Managing Household Finance: An Assessment of Financial Knowledge and Behaviour of Rural Households

Abstract

Managing household finance efficiently not only in urban areas but also among rural households has become the need of the hour in recent times. This study primarily aims at portraying the characteristics of rural households of Sikkim with reference to their level of financial knowledge and financial management practices. A sample of 98 rural households from the East and South districts of Sikkim was taken through a multistage sampling technique. Data were collected through schedule containing the question related to the financial knowledge and behaviour of the people. Financial knowledge of the rural people was assessed based on six dimensions, namely knowledge about credit management, ATM operations, interest on Savings account, insurance knowledge, unit pricing and infl ation. The financial behaviour of the rural household was assessed based on eight practices such as budgeting practices, financial decision-making, household financial management, insurance products, financial activeness, cash management and retirement planning behaviour. The findings of the study conclude that the rural households possess a satisfactory financial knowledge score about ATM operations, insurance and unit pricing, but the knowledge about credit management, interest on savings account and infl ation is really a serious concern and may be one of the leading factors to the poverty in rural households. Additionally, females were found to be more concerned and aware than males about the financial issues which indicates the financial empowerment among women of the State. In addition to this, among the ethnic groups, the Bhutia community scored highest in terms of financial knowledge scores followed by Nepali and Lepcha communities of rural households of Sikkim. The common financial practices such as preparing the household budget, managing the cash flow, planning for retirement or saving for contingencies are not in the habit of rural households to manage their finances. The scores of financial knowledge on the various dimensions are seen to be related to the financial management behavioural practices. This means that the rural households having high knowledge scores in all the dimensions showed desirable and positive financial behaviours. This pattern indicates that if the financial knowledge of the rural households is increased over a period of time, their behaviours towards finance-related decision-making may be positive, and thus leading to an effi cient household in terms of managing its finances.