The Gallup Global Financial Health Study was published in May of 2018. The study is based on a survey of over 15,000 people in 10 different countries. Conducted by Gallup in partnership with the MetLife Foundation and the Rockefeller Philanthropy Advisors, the study aimed to develop two key financial measures: how secure do people feel around the world, and how much control and influence they believe they have over their financial situations.
“The degree to which people perceive they are in control of and can influence their financial situation is an important and complementary dimension under the umbrella of financial health,” said the study. While researchers have developed valuable measures of financial inclusion and financial literacy, data on financial security and control have never existed before. Such financial measures should help organizations and countries around the world make evidence-based decisions on how to improve the ability of people to lead more financially healthy and secure lives.
The countries in the survey spanned the gamut from highly advanced to developing economies. The ten countries, and their approximate GDP per capita in $1000s, are: the US ($58), UK ($43), Japan ($42), South Korea ($37), Greece ($37), Chile ($27), Colombia ($24), Vietnam ($14), Bangladesh ($6.3), and Kenya ($3.6).
The study defines financial control as “the extent to which people perceive they are in control of and can influence their financial situation - an important and complementary dimension within the umbrella of financial health.” Financial control is composed of four key variables: locus of control - having power over events in one’s life; resilience - ability to come up with solutions to small financial shocks; self-efficacy - extent of influence over future outcomes; and autonomy - having decision-making power.
Financial control was measured as the percentage of survey participants who gave a positive response to at least eight out of these ten different dimensions of financial behavior:
- You believe you can change your financial situation.
- You believe you can overcome any financial problem.
- You don’t regret spending on nonessential items.
- You have been able to save in the past.
- You don’t avoid thinking about how you are going to pay for things in the future.
- You believe you will be able to repay your debts.
- You enjoy planning what to do with your money.
- You are satisfied with your level of input on financial decisions in the household.
- You could find the money to pay for a financial emergency if it were to arise today.
- You have people who can help you financially.
In addition, respondents were classified as financially secure, stretched or insecure. They were considered financially secure if both: “They could cover ALL of their basic needs, like food, housing and transportation, for more than six months if they lost their income and had to survive only on their savings or things they could sell;” and “Making payments to pay back the money they owe does not make it difficult for them to pay for the other things they need.”
Respondents were considered financial insecure if EITHER of these situations applies to them: “They would be able to cover ALL of their basic needs, like food, housing and transportation, for less than one month if they lost their income and had to survive only on their savings or things they could sell,” and “Making payments to pay back the money they owe makes it very difficult for them to pay for the other things they need.” Stretched respondents were those considered neither secure nor insecure.
Not surprisingly, financial security is higher in the more advanced economies but doesn’t necessarily correlate with GDP per capita. The US, for example, is not the most financially secure economy despite having the highest GDP per capita. In the US, 33% were found to be financial secure and 29% insecure, compared to 44% secure, 20% insecure in the UK; 50% secure, 13% insecure in Japan; and 39% secure, 19% insecure in South Korea. At the other end of the financial spectrum, Kenya has 9% secure and 53% insecure; Bangladesh - 7% secure, 59% insecure; Vietnam - 11% secure, 40% insecure; and Colombia - 7% financially secure and 58% insecure.
The survey found that perceptions of financial control don’t necessarily align with financial security. For example, the US has the highest perception of financial control at 54%, but, as noted above, it has only the four highest measure of financial security. Bangladesh and Japan have similar measures of financial control at 31%, while Japan has the highest measure of financial security at 50% and Bangladesh is tied for Colombia for the lowest at 7%.
In addition, there’s no clear relationship between perception of financial control and GDP per capita. Japan’s GDP per capita is 12 times as large as that of Bangladesh, yet both countries have similar measures of financial control at 31%. Vietnam and Greece also had similar levels of financial control, despite Greece’s GDP per capita being four times larger.
The study also found that lower levels of perceived financial control was the main predictor of financial insecurity in nine of the ten countries, and the top predictor in seven. Other key predictors of financial insecurity were region of the country, being younger, and having less education.
Another noteworthy, and surprising result was that there’s no clear relationship between account ownership and financial security, especially in lower- and middle-income countries. In Kenya, for example, 82% have an account, yet only 14% have a positive perception of financial control and 9% feel financially secure. Account ownership rate is 85% in Greece and 74% in Chile, but financial security is 24% and 33% respectively. In Bangladesh, only 7% feel financially secure despite a 50% rate of account ownership. Even in the US, while account ownership is at 93%, only 33% feel financially secure.
The Gallup study has made the data sets for each of the ten countries available for anyone to download and analyze. Hopefully, such a data-driven understanding of the state of financial health around the world will lead to concrete actions to improve both financial security and the perception of financial control.
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