• The CBSL’s Financial Literacy Survey 2021 reveals public attitudes towards fundamentals of financial decision making 

BY Sumudu Chamara The financial literacy rate among Sri Lankans has improved significantly compared to when it was measured in 2014. As per the latest national-level survey on financial literacy, 57.9% of adults in Sri Lanka are financially literate.  The survey, titled “Financial Literacy Survey Sri Lanka 2021” was led by the Central Bank of Sri Lanka (CBSL), with the technical and financial assistance of the International Finance Corporation (IFC), a member of the World Bank Group, and was conducted as part of the implementation of the National Financial Inclusion Strategy (NFIS) of Sri Lanka 2021-2024.  It was conducted in a context where the 2014 Global Financial Literacy Survey (GFLS), conducted by the Standard and Poor's Ratings service, had measured Sri Lanka’s financial literacy as 35%, and the NFIS 2018 had stated that despite the high accessibility of the formal financial sector, financial services are underutilised by the public. Financial Literacy Survey  The survey was conducted with a nationally representative sample of 4,800 household members aged between 18 and 80 years, with a maximum of one member per household. Data was collected through face-to-face interviews, which were based on a questionnaire which comprised questions on financial knowledge, attitudes, and behaviour relating to various aspects of financial literacy. These aspects included budgeting and money management, short- and long-term financial plans, and the choices of financial products.  Of the survey participants, 46.23% were male, while 53.77% were female. A total of 18.11% of the participants were from urban households, and the rest (81.89%) were from rural households. The majority of the participants (28.16%) were from the Western Province, while the lowest percentage of participants, i.e. 4.93% was from the Northern Province. Survey participants represented six age groups, i.e. 18-24 years, 25-34 years, 35-44 years, 45-54 years, 55-64 years, and 65 years and above, while the highest percentage of the participants (23.41%) was from the 35-44 years age group and the lowest percentage (10.59%) was from the 18-24 years age group. The survey aimed at understanding the current state of financial literacy across the population, with a focus on measuring the overall level of financial literacy in Sri Lanka, developing individual financial literacy scores for knowledge, attitudes, and behaviour dimensions, using the financial literacy scores as a baseline to monitor the effectiveness of the NFIS initiatives. Financial knowledge, attitudes, and behaviour The survey defined financial literacy as “the combination of knowledge, attitudes, and behaviour necessary to make informed financial decisions and to achieve financial wellbeing”, and focused on the key elements of knowledge, attitudes, and behaviour within the concept of financial literacy.  It used a single indicator to measure the financial literacy level of the population, and this indicator was calculated focusing on four fundamental concepts for financial decision making, i.e. numeracy, the compound interest rate, inflation, and risk diversification. The survey defined a person as “financially literate”, if that person correctly answered questions pertaining to at least three out of the four financial concepts. The survey concluded that 57.9% of adults in Sri Lanka were financially literate, which the report noted shows a significant increase from the 35% reported by the GFLS in 2014. The gender gap in the financial literacy rates of males and females was 5.9%. According to the survey report, among the four concepts considered in calculating the overall financial literacy level, the concepts of numeracy and the compound interest rate were the most frequently understood by the participants. Nearly half of the population understood the concept of inflation, while only 33% of the population correctly answered the survey question on risk diversification. The survey measured the basic understanding of financial concepts such as inflation, simple and cumulative interest rates, and risks associated with investments and borrowing among the participants. As per the methodology of the assessment, the participants’ financial knowledge score ranged on a scale from zero to seven. The average financial knowledge score of the sample was 5.03, which, according to the survey report, is a slightly higher value than the minimum target score of five, which is taken into account in order to define a person as “financially knowledgeable.”  The report explained: “Some variations were observed among the different aspects of knowledge contributing to the overall financial knowledge score. For example, participants demonstrated an adequate understanding of inflation. However, only 55.5% of the adults showed knowledge of inflation in terms of the real value of money across time when making financial decisions. Although understanding of risk diversification was relatively low, there was a higher understanding of the relationship between risk and reward.” Attitudes towards money, money management, and planning for the future were also measured through the survey, based on a scale from one to five. Adding that higher scores indicated a higher level of financially literate attitudes, the survey report noted that the minimum target score was set to be three, while the average financial attitude score reported by the survey was 2.65. What is more, the survey measured the respondents' attitudes towards digital payment methods, considering the timely importance of the concept.  