Formal and Informal Savings Habits and Income Levels: A Case Study in Mexico

Georgina Manrique Morteo,Elena Moreno-Garcia,Milka Elena Escalera-Chavez

doi:10.5430/ijfr.v12n5p1

Abstract

Saving represents one of the most important determinants of personal success and economic development. However, in developing economies, opportunities for structured and institutionalized savings are rare. The intention of the study is to generate evidence on the type of relationship existing between income levels and formal and informal saving habits of a group of people from three different cities in Mexico. From a non-probabilistic convenience sampling, the data of 260 participants were obtained. A logit model was estimated. The results show that there is a positive relationship between higher income levels and formal saving habits and an inverse relationship between higher income levels and informal saving practices. Although the size of the sample does not allow conclusions to be drawn to the level of generalization, it has allowed the generation of evidence that in future studies can be contrasted with a larger sample.

Highlights

The Organization for Economic Co-operation and Development (OECD) aptly defines financial literacy as the knowledge and understanding of financial concepts and risks and the skills, motivation, and confidence to apply such knowledge and understanding in order to make effective decisions across a range of financial contexts, to improve the financial well-being of individuals (Lusardi, 2019, p. 1)Increasing the level of financial literacy of the population is a challenge for all countries in the world
In Mexico, the population has basic financial concepts and a limited culture of financial planning and forecasting for the future. This is demonstrated by the results of the 2016 International Survey of Financial Literacy Skills for adults, which reveal that in Mexico, 60% of the population budgets their expenses, 53% saved in the twelve months prior to the application of the survey and 54% of the Mexican adult population set long-term financial goals
The study carried out confirms the positive relationship between higher levels of income and formal saving habits and the inverse relationship between higher levels of income and informal saving practices, coinciding with Di Giannatale et al (2010), Rivera and Nava (2012), Valles and Aguilar (2015), Goedecke et al (2017) and Yadeta et al (2017)

Summary

Introduction

The Organization for Economic Co-operation and Development (OECD) aptly defines financial literacy as the knowledge and understanding of financial concepts and risks and the skills, motivation, and confidence to apply such knowledge and understanding in order to make effective decisions across a range of financial contexts, to improve the financial well-being of individuals (Lusardi, 2019, p. 1). In Mexico, the population has basic financial concepts and a limited culture of financial planning and forecasting for the future This is demonstrated by the results of the 2016 International Survey of Financial Literacy Skills for adults, which reveal that in Mexico, 60% of the population budgets their expenses, 53% saved in the twelve months prior to the application of the survey and 54% of the Mexican adult population set long-term financial goals. Analyzing the relationship that exists between citizens income levels and their type of savings, generates empirical evidence on which financial institutions can base their incentive strategy to include as users to a greater number of people and this way, contributing to increase the levels of financial inclusion of a country. The following question arises: Is there a statistically significant relationship between the type of savings and the income levels of the population? To answer the research question, evidence of this relationship is generated in a group of working-age adults located in three cities in Mexico: Cuernavaca, the Port of Veracruz and the city of Puebla

Literature Review

Methodology

Model Description

Results

Conclusions