SOLAR FLARe - Financial Literacy Advocacy Report


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Sun Life pioneers study on financial literacy

The Filipinos are an optimistic race. Amidst the recent stock market dip, there is
widespread confidence about the country’s economic outlook. But are Filipinos prepared
to face fluctuations and seize opportunities? Are they ready for the Brighter Life?

For the past five years, Sun Life has been conducting a nationwide Study of Lifestyles,
Attitudes and Relationships (SOLAR) to gain insights on the public’s attitudes and
behavior toward financial matters. This research has been instrumental in helping Sun Life
pursue its thrust to raise financial literacy among Filipinos.

(C) 2013 Sun Life Financial Philippines

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SOLAR FLARe - Financial Literacy Advocacy Report

  1. 1. Table of contents 04 05 09 Introduction Section 01 Of Optimism and the Filipinos Section 02 The Financial Literacy Paradox SOLAR FLARe 2013 Sun Life of Canada Philippines, Inc. EDITORIAL BOARD: Mylene Lopa Joub Miradora Mariquit Lintag CREATIVE CONSULTANT: Don Peji MANAGING EDITOR: Jerik Gonzales ILLUSTRATION, DESIGN, AND LAYOUT: Lex Murillo WRITER: Reyna Tabbada CONTRIBUTOR: Aila Marie Peñaflor RESEARCH PARTNER: GfK Custom Research Pte. Ltd. 2 | SOLAR FLARe 17 23 32 Section 03 Of Priorities and Preparations Section 04 Towards the Brighter Side About the company Sun Life Financial - Philippines
  2. 2. Message from the President and CEO RIZA MANTARING Rooted in Sun Life Financial’s belief in ‘action powered by insight,’ Sun Life has been conducting a periodic and proprietary personal finance research called Study of Lifestyles, Attitudes, and Relationships (SOLAR). For five years, SOLAR has allowed us to gain a better understanding of Filipinos’ attitudes and behavior when it comes to financial matters. And for 2013, SOLAR paid special attention to the financial literacy and behavior of Filipinos. Its findings are presented in a report called FLARe, which stands for Financial Literacy Advocacy Report. It looked into their knowledge of basic financial concepts, their financial worries and aspirations, including their attitudes and outlook toward life insurance. The report showed us many interesting insights. For instance, Filipinos seem confident in their knowledge of money matters but, in fact, lack knowledge of basic financial concepts and how to properly prepare for their future needs. These findings strengthened Sun Life’s resolve to continue, expand and enhance its financial literacy campaign. As we present the relevant data to the Insurance Commission, we are expressing our desire for both the government and the private sector to join hands and take action towards helping Filipinos face a bigger and brighter future.
  3. 3. Respondents Introduction demographic profile Sun Life Financial has been conducting a Study of Lifestyles, Attitudes, and Relationships (SOLAR) for the last five years. This research provides pertinent information about the ever-changing customer landscape, especially as it relates to personal finance. 41 % 30 % AGE 23 - 35 36 - 45 46 - 55 For 2013, SOLAR added a special section on financial literacy with the following objectives: 29 % 8% SEC* AB C1 C2 38 % 54 % MARITAL STATUS 72 % SINGLE WITHOUT DEPENDENTS SINGLE WITH DEPENDENTS SINGLE PARENTS WITH DEPENDENTS MARRIED WITHOUT DEPENDENTS MARRIED WITH DEPENDENTS Accomplished during the first quarter, SOLAR has a sample size of 1,100 respondents from North Luzon, South Luzon, the National Capital Region, Visayas, and Mindanao. 6% 12 % 6% 4% 32 % 36 % WORKING STATUS WORKING OWNS BUSINESS FREELANCER NOT WORKING 1. Measure the level of awareness and knowledge of basic financial concepts and products and the capacity to apply such concepts (e.g. inflation, interest) 2. Identify trends in financial behavior 3. Identify attitudes and outlook towards life insurance Respondents for this year’s SOLAR were males and females, from 23-55 years old, from ABC households*. Their status may be: single / married without kids / married with kids / married with parents as dependents / married with kids and parents as dependents / single parents with dependents. They must also be the decision-makers for purchase of financial products, and could be owners or non-owners of life insurance policies. For its sampling design, SOLAR used multi-stage sampling for C2 households while implementing purposive sampling for ABC1 households. 