The survey results revealed that more than half of the Sri Lankans have positive attitudes towards the safety and efficiency of digital payment methods. In response to the statement that “digital payment methods are safe and efficient”, 34.47% and 22.11% of survey participants said that they “agreed” and “completely agreed”, respectively.  A total of 9.10% and 3.32% of the survey participants said that they “disagree” and “completely disagree” with the statement, respectively. Only 5.78% of the survey participants said that they could neither agree nor disagree with the statement. However, around 23.66% of the survey participants said that they were not aware of it. The survey also looked into the survey participants’ financial behaviour, regarding which it was noted: “Financial behaviour is recognised as one of the most important elements of financial literacy, as it drives the positive outcomes of being financially literate. Therefore, the study gave emphasis to measuring this element by incorporating a variety of questions on topics such as savings, short- and long-term investment planning, making rational purchases, and keeping track of the cash flow. The score was graded from zero to nine, with six considered as the minimum target score. According to the survey findings, the average financial behaviour score was 4.44, which is lower than the minimum target score. Around 30% of adults achieved a score of six or more.” The overall financial literacy score – which was computed by adding the values of the financial knowledge score (zero to seven), the financial attitude score (one to five), and the financial behaviour score (zero to nine) – ranged from one to 21. The financial behaviour score has given the highest weightage to represent the greatest impact on the overall financial literacy score, representing nine points out of the total possible score of 21, while the weighted average contribution to the overall score is largely from the knowledge element (23.95%), followed by behaviour (21.14%) and then attitudes (12.62%).  The survey report read: “The overall financial literacy score, as reported by the survey, was 12.12, which shows an ample space for improving the level of financial literacy in Sri Lanka. The range of overall financial literacy scores in Sri Lanka is quite widely spread, with 59.49% of the respondents above the country's overall score, and 40.51% of the sample below the country's overall score.” Financial literacy among different groups  The survey also sought to identify differences in financial literacy levels between different demographic groups in order to facilitate a more targeted policy making process. The gender based analysis of the survey revealed that men appeared to have higher financial knowledge and financial behaviour scores on average, resulting in a greater overall financial literacy score. Conversely, women received slightly higher scores for financial attitudes, according to the survey report. The survey also looked into the financial literacy level of participants of different age groups, in order to identify and adopt the most appropriate financial education approach. It highlighted that the people in the age group of 18-29 years appeared to have higher financial literacy derived from higher financial knowledge, attitudes, and behaviour scores, than the other age groups in the sample. People aged 60 years and above showed a significantly lower financial behaviour score, which the survey report noted perhaps reflects comparatively lower engagement in economic activities and financial management in real life. With regard to the education level of the participants, the survey report said: “It is no surprise that the survey confirmed a positive correlation between the level of education and financial literacy. Those who obtained an education above the General Certificate of Education Ordinary Level scored above the overall sample's average score. Those with the highest levels of education (graduate and postgraduate) were the top scorers in this category.” In addition, the survey findings suggested a slight gap between urban and rural participants in terms of financial knowledge, attitudes, and behaviours. The overall financial literacy levels among urban residents were higher than those of rural residents. Adding that individuals who use digital transaction tools such as debit or credit cards, internet or mobile banking, quick response codes, or mobile money accounts are considered digitally literate, the survey report said, noting that the findings revealed that digital usage positively correlates with higher financial literacy, as evidenced by the digitally literate respondents' scores being above average in all three components of financial literacy. In conclusion, the survey report revealed the need to target policy interventions by designing and conducting programmes in the implementation of the NFIS.