Chapter I

Introduction
A. Background of the Study
People became too acquainted with the continuous innovation of modern
inventions. Even at an early age, they have adapted the mentality of spending
money for one thing after another to inline themselves with the current trends.
With this habitual outlaying of money for passive enjoyment, people have
gained even bigger difficulties in financial management and the best measure
that has been learnt is saving.

Now that the society noticed the need to have financial stability, people
developed fondness of the idea of saving money. The good benefit of saving
money has been frequently discussed across people of different ages,
especially to students. According to Corpus (2010), the adolescence of an
individual starts at the age of 10 and ends at 20 years old. Corpus classified
adolescents into 3: Early adolescence occurs at ages 10-13, middle
adolescence ranges from 14-16 years old, and late adolescents are those
who are within 17-20 years old. Therefore, students falling under the category
of senior high school are now considered late adolescents. This means that
they are expected to start being responsible in handling money. It also helped
that most of academic institutions nowadays give financial literacy forums for
their learners to provide more knowledge regarding spending daily allowances
and allotting money for savings.

In spite of those financial literacy campaigns, the researchers have

observed that students still developed difficulties in financial management,
specifically in saving money from their daily allowances. A pre-test was
conducted by the researchers to verify the existence of the said problem. A
questionnaire was prepared and 40 respondents from grade 12 ABM students
are randomly picked. Based on the survey, results showed that 65 % of the
students often save money; while 35% of them are willing to save but don’t
know how to start. It was also explicitly implied that students are not used in
having any specific saving strategy except for the 2.5% that uses the “10%
saving rule”.
 Even with the 10% saving strategy used by this 2.5%, there is still a
problem sited. According to kitces.com, saving something like 10% of the
available money also implicitly means spending the other 90%, and continuing
to do so over time means also saving (only) 10% and implicitly increasing the
standard of living by 90% of ever raise received in the future. On the contrary,
according to Anspach (2016), following the 10% saving rule is better than not
saving at all.

Caplovitz (1997) polished the idea of effective financial management and

came up with four distinct saving strategies- the increasing income, reducing
consumption, increasing the efficiency of resource used, and assuming debt.
The researchers assumed that among the four, reducing consumption has
more potential to be applied as saving strategy for the grade 12 ABM students
of Liceo de Cagayan University.

In this study, reducing consumption will be focused on the concept that

minimizing unnecessary consumption to decrease extra expenditures will
provide an increase in the students’ budget for savings.
 B. Statement of the Problem
The study will be conducted to determine if Caplovitz Reducing
Consumption is an applicable saving strategy among Grade 12 ABM students
of Liceo de Cagayan University main campus. Specifically the study attempts
to answer the following questions:
1. Will the Caplovitz’s reducing consumption help the students to
effectively save money in terms of:
1.1. shopping only for necessities and avoids over spending
1.2. eat out less often
1.3. spending less on movies and other leisure activities
2. Is there a change to the saving practice of Grade 12 ABM students of
LDCU main campus?
3. Is there a significant difference between reducing consumption in terms
of: shopping only for necessities and avoids over spending, eat out less
often, and spending less on movies and other leisure activities?
 C. Importance of the Study
The result of this study will be beneficial to the following people:

STUDENTS. Lack of savings is a serious problem of the students. Students

are very weak in managing their money because of not having the plan on
how to budget it properly. This study will help the students who have
difficulties in saving money. It will give them the idea on how to properly
control and budget their allowance and help them to have the practical aspect
of trying to plan ahead for major expenses.

TEACHERS. The results of this study will give an idea to the teachers on how
to properly manage their finances. Also, the teachers can share the ideas on
effective saving strategy through teaching. It will also improve their saving skill
in spite of having financial constraint.

PARENTS. This study will help the parents on how to wisely manage and
budget their finances for the daily needs of the family. Also it will help them to
lessen the burdens of sending their children to school.

FUTURE RESEARCHERS. The ideas presented in this study may be used as

reference data in conducting new researches or in testing the validity of other
related findings. This study will also serve as their cross-reference that will
give them a background or an overview about effective saving strategy of
students.
 D. Definition of Terms

Adolescence- the period following the onset of puberty during which a young
person develops from a child into an adult.

Financial Literacy- the ability to manage personal finance matters in an

efficient manner, and it includes the knowledge of making appropriate
decisions about personal finance such as investing, insurance, real estate,
paying for college, budgeting, retirement and tax planning.