7% 25 % 16 % LIFE INSURANCE OWNERSHIP OWNERS NON-OWNERS For its study design, respondents underwent face-to-face interviews and a 16-question basic financial literacy quiz. The average length of the interview was around 90 minutes. The format of the quiz was a mix of multiple choice and matching type. It was graded based on the percentage of correct answers versus the 16 questions. 84 % 4 | SOLAR FLARe *Socioeconomic Class Monthly Household Income AB: Above PhP100,000 - Metro Manila Above PhP 70,000 - outside Metro Manila C1: PhP50,001 to PhP100,000 C2: PhP30,001 to PhP50,000
  5. 5. Section 01 OF OPTIMISM AND THE FILIPINOS Filipinos carry the trademark of being an optimistic race. In the Study of Lifestyles, Attitudes, and Relationships (SOLAR), this optimism shows in their outlook on the economy and their personal finances. When asked how they expect their financial situation to change in the next three to five years, 87% expressed positive feelings. Filipinos are actually looking forward to a more prosperous future. How Optimistic is the Filipino? 2011 2013 (% of respondents who expressed positive feelings on financial situation) 83 % 87 % 87 % 76 % 67 % 66 % 46 % A YEAR AGO 6 | SOLAR FLARe 49 % CURRENT A YEAR FROM NOW THREE TO FIVE YEARS FROM NOW
  6. 6. A closer look on how optimistic the Filipinos are today 44 % 43 % 29 % 28 % 20 % 22 % 5% 6% 1% How do you feel about your financial situation today? How has it changed compared to a year ago? 45 % 60 % 38 % 27 % 16 % 12 % 1% How do you expect your financial situation to change in the next year? How do you expect your financial situation to change in the next three to five years? Very positive Quite positive Average Not very positive Not positive at all Optimism about one’s financial situation is a probable outcome of the robust fiscal growth. The Philippines is moving up, at a time when other countries are reeling from weak economies, political backlash and widespread unemployment. Clearly, Filipinos have a lot to look forward to. But how this translates to reality is the question. And this must be asked: can their optimism translate to a better life? SOLAR FLARe | 7
  7. 7. WHAT KEEPS “JUAN” UP AT NIGHT? Juan dela Cruz may be optimistic, but personal worries such as health and his children’s education keep him from a good night’s sleep. What other things is he worried about?
  9. 9. Section 02 THE FINANCIAL LITERACY PARADOX According to the World Bank, financial literacy encompasses “concepts ranging from financial awareness and knowledge, including financial products, institutions, and concepts; financial skills, such as the ability to calculate compound interest payments; and financial capability more generally, in terms of money management and financial planning. In practice, however, these notions frequently overlap1.” It empowers individuals with “the capability to navigate a complex array of financial products and to make sound financial decisions2.” According to the same World Bank report, financial literacy and the need for financial planning have been highlighted by the recent financial crisis and the shift of retirement planning from public sector to individuals3. This need is also true in the Philippines, which is why major financial services companies now banner their own financial literacy campaigns. This is a big improvement from only four years ago when the first sustainable and multimedia financial literacy advocacy called It’s Time! was launched by Sun Life Philippines and was just gaining ground. 1 “Financial Literacy Around the World”, The World Bank, June 2012 2&3 10 | SOLAR FLARe ibid.
  10. 10. As financial education becomes more available, how are Filipinos faring in managing their finances?
