINGS BEHAVIOR OF IT PROFESSIONALS IN KERALA Pradeep. S Research Scholar, Noorul Islam Centre for Higher Education Dr. B. Chandrachoodan Nair Principal, ITM Business School, Kannur ABSTRACT Consumer learning refers to knowledge and skills of an individual to purchase and consume the product or service. Some of the financial products available for the retail consumers are very complex and difficult to understand. A minimum level of knowledge or financial literacy is required to understand the financial products. Financial Literacy is considered as important life skills and this leads to better financial wellbeing. An individual with better financial literacy may be equipped to take better savings decision. This paper attempts to analyze to examine the relationship between awareness of basic concepts of financial planning to savings decision. This study uses data collected by way of structured questionnaire from 403 IT Professionals working in Kerala. The study found out that there is a significant relationship between perceived financial literacy and savings behavior. Keywords: Financial Literacy, Financial Planning, Savings Behavior Cite this Article: Pradeep. S and Dr. B. Chandrachoodan Nair, Perceived Financial Literacy and Savings Behavior of IT professionals in Kerala, International Journal of Mechanical Engineering and Technology, 9(5), 2018, pp. 943 949 http://www.iaeme.com/ijmet/issues.asp?jtype=ijmet&vtype=9&itype=5 1. INTRODUCTION The liberalization of Indian Economy in 1991 and subsequent opening up of financial institutions transformed the financial services sector. Lot of new players including private and foreign firms came into the market which resulted in increased competition and more product offerings to the customers. The intense competition forced the financial institutions to modify the existing products and launched lot of innovative financial products. The Industry witness a plethora of new products such as ULIPS,ELSS,FMPs, However customer gets confused with more choice of products.financial products have lot of complicated features such as lock in period, rate of return, risk, charges etc. An ordinary investor finds it very difficult to understand these concepts. So the importance of having minimum financial literacy to http://www.iaeme.com/ijmet/index.asp 943 editor@iaeme.com

Perceived Financial Literacy and Savings Behavior of IT professionals in Kerala understand the financial concepts and features of the products is a necessity. Ignorance of basic financial concepts and financial products can leads to wrong savings decision which can lead to loss of money and financial wellbeing. 1.1. Need for the Study Companies invest lot of money to educate the consumers on basic concepts of financial planning. However financial literacy of individuals may vary due to different factors such as education, age, occupation etc. The current scope of study is IT professionals.some of characteristics of IT professionals as consumers are Higher Income Average age of IT professional in India is 28 years Better educated Better connected to social media The market segment of IT professionals is very attractive for the financial institutions and they are keen to know the impact of financial literacy on their savings decision. The above factors can lead to identification of a significant research issue, namely, Relationship between Consumer Financial Literacy and Savings Behavior of IT professionals in Kerala. 2. LITERATURE REVIEW Bayar (2017) analyzed the influence of financial literacy and demographic variables on personal savings.the relationship was studied using logistic regression analysis. The financial literacy was measured into two levels such as basic and advanced through a series of questions.the results of logistic regression analysis shows that terms of employment and number of children didn t had major influence on personal savings. However financial literacy and demographic variables such as gender, income, age and educational level positively influenced the personal savings.the study concluded that financial literacy can positively contribute to the savings which can trigger the economic growth. Worthington (2003) viewed that financial literacy is a mathematical ability and understanding of financial terms. He analyzed the financial literacy of adults in Australia. The study used data from survey conducted on Adult literacy by ANZ financial services.the relationship between different demographic variables and financial literacy was studied. High financial literacy was observed among graduates, business owners, professionals and people who were in age group between 50 and 60 years. Bahovec et.all (2015) attempted to find out the influence of financial literacy on consumers debt behavior. A questionnaire was created to test the financial literacy of respondents. The financial literacy of respondents are classified into three categories such as low financial literacy, moderate financial literacy and high financial literacy based on number of correct answers given