Financial Literacy Self-Evaluation of Young People in Latvia

Abstract

The importance of voluntary pension savings in pension funds is growing in Latvia and in the world. Based on the profitability aspect of long-term savings, it is important to accumulate as early as possible and to create preconditions for greater involvement of young people in pension planning and savings. Publicly available information, as well as scientific research, shows that it is young people who are least involved in voluntary pension accumulation. In most of developed countries' pension policies are based on three pillars, so the issue of young people's readiness to think about and plan for pension savings at an early age is a priority. One of the most discussed issues among academics in promoting voluntary pension savings is the level of financial literacy. Financial literacy is the basis for government-designed support mechanisms, including financial incentives, to deliver results and people's level of knowledge to participate in the third pillar of pensions and to build up voluntary savings.

Introduction
However, the desire of pension policy makers to involve the population in the formation of pension savings and to shift the investment risk to people's responsibility poses certain challenges. It is difficult for people, especially younger ones, to make long-term decisions such as the desired amount of pension and the amounts that must be postponed today in order to create it (Kotecha, Kinsella &Arthur, 2010). Attempts are being made to raise the level of financial literacy for people to choose in favor of voluntary savings (Strauss, 2008). In addition, it is important to note that while widely available information can improve financial literacy, there are behavioral barriers, including short-sightedness, cynicism and inertia, that hinder the accumulation of assets today (Wicks, Horack, 2009).
Since 2014, Latvia has implemented a strategy for promoting the financial literacy of the population (www.finansupratiba.lv), which highlights the importance of the aspect of financial literacy of young people in reviving the tradition of financial planning and savings. The tasks defined in it include the improvement of the state education content with the aim to ensure the possibility to develop financial literacy at each level of education, ensuring the availability of information, development of educational websites, as well as implementation of other educational activities important to ensure that the education level and financial literacy level could be improved.
The aim of this study is survey financial literacy level in the issues of the pension system in Latvia. Analysis was performed to investigate the self-evaluations young people of knowledge on pension system by age group, by gender and by presence of regular income from their professional activities.
To achieve the aim of the study, the ways in which young people obtain information about the pension system in Latvia, the level of young people's knowledge of the current pension system, emphasizing the investor's right to manage investments in private pension funds, as well as basic conditions to create savings at the 2nd and 3rd pension levels were analysed.
To conduct the research, a survey method was used, addressing youth organizations and educational institutions. The survey is designed using closed and semi-closed questions, in several questions respondents were asked to provide ratings using the Likert scale. The survey data were analysed using descriptive statistics: indicators of central tendency or location (arithmetic mean, mode, median), indicators of dispersion or variability (range, standard deviation and standard error of mean), cross-tabulations performed by age group, by gender and by presence of income from the young people professional activities -their own work. Empirical research was performed to get knowledge about young people financial literacy related to pension issues as it is important to suggest special activities if the financial literacy is low to make sure that inhabitants will be willing to contribute to their future well-being.
Financial literacy is a very deep researched aspect world-wide especially after the global financial crisis in 2009 with special attention to financial literacy of inhabitants in different parts of the globe -in Europe (Magistro 2017; Romanova & Kudinska, 2017;Angelini, Bertoni, Stella. & Weiss, 2019). Special attention is paid also to insurance literacy (Mare, Dragos, Dragota & Dragos, 2019). Researchers have investigated if the financial literacy influences financial decisions and decision making, financial behaviour (Nicolini. & Haupt, 2019) and different approaches in European countries (Nicolini, 2019) as well as level of financial education (Xiao. & Porto, 2017;Amari, Salhi & Jarboui, 2020).
Researchers from Estonia have conducted a study how subjective and objective knowledge of finance, behaviour in managing personal finances and socio-economic status affect financial well-being (Riitsalu & Murakas, 2019) where one of the conclusions state that providers of finan-Literature review cial services should address these more in the design of their services and communication. Social marketing of financial literacy is becoming more and more important (Batraga, Praude, Salkovska. & Afoniceva, 2018;Batraga, Salkovska, Legzdina, Rukers & Bormane, 2018). Economic situation in country is important to organise several activities (Daugeliene, 2016;Daugeliene & Liepinyte, 2012). Financial literacy and quality of life has a special importance facing the health problems (Pahlevan Sharif, Naghavi, Sharif Nia & Waheed, 2020).