  11. 11. Section 02 THE FINANCIAL LITERACY PARADOX When it comes to money matters, 20% claim to be an expert. Some even go to the extent as to consider themselves specialists. Since their self-assessment could be highly subjective, SOLAR administered a basic financial literacy quiz to validate their claims. Here is where the paradox lies. While many claim to be experts and specialists in money matters, only 8% scored above 80% in the quiz. Sample questions from financial literacy quiz: Financial literacy ratings and scores Self perception on financial literacy level Which of the following statements is false about inflation? A. B. C. D. E. Expert Between novice and expert Novice Higher inflation means higher prices of consumer goods Purchasing power is lower if inflation is high As inflation rises, every peso will buy a fewer amount of goods. None of the above All of the above Which of the following can be considered an investment? A. B. C. D. E. Stocks Taxes Revenue All of the above None of the above If a savings account has an annual interest rate of 2%, how much will a P 100,000.00 deposit earn after a year? A. B. C. D. 20 % 46 % 34 % P 2.00 P 20.00 P 2,000.00 P 20,000.00 When it comes to money matters, I consider myself... 12 | SOLAR FLARe
  12. 12. Respondents’ Quiz Scores 7% 8% 2% 8% 13 % Note: No one got a score of 91 and above 81 - 90 71 - 80 61 - 70 51 - 60 41 - 50 31 - 40 21 - 30 11 - 20 0 - 10 17 % 17 % Score Per Financial Concept 9% Correct answer Wrong answer INVESTMENT 78 % ANNUAL INTEREST RATE 77 % 23 % CREDIT CARD 76 % 21 % 22 % 24 % ASSET 75 % LIFE INSURANCE 73 % 25 % 27 % REAL ESTATE 67 % 33 % DEBT 66 % 34 % SAVINGS ACCOUNT 54 % 51 % CURRENT ACCOUNT 45 % STOCKS 43 % LOAN 41 % MUTUAL FUND INFLATION HEALTHY BUDGET BOND 27 % 73 % 26 % 74 % 23 % 77 % Answers to sample questions 49 % 47 % PRE-NEED PLAN 46 % 53 % 55 % 57 % 59 % Which of the following statements is false about inflation? D. None of the above Which of the following can be considered an investment? B. Stocks If a savings account has an annual interest rate of 2%, how much will a P 100,000.00 deposit earn after a year? C. P 2,000.00 SOLAR FLARe | 13
  13. 13. Section 02 THE FINANCIAL LITERACY PARADOX In fact, when respondents are asked how they define financial security, the top answer is “having enough bank savings.” Putting one’s savings in a bank account remains prevalent, and such an approach reveals how Filipinos prepare, or “under-prepare”, for tomorrow. One’s money is intact in a bank account, but with so little growth, or even negative real growth, that there is doubt if it can ensure one’s financial security. 14 | SOLAR FLARe
  14. 14. Filipinos must be encouraged to learn the basics of proper financial planning and explore a wider array of financial instruments to help them achieve their goals and aspirations. As the tagline of Sun Life’s “It’s Time!” advocacy says, “know your needs, be informed, take action.”
  15. 15. THE TYPICAL ONE-MONTH BUDGET When Juan dela Cruz opens his wallet, where does he put his hard-earned money? After spending on life’s basic necessities – food, rent, utilities – he allots 6% to his bank account, which can be surmised as savings. And perhaps after five years, his insurance policy may get a 1% share of the budget.
  17. 17. Section 03 OF PRIORITIES AND PREPARATIONS When asked about what they would prioritize spending money on for the next two years, life insurance figures in the list along with educational plans and health insurance. But opening a business is mentioned most frequently and ranks highest in priority. Financial Priorities of Filipinos Top 10 priorities based on numbers of mentions Incidence of being ranked first Open a business 51 % Lot 45 % 39 % Life insurance 39 % Education plan 37 % Car / Vehicle 37 % Gadgets 37 % Health insurance 35 % House renovation / Maintenance 27 % House / Condominiums 27 % Durables / Appliances With your current financial capability, what are the things that you may want to prioritize buying within the next 2 years? Please select from the list. You can also name other things that are not included in this list. 18 | SOLAR FLARe 15 % 12 % 11 % 15 % 5% 4% 8% 6% 6% 1%
  18. 18. How are Filipinos preparing for anticipated life events? 100 % 50 % 79 % 34 % 19 % 8% 4% 0% 2% How are you preparing for anticipated life events in the next five years? Bank savings Put up a business Get life insurance Investment Savings at home Others With priorities that span from accumulating assets to family-related items, SOLAR showed that Filipinos may not be aware of other financial instruments that can help them achieve their priorities and prepare for future events. Only 2 out of 10 would use insurance to prepare for future events, less than 1 out of 10 would use investments, and 8 out of 10 would still rely on bank savings for these needs. Drilling further, among those who have insured themselves, 31% actually use their policy to accomplish their goals. The rest still holds the traditional, even outdated, view that one has to die first before being able to enjoy the benefits of life insurance. SOLAR FLARe | 19
  19. 19. CAN “JUAN” AFFORD THE FUTURE? Sadly, Filipinos are often clueless about the state of their money. Their preoccupation about other matters and lack of financial literacy put them at risk of not being ready for the future.