for the questions testing financial literacy.cluster Analysis shown that 43% of the respondents are highly literate,46% belongs to medium literate category and 11% have only low literacy levels. The study found out that respondents displayed varying debt behavior in relation to different levels of financial literacy. The worst debt behavior was displayed by individuals with low level of literacy than individuals with medium and high levels of literacy. Disposable income of the respondents didn t have any impact on financial literacy; however age had a major role in determining financial literacy. Sharma (2015) analyzed the assessed the financial literacy among young employees. Young people is categorized into between 20 to 25 years of age, 25-30 years of age and more than 30 years.financial literacy is found highest for the respondents having more than 30 years of age followed by age groups of 25-30 and 20-25.Males have better financial literacy. http://www.iaeme.com/ijmet/index.asp 944 editor@iaeme.com

Pradeep.S and Dr. B.Chandrachoodan Nair The study also found financial literacy of respondents increase with higher levels of education and income. The employees belong to the urban areas found to better financially literate and the young employees who were working in large private companies were more literate than employees working in small and medium scale companies. Kumar (2016) analyzed the financial literacy of rural women.the sources of information on financial literacy was studied and revealed that family members are the primary sources of information followed by teachers, friends, magazines. Government and companies spend huge money on workshop for improving the financial literacy. However the study revealed that seminar/workshop is the least preferred source of information. The results of Chi Square test revealed that educational qualification and age made a main impact on financial literacy. However monthly income doesn t influence financial literacy.the study pointed out that sociocultural and educational factors are the major reason for rural women to acquire sufficient financial literacy. Kamboj and Choudhary(2017) analyzed financial literacy of Haryana, India by means of questionnaire designed by Organization for Economic Cooperation and Development (OECD).They viewed that financial knowledge, financial attitude and financial behavior are the important determinants of financial literacy. Based on the scores obtained from the questions designed for testing the financial knowledge,respondents were classified into High, Medium and Low levels of financial knowledge.the results shows that 55% of respondents having high financial knowledge.they argued that financial attitude also contributes towards financial literacy.the financial attitude was measured with variables such as respondents interest in saving money,consumption and preference to invest in long term investment plans. Financial attitude was categorized into positive, neutral and negative attitude. The results on financial attitude reveals that 43% of the respondents have positive financial attitude, 30 % have negative financial attitude. Financial behavior was measured by using respondent s savings habits, borrowing tendency etc. The financial behavior was classified into positive, neutral and negative financial behavior and analysis revealed that 64% have positive financial behavior and 14 % have negative financial behavior. Financial literacy of the respondents were calculated by adding three determinants financial literacy and study found that 37% have high level of financial literacy 44% falls into moderate level and 19% have only low levels of financial literacy.the study concluded that average financial literacy score of Haryana was higher than OECD countries. After studying the literature on financial literacy it is found only few studies have done to assess the relationship between financial literacy and savings behavior of IT professionals. This study aims at bridging this gap 2.1. Objectives and Hypothesis of the Study The objective of the study is to understand the impact of perceived financial literacy of IT professionals on the savings behavior.the hypothesis for the study is that there is no significant relationship between perceived financial literacy of IT professionals and savings behavior. 3. RESEARCH METHODOLOGY The place for taken for this study is Kerala. The professionals working in IT and ITES industry were considered as population for this study. A structured questionnaire was designed to understand the perceived financial literacy and savings behavior of the IT professionals. There are approximately 1, 00,000 employees who are working in major IT parks such as Technopark, Infopark, Cyberpark, UL cyber park and Kinfra IT park.stratified random sampling method was used for the survey. The sample size required for the http://www.iaeme.com/ijmet/index.asp 945 editor@iaeme.com