Financial Stability- is a state in which the financial system is resistant to

economic shocks and is fit to smoothly fulfil its basic functions: the
intermediation of financial funds, management of risks and the arrangement of
payments.

Reducing Consumption- Is centered around the idea of limiting unnecessary

consumption to diminish additional consumptions enable to reserve funds.

Saving Strategy- refers to an effective way of saving money

10 % Saving Rule- is a saving strategy that allows a person to save 10% of

the amount available.

E. Scope and Limitation

The study focuses with the Caplovitz reducing consumption as a saving
strategy to help students who have difficulties in saving money. The study will
discuss about reducing consumption which includes shopping only for
necessities and avoids over spending, eat out less often, and spending less
on movies and other leisure activities. The respondents of the study are the
Grade 12 ABM students of Liceo de Cagayan University Main Campus.
 Chapter 2

Review of Related Literature

Foreign Studies

Losby (2008) in his research, “Saving strategies: decision and

sacrifices low-income parents make to secure a better future for their families”
hypothesized that those who have a history of saving use significantly more
helpful saving strategies than respondents without a saving history. Parents
who have a history of saving experience less severe hardship than parents
who do not have a history of saving. It was not seen that there is a
relationship between the number of helpful saving strategies and the age of
the saver.

Losby cited an example where he compared the saving practices of

European from Americans: “across the 27 member states of the European
Union the personal savings rate was 10.6 percent in the last quarter of 2007
(EuroStat, 2008) and Americans had a personal savings rate near zero (U.S.
Department of Commerce, 2007)”. He presented that the decrease in
personal savings rate is primarily due to the term “conspicuous
consumption”― which was coined by Veblen (1989). In Losby’s study, he
used the term to give emphasis to the members of the upper class men who
use their wealth to signify social power—both actual and perceived.
Conspicuous consumption defines the excessive expenditures on goods and
services acquired primarily for the purpose of displaying wealth or
getting/maintaining high social status. Also according to Veblen, ―”invidious
consumption”, a necessary repercussion, is the term applied to the
consumption of goods and services for the considered purpose of inspiring
envy in others (Losby, 2008, Dugger, 2006; Veblen, 1899).

In the above mentioned study of Losby, the behavioral life-cycle

hypothesis (BLCH) was used―which argued that people build their own
motivations or restrictions to help them save (Shefrin & Thaler 1988, 1992).
Beverley et al. (2001) applied the BLCH to a saving strategy model. In the
model, savers use either psychological or behavioral saving strategies. The
results from Losby’s study showed that low-income parents have the potential
success in saving money through using the behavioral strategies “using
resources more efficiently” and the “reducing consumption”.

People enjoy buying product if it justifies their reasons to their needs

(Mishra & Mishra, 2005). The right decision to save can lead to a better
financial well-being in the future. Although, saving is an important step to
financial well-being, people still have difficulties to shorten their expense and
save money (Maki & Palumbo, 2001).

The Behavioral Economic theory says that although people want to

save, they still have difficulty to restrain the temptation to spend (Beverly,
2008). Young people spend their money mostly to their priorities than saving it
(Samson et al., 2004), though this does not limit to young people.

According to Victoria (2017), people become wealthy in the future

because of their great habits in saving money. And rich people become richer
because of their successful habits in controlling their expenses and careful
spending of money. Saving is an important step to achieve the financial goal
of a person. It does not mean to be thrifty, but people who set goals in saving
must learn to save first before spending their money.

The perception of people towards saving is it is an activity that can

contribute to their goals and achievements. A study about the saving habit of
young people demonstrated that saving was a very important habit (Furnham,
1999) and that it can contribute to one’s life satisfaction (Xiao et al., 2008).

Dominant studies on saving (Furnham,1999) have demonstrate that

people save money when they want something special which can be
understood as a goal. But saving should not be done after satisfying the
needs and wants. Setting aside the money before using or spending it is a
good practice towards a successful and continuous habit of saving.

Money is an enabler of personal and social activities that can

contribute to the experiences of the people (Seligman and Csikszentnihalyi,
2000). This is done by the act of defining intention that let people commit to a
goal that saving is the best way in achieving the desires. Dunn and Norton
(2013) studied the increase of happiness through spending money in a
meaningful way. The study revealed that the more people spend their money
for different products the lesser the saving they have done.

Teenagers started saving often as a response to withdrawal of financial

support from their parents. And those who save earlier in life would save for
something specific for the future than putting money for a rainy day. Some
teenagers are pressured to save for something that is “worthwhile” like saving
for a drive lesson or a car (Whyley & Kempson, 2006). In another study, some
young adults (aged 18 to 24) tend to save for a university (Synovate, 2004).

