JUST like many other countries, the Philippines has been hit hard by Covid-19. Aside from being a health pandemic, it has also proven to be an economic pandemic.
Gross domestic product has fallen. Many businesses have either permanently or temporarily ceased operations. Unemployment levels have risen. Many overseas Filipino workers (OFWs) have returned home.
Given all of these, it would be interesting to find out how finances of Filipinos have been affected and what adjustments have been done in order to cope.
The Bangko Sentral ng Pilipinas conducts a quarterly survey called the Consumer Expectations Survey. For 2020, the latest version is as of the third quarter. It is a quarterly survey of a random sample of about 5,000 households in the Philippines. The results of the Consumer Expectations Survey provide advanced indication for the current quarter, next quarters and year ahead. In this light, there are key survey highlights with respect to finances that reveal the state of finances in terms of opportunities and issues.
The Confidence Index is at an all-time low of -54.5 percent in the third quarter. This means that there is high pessimism among Filipinos. The key reasons cited for the negative sentiment are Covid-19, high unemployment, low income and fast increase in the prices of goods. The pessimism spills over to the fourth quarter but a more optimistic outlook is seen for 2021. Future expectations matter. The challenge therefore is to bring back consumer confidence in the economy as soon as possible so that incomes and jobs are supported.
In terms of savings, the survey found that only 24.7 percent of Filipino households in the Philippines have savings as of the third quarter and there is a big drop from 37.8 percent in the first quarter. The number is worse for the National Capital Region at only 22.7 percent.
A low savings proportion can mean that funds for consumption will be lower. A low savings proportion can mean that funds for investment will also be lower. If consumption and investment lower, aggregate spending in the economy will be affected and recovery might be slow.
Why do Filipino households save? For the households that mentioned that they save, the top reasons provided are emergencies, health, retirement, education and business capital. Where do Filipino households save? The top preference revealed in the survey would be the bank. It would be followed by savings at home, cooperatives, paluwagan and investments. The presence of Covid-19 leads to the reality that there is volatility, uncertainty, change and ambiguity; so a practical buffer is to have ample savings.
In terms of economic indicators, the survey revealed that Filipinos expected both the inflation rate and interest rate to increase. A higher inflation rate can make it more difficult for households to make ends meet given the weak economy. Investment portfolios should therefore be reviewed to ensure that the returns will still be able to beat inflation. A higher interest rate can make fixed instruments more attractive but will also imply that those who borrow money to augment income will have to deal with higher costs.
The Consumer Expectations Survey also studied how OFW households have responded to Covid-19 in terms of remittance usage. The patterns are mixed. In the third quarter of the year, usage increased for food and other household needs, debt payments and investments. Meanwhile, usage decreased for education, medical expenses, savings, purchase of consumer durables, purchase of house and purchase of vehicle. The big decline in savings and education might have dire implications on the overall development of the country.
The Consumer Expectations Survey gives good insights on how Filipinos manage finances during a crisis like Covid-19. A heightened sense of personal finance is key to economic recovery. Thus, government and financial literacy movers have to collaborate well to promote the importance of financial freedom.
Gemmy Lontoc is a registered financial planner of the RFP Philippines. To learn more about personal financial planning, attend the 87th RFP program this January 2021. To inquire, e-mail info@rfp.ph or text <name><e-mail> <RFP> at 0917-6248110..