Perceived Financial Literacy and Savings Behavior of IT professionals in Kerala population is 385 and the 403 samples were selected for the study. SPSS 16.0 was used for analyzing the data and testing the hypothesis. The survey instrument includes five questions to test the awareness of basic financial concepts. The awareness of financial concepts like Real rate of interest, Asset Allocation, Human Life concept, Income Tax rules for savings, Power of compounding. The awareness was checked on Likert Five point scale such as Not at all aware, slightly aware, somewhat aware, moderately aware, and extremely aware. The savings behavior was measured by proportion of income set aside for savings. 4. EVALUATION OF SOCIODEMOGRAPHIC VARIABLES Table 1 Distribution of Sample by their Personal Characteristics Person al characteristics n % Gender Male 272 67.49 Female 131 32.51 Up to 25 87 21.59 26-30 106 26.30 Age 31-35 75 18.61 36-40 92 22.83 Above 40 43 10.67 Post graduate Technical 75 18.61 Post Graduate Others 116 28.78 Educational Graduate Technical 143 35.48 qualification Graduate- Others 56 13.90 Others 13 3.23 Marital Status Married 260 64.52 Single 143 35.48 Total 403 100.00 From the above table it can infer that that 67.49 percent of the respondents are male and 32.51percent of the respondents are female. When it comes to age group of IT professionals, those who are in the age group of 26-30 constitutes 26.30 percent of sample followed by less than 25 years of age with almost 22 percent of the sample. Educational qualification is an important factor in determining the financial literacy of respondents. From the above table it can see that 35.48% of respondents have graduation with technical qualification. With regard to marital status of IT professionals majority are married which constitutes 64.52 percent of the population. Table 2 Distribution of Sample by their Official Characteristics Official characteristics n % Executive Level 21 5.21 Senior Level 120 29.78 Current Designation Middle Level 134 33.25 Intermediate Level 68 16.87 Beginner 60 14.89 Less than 3 years 95 23.57 3-6 years 87 21.59 Total work experience 6-9 years 46 11.41 in years 9-12 years 65 16.13 More than 12 years 110 27.30 Total 403 100.00 http://www.iaeme.com/ijmet/index.asp 946 editor@iaeme.com

Pradeep.S and Dr. B.Chandrachoodan Nair From the above table it can be seen that most of the respondents (33.25 percent) is occupying middle level of designation in their career. Professionals with more number of years of work experience have more experience in managing the money.from this table it can be observed that 27.30 percent of respondents having a work experience of more than 12 years. 5. RELATION BETWEEN PERCEIVED FINANCIAL LITERACY AND SAVINGS RATE In order to find out the relationship between perceive financial literacy and savings rate, MANOVA was conducted. Awareness about the components of basic financial concepts was taken as dependent variables and proportion of savings from their income was taken as fixed factor. Table 5. 1 presents the mean score of awareness about basic financial concepts with respect to proportion of savings. Scheffe test is used for this analysis. This is post hoc test used in ANOVA Table 3 Mean Score of Awareness about Basic Financial Concepts with Respect to Proportion of Savings Real rate of interest Asset Allocation Human Life concept Income Tax rules for savings Power of compounding Total Less than 10% Proportion of Savings ANOVA MANOVA 10-20% 20-30% Mean 2.84 2.87 2 3.18 3 3.01 2 2.91 2 2.46 1 SD 1.27 1.22 1.17 1.25 1.27 1.28 3.890 0.004 Mean 2.40 2.05 2.51 2.77 2.48 2.08 SD 1.25 1.17 1.28 1.28 1.27 1.12 4.709 0.001 Mean 2.50 2.10 2.69 2.70 2.55 2.34 SD 1.29 1.21 1.28 1.24 1.33 1.26 2.140 0.075 Mean 2.91 2.87 3.10 3.15 3.04 2.49 SD 1.21 1.22 1.16 1.20 1.18 1.19 4.881 0.001 Mean 2.38 2.08 2.74 2.76 2.41 2.01 5.329 0.000 SD 1.32 1.38 1.34 1.31 1.41 1.08 30-40% more than 40% F Sig. F Sig. 2.328 0.001 Table 4 Total Mean score of awareness about basic financial concepts with respect to proportion of savings Total Awareness Total Less than 10% Proportion of Savings 10-20% 20-30% 30-40% more than 40% ANOVA Mean 2.61 2.3912 2.842 2.882 2.6812 2.271 5.283 0.000 6. ANALYSIS AND DISCUSSION The real rate of interest is an important concept in financial planning. It states how much money an investor receives from the investments after the inflation. The table 3 shows that respondents having low awareness about real rate of interest with a mean score of 2.46 have F Sig. http://www.iaeme.com/ijmet/index.asp 947 editor@iaeme.com