  21. 21. Section 04 TOWARDS THE BRIGHTER SIDE In the Philippines, life insurance penetration is only at 1.14% of the Gross Domestic Product (GDP)*. According to the 2011 Insurance Commission Annual Report, life insurance coverage - counting individually bought and group insurance provided by employers – reached only 18.29% of the population. When compared to other Asia Pacific countries, the Filipino’s life insurance outlook becomes even bleaker. It is lagging behind fellow Southeast Asia nations like Malaysia and Indonesia. When compared to Western countries, the Philippines still lags behind the United States and Europe. Taiwan boasts of a high life insurance penetration at 13.9% of GDP. But, things are looking up. The notion of life insurance being useful only when one is dead is slowly changing as more and more Filipinos are realizing its living benefits. There is now a growing trend of people who consider life insurance as essential. Filipinos are also becoming more discerning, seeking as much information about life insurance before purchase. However, education is still very much a need. Filipinos must be taught about financial instruments beyond ATMs and bank accounts. As they are enlightened about insurance, investment, and other financial instruments, they would be more empowered and able to see the fulfillment of their goals. *2012 insurance penetration computed using GDP as stated in NSCB (10,568,405,000,000) and Premium Income as stated in IC’s 4th Quarter Statistical Report - 2012 (120,301,000,000) 24 | SOLAR FLARe
  22. 22. Agrees Neutral Disagrees Attitudes Toward Life Insurance I find out everything I possibly can about a life insurance company before considering buying a policy from them 88 % 9% 3% I expect to have easy, immediate access to customer care representative, agent, or online-facility of my life insurer 17 % 79 % 4% Aside from talking to an agent / financial advisor, I do my own research when getting a life insurance 15 % 77 % 8% Everyone must have a life insurance 18 % 74 % 7% Having a life insurance is one of the smartest things to do 23 % 71 % 6% I would never buy a life insurance without talking to a company personnel by phone or face-to-face 19 % 70 % 11 % I prefer to purchase life insurance through a bank / bank insurance agent 27 % 64 % 9% I prefer to purchase life insurance through a life insurance agent 28 % 61 % 11 % I am willing to go with smaller or newer life insurance companies to get better returns / benefits 26 % 49 % 25 % I am willing to go with smaller or newer life insurance companies if I can get better rates / price / premium 30 % 42 % 28 % I don’t need a life insurance yet at this point in my life 33 % 31 % 36 % All life insurance company are alike 27 % 37 % 37 % Such momentum must be seized by the life insurance sector, imploring companies to make information more available and accessible to the public. With education and proper counsel, the capacity of Filipinos to manage their finances would improve, making them more confident to get financial instruments like life insurance. For Sun Life and its fellow insurers, they must always strive to serve the customer while allowing their enterprise to stay relevant in an ever-changing economy. For Filipinos and their families, life insurance must be recognized as an important part of their journey towards financial security. So, as the benefits of life insurance become more established, the future of Filipinos can become much brighter. SOLAR FLARe | 25
  23. 23. Traditional Group Variable
  24. 24. SUN LIFE FINANCIAL Sun Life Financial (SLF) is an international leader in protection and wealth management with key operations in Canada, US, UK, Hong Kong, Japan, Indonesia, India, China, Vietnam, Malaysia, the Philippines, and Bermuda. As of December 31, 2012, the Sun Life Financial group of companies had total assets under management of CDN$532 billion. Using the ticker symbol “SLF,” Sun Life Financial Inc. trades on the Toronto (TSX). New York Stock (NYSE) and Philippine Stock Exchanges. In the Philippines, Sun Life Financial is in the business of life insurance, mutual funds, pension and education plans, represented by the following three entities: Sun Life of Canada (Philippines), Inc. (SLOCPI) which pioneered life insurance in the Philippines in 1895; Sun Life Asset Management Company Inc. (SLAMCI) which manages the mutual funds business; and Sun Life Financial Plans, Inc. (SLFPI) which administers the company’s pension and educational plans. Today, Sun Life in the Philippines is one of the largest and most trusted insurers in the country with over a million group and individual life policyholders and is boosted by the strength and stability of Sun Life Financial shares in the Philippine Stock Exchange. Sun Life Philippines’ focus is on helping Filipinos achieve lifetime financial security by gaining insight into its customers’ lives and providing them with the products and services that meet their needs. 32 | SOLAR FLARe