According to Leon Monkedi, a leader of America Saves Week, the key

to financial success knows on how an individual spends his money. It is not
always easy for a student to commit to save. Students tend to get caught up
with the trend of living beyond of what they can afford. Savings is important to
students to help them for their college to less their huge financial burden. And
college students can already show his/her financial maturity to track their
expenses. (Monkendi, 2004)

Saving can also be a learning experiment. Students have many career

opportunities in the future. Time will come that they will spend most of their
time to their friends and family. It will be hard for them to spend time in saving.
People who save money in their hand at young age are also a great saving for
learning and experiences (Dhoot, 2016).

According to Croy et al.,(2010) many students are experiencing

financial hard times when they finished their studies, especially in finding a job
and when they get older because they never get the facts on saving. Financial
problems caused stress and crisis. Not only the poor people are worried about
the financial problems, but also the middle and high income people are
included. It is not the high salary can guarantee people not having the
financial problems but it is their financial management (Sporakowaki, 1979).

Furthermore, based on a study, it was indicated that financial

knowledge is one of the strongest predictor of financial behavior among the
students. Financial education or knowledge should be based on the needs,
interest, and abilities of each student (Norvilities et al., 2006 and Hilgert
&Hogart, 2003). Despite of this it was stated in Croy et. Al., 2010 other
students don’t practice saving because they do not know how useful and
relevant it is.

Students face many hard financial decisions in regards to satisfying

their wants and needs. Many students end up making some costly money
mistakes, thus this mistake can actually cause damage that lingers for
decades (Xiao et al., 2007). According to Wong (2013), the lack of financial
knowledge can lead to student to face financial problems. Students are very
weak when it comes to saving money. They always make the wrong decision
in satisfying their wants and needs.

Local Studies

The total annual family income of the Philippines in 2009 was

estimated to be PHP 3.804 trillion, which equal to PHP 206,000 average
annual income per family. The upper 70 percent income group earned an
average of PHP 268,000 per family. The poor, who belonged to the bottom 30
percent of the income group, lived on an average annual family income of
PHP 62,000 or PHP 5,166 per month (Diaz et. al., 2011). According to the
2009 official estimates, 26.5 % of Filipinos are poor, which is equivalent to
23.14 million Filipinos subsisting on monthly family income of PHP 7,017 or
below. Within the last four years, the number of Filipinos living in poverty
increased from 22.17 million in 2006 to 23.14 million in 2009.

It is said by National Statistics Office (2006-2009) that people belong to

the poor class spent money more than how much they earned which gives
idea that they cannot save money for future use. In addition to that, it is
reported that 70 % of the population which belongs to upper class have
increased their savings from PHP 38,000 to PHP 44,000. This indicates that
as income increases savings also increases.

Furthermore, according to Diaz et. Al., (2011), in their study entitled,’’

Savings for the Poor in the Philippines’’, that the microfinance industries in the
Philippines are innovating which includes a variety of institutions offering
broad range of products operating in a highly supportive regulatory
environment. This tells that people are more prone to or tempted by the
products which are continuously innovating that leads them to spend money.

Based on the study of Orbeta (2006), ‘’ Children and Household

Savings in the Philippines’’, savings is the vehicle for consumption smoothing
as argued in the celebrated life-cycle hypothesis because saving money can
help you become financially secure and provide a safety net in case of an
emergency. Although it is good thing, it was revealed by the researchers
Mapa and Bersales (August 2008) from the University of the Philippines that
studied the savings data from 1985-2003 and found that Filipinos have
difficulties in saving money.

In addition to this, recently saving on a regular basis has been found to

enable households to move out of slum areas (Lall et al. 2005). Both of these
macroeconomic and microeconomic concerns are evident in the case in the
Philippines. The savings rates in the country are low, even lower than
Indonesia, which has lower per capita income (Orbeta 2005a). This had been
identified as one the main reasons why the country has not grown as fast as
its neighbours. Low household savings also exposes families to the risk of
income shortfalls. In fact, determining the role of children in household
savings provides an added dimension to the low savings rate of the country.
Norvilities et al. (2006) and Hilgert and Hogart (2003) indicated that, financial
knowledge is one 16 of the strongest predictor of financial behaviour among
university students. Financial education or knowledge should be based on the
needs, interests, and abilities of each student. Clearly, more financial
education is needed for young adults to better the economy.