Perceived Financial Literacy and Savings Behavior of IT professionals in Kerala highest savings proportion (more than 40 percent).the respondents having high awareness on real rate of interest(mean score of 3.18) is saving in the proportion of 10-20 percent of their income. Asset allocation is an investment strategy that aims to balance risk and reward by distributing assets according to an individual's goals, risk tolerance and investment horizon. From the above table it can be seen that respondents with high awareness about asset allocation with a mean score of 2.77 saved more in the proportion of 20-30%. Respondents with less awareness about asset allocation is either having lowest savings proportion with less than 10% or having highest savings proportion of more than 40 percent. Human Life concept is an important concept in financial planning which determines the amount of life insurance coverage required for an individual. The analysis shows that human life concept doesn t have significance influence in the savings behavior. The significance value of human life concept is 0.075. Income Tax Law provides various exemptions and tax benefits to various savings plans. A prudent consumer should choose a savings plan which is tax effective. The highest awareness is found in Income Tax rules and exemptions available for savings plan with mean score of 2.91.The analysis shows that respondents who having more awareness about Income Tax rules for savings are saving the proportion between 10 and 30% of their income. The respondents who have least awareness with a mean score of 2.27 save maximum in ratio of more than 40% of their income. Power of Compounding is one of the powerful concepts in financial planning which helps the investor to maximize their savings. This concept refers to reinvestment of the earnings back to the principal so that savings grow at better rate over a longer period of time. The respondents who having highest awareness about power of compounding with mean score of 2.76 save between 20 and 30% of the income. Those who have least awareness about this concept having a mean score of 2.01 save more than 40% of income. From the MANOVA Analysis, it is found that linear combinations of the dimensions of perceived financial literacy significantly vary among the different proportion of savings.the result concluded that perceived financial literacy in different proportions of savings are not statistically the same. However the significance of different dimensions of perceived financial literacy is 0.001. Hence the null hypothesis is rejected and alternate hypothesis is accepted. 7. FINDINGS AND CONCLUSION It is interesting to find that respondents having highest awareness of financial planning matches with benchmark or thumb rule set for savings by Warren and Tyagi (2016). They argued that an individual should save at least 20% of income. The people who having highest awareness may go with prudent investing. They may follow different financial ratios or thumb rules in personal financial planning to achieve their financial goals. Once they save according to different thumb rules in financial planning, they may feel confident in their financial planning and may spend rest of their money in pursuit of material pleasures in life. The respondents who having least awareness about financial concepts is saving least. The most interesting findings of the study is that the respondents save highest have very less awareness. In the case of those who having less financial literacy and having highest saving proportion of their income, May really worry about their financial future and save money in random. They may not keenly looking into various financial ratios or thumb rules and try to save money as possible. Consequently, it is discovered that financial literacy had positive impact on personal savings in consistent with theoretical expectations and empirical findings. http://www.iaeme.com/ijmet/index.asp 948 editor@iaeme.com

Pradeep.S and Dr. B.Chandrachoodan Nair REFERENCES [1] Bayar (2017), Impact of Financial Literacy on Personal Savings: A Research on Usak University Staff, Journal of Knowledge Management, Economics and Information Technology, Vol. VII, Issue 6 [2] Worthington (2006), Predicting financial literacy in Australia, Financial Services Review, 15(1), spring 2006, Pages 59-79. [3] Bahovec etll (2015Testing the effects of financial literacy on debt behavior of financial consumers using multivariate analysis methods, Croatian Operational Research Review Pages 361 371 [4] Sharma(2015) A Study on Level of Financial Literacy Among Young Employees of Private Sector in Jaipur City, International Journal of Marketing & Financial Management, Volume 3, Issue 05, Pages 11-18 [5] Singh and Kumar(2017) Financial Literacy among Women Indian Scenario, Universal Journal of Accounting and Finance 5(2): 46-53 [6] Kamboj and Choudhary,( (2017) A Study of Financial Literacy and Its Determinants: Evidence From India, Asian Journal of Accounting Perspectives, 52-72 [7] Warren and Tyagi,(2003) The Two-Income Trap: Why Middle-Class Mothers and Fathers Going Broke, Financial Counseling and Planning Volume 14 (2) [8] Dr. Sonali N. Parchure, Influence of the Financial Literacy on the Investor Profile of the Individual Investors. International Journal of Management, 7(5), 2016, pp. 141 153. [9] P. K. Gupta and Dr. U. M. Kinange, A Study of Financial Literacy and its Impact on Customer Satisfaction with Special Reference to Banks of Bagalkot District. International Journal of Management, 7(6), 2016, pp. 43 50. http://www.iaeme.com/ijmet/index.asp 949 editor@iaeme.com