Researchers have discovered that there are differences in financial literacy of youth (Garg & Singh, 2018), by gender (Okicic & Kakes, 2019). Findings of their study has suggested that differences in financial knowledge, financial attitudes and financial behaviour between young women and men can be confirmed (Okicic & Kakes, 2019). This aspect has to be taken into account organising marketing activities and preparing training programs to increase financial literacy of the population. Savings for future needs are investigated in the relation of financial literacy (Thomas & Spataro, 2018). Communication aspects are considered as important for financial literacy (de Goeij, Van Campenhout & Subotic, 2018).
Meanwhile, academics (Angrisani & Casanova, 2019) have compared individuals' subjective and objective assessments of financial literacy and investigated whether the observed discrepancies are related to different behaviors in pension planning. Under-confident people rarely announce that they have developed a retirement plan. However, unlike overconfident people, they seem to be most eager to receive more information about pension planning. And that could mean they might be better prepared for retirement than the self-confident. The impact of perceived and actual financial literacy on financial behavior was also examined, revealing that the combined measure appears to provide a better understanding the phenomenon (Allgood, Walstad, 2016).
The study of researchers Garg and Singhh (Garg & Singh, 2018) reveals that the financial literacy level among youth is low across the most part of the world that has become a cause of concern. Also, it has been observed that various socio-economic and demographic factors such as age, gender, income, marital status and educational attainment influence the financial literacy level of youth and there is an interrelationship between financial knowledge, financial attitude and financial behaviour (Garg & Singh, 2018).
Researchers have found that risk and tolerance are among the important aspects in retirement savings (Tavor & Garyn-Tal, 2016) and that financial incentives have importance for retirement savings (Jordan & Treisch, 2010). Researchers have found that the main factors influencing financial literacy were as follows: educational level, financial attitude, financial knowledge, financial behaviour, gender, household income and investments. The consequences of financial literacy were the behaviour of incurring avoidable credit and checking fees, credit score, and the willingness to take investment risks. The authors also find some methodological, cultural, economic and theoretical moderations effects between financial literacy and antecedent/consequent constructs (Santini, Ladeira, Mette. & Ponchio, 2019).
Models of retirement savings are issues discussed on political level and by academic researchers (Rey-Ares, Fernandez-Lopez. & Vivel-Bua, 2018). Questions on possibility of financial literacy inclusion for requirements for residence permits are on research agenda for academic researchers (Collins. & Yousem, 2021) and for level of financial literacy and respective financial well-being (Chavali, Mohan Raj. & Ahmed, 2021). Researchers have investigated influence of life-style, financial literacy, demographic aspects on financial well-being (Zahra & Anoraga, 2021). Influence of education has a big importance (Lucey & Henning, 2021). Several other aspects has also some importance, but not so big as mentioned and analysed above.
This study was conducted to answer the question of whether the level of financial literacy can be related to differences in gender, age group and the existence of income from their professional activities for young people in Latvia and to investigate -are there differences of knowledge on pension issues for young people if they get income from their professional activities or not to observe part of society ready to be contributors for their own as well as society well-being or they are willing to get only support from the society.
Survey of young people from Latvia on their knowledge about several financial aspects including knowledge about needs and possibilities for future pension savings was conducted in February -March, 2021. The questionnaire for the survey was prepared taking into account theoretical findings in research in other countries and interest to evaluate the financial literacy of young people related to their knowledge and their views on pension savings to have inhabitants thinking about their long-term well-being in their retirement period as the current situation indicate that there is quite a big share of inhabitants in Latvia who did not pay attention to their retirement financial situation which in graet extent depend from the person's personal contribution to the social security contributions by respective persons. Main statistical indicators of respondent self-evaluations on their knowledge of pension system in Latvia in 2021 are included in Table 1.
Survey results indicate that young people in Latvia have evaluated their knowledge about the pension system in Latvia on middling level: with arithmetic mean 2.84 (in scale 1-5), most often given evaluation was 3, characterised by mode; half of respondents gave evaluation 3 or less and half of respondents gave evaluation 3 or more, characterised by median. For evaluations by respondents it was covered all evaluation scale and the indicators of variability indicate that the evaluations were quite different by young people. As it was pointed out in several theoretical findings reflected in the scientific publications that financial literacy for youngsters differ by age, by gender and by income level where for income level it is important their income from their professional activities. Distribution of evaluations on knowledge of young people about the pension system in Latvia in 2021 by gender is included in Table 2.
Evaluations by respondents indicate that the evaluations by gender are alike but it is important to know -do those evaluations differ: are the differences statistically significant by appropriate  Table 3.

Statistical indicators
The arithmetic means of the evaluations of financial literacy in the pension system are higher for men, thus confirming the conclusions of previous studies on this factor. Whether thosse averages of ratings by the respondents differ statistically significant by gender has been tested by t-test.
The results of testing statistical hypothesis on difference of arithmentif means of the evaluations by gender are included in Table 4.    gations on knowledge about the pension system in Latvia by age groups were examinded in the next part of our empiricalresearch. Distribution of evaluations by young persons on pension system in Latvia in 2021 by age group is included in Table 5.

Data of hypotheses testing included in the pre-
Evaluations by respondents indicate that the evaluations by age group are alike but it is important to know -do those evaluations differ statistically significant with certain significance level. Main statistical indicators on knowledge evaluations by young persons on pension system in Latvia in 2021 by age group are included in Table 6.   The arithmetic means of the assessments gradually increase with increasing the age group, which is not surprising, however, in this sample group the age group 21-23 has a slightly higher arithmetic mean ogf the evaluations than for the group aged 24-25. Whether these estimates differ statistically signifficant depending on the age group, we have tested it by the analysis of variance -ANOVA where there are compared arithmetic means of the evaluations and testeddo they differ statistically significant. The results of testing statistical hypothesis on difference of average evaluations on youngsters knowledge about pension system in Latvia by the age group are included in Table 7.
Analysis of variance (ANOVA) results indicate that the average evaluations by age groups do not differ statistically significant by significance level less than 0.145. Main statistical indicators of correlation analysis on young people knowledge evaluations on pension system in Latvia, age group and gender in 2021 investigating the relation of those analysed aspects mentioned before are reflected in Table 8.  Correlation analysis results indicate that the knowledge level evaluations of young people in Latvia on pension system has close correlation with age groups where the correlation coefficient is statistically significant with significance level less than 0.065 and is not statistically significant with gender. The other aspect indicated in scientific publications was that there are different financial literacy levels of young people depending from the income level. This aspect was analysed also in our empirical research where the main results are included in Table 9.  The results of analusis indicate that the evaluations of financial literacy increase if person is older and if the person has income from the professional activities and has quite different situation if there are no income from young personds professional activities. The results of this analysis confirm that there are necessary activities from different institutions to increase the financial literacy level of young people and to make educational and moral support for their professional activities.
» Financial literacy and saving models are on investigation of many academic researchers with special attention to retirement savings.
» Persons by different gender and different age groups as well as different income levels from the person's professional activities have different motivations for retirement savings for voluntary pension models.
» Young people knowledge and motivations for voluntary pension savings differ by age groups -older groups of young people are better informed about pension system, but the correlation is not statistically significant with significance level less than 0.065.
» Young persons who have income from their professional activities by increasing their age have higher financial literacy level.