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Managing Household Finance: An Assessment of Financial Knowledge and

Behaviour of Rural Households

Article in Journal of Rural Development · December 2019

DOI: 10.25175/jrd/2019/v38/i4/150768

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 Vol.38 No.4 ISSN 0970-3357

Vol.38
e-ISSN 2582-4295

October - December 2019

Journal of Rural Development

National Institute of Rural Development and Panchayati Raj

Ministry of Rural Development, Government of India
No.4

Rajendranagar, Hyderabad - 500 030, India

www.nirdpr.org.in
 Included in Group A of UGC-CARE List
Indexed in Scopus

Journal of
Rural Development
Vol. 38 October - December 2019 No. 4

1. Changing Employment Pattern and Agricultural Distress in

Rural Areas of Jammu and Kashmir 555
Waqas Farooq Kuttay

2. A Methodology to Track Economic Mobility of Castes in

South Indian Village, CIRCA 1866-2001 580
Babu N. S. Dasari

3. An Assessment of Needs of Rural People for Economic Development

and Social Justice: A Case Study on the Role of Gram Sabha in
Nellore District of Andhra Pradesh 608
Nagulapalli Srikanth and Palla Trinadha Rao

4. Impact Analysis of Rural Interventions by SKDRDP: A Case of Kisan Melas 626

B. Venkatraja and S. N. Prasad

5. Farmers’ Risk Coping Strategies in Rain-Fed Agricultural Regions:

An Empirical Study from India 653
V. Suresh Babu, M. Srikanth and K. Jayasree

6. Rural Unorganised Manufacturing Industries in Assam:

Some Aspects of Growth, Structural Change and Productivity 675
Dilip Saikia and Rupjyoti Borah

7. Managing Household Finance: An Assessment of Financial

Knowledge and Behaviour of Rural Households 705
Krishna Murari

8. Government Intervention in Rural Labour Market and its Implications

for Women: How MGNREGA made Women Economically Well-off 733
Abhishek
Journal of Rural Development, Vol. 38 No. (4) pp. 705-732
A Methodology
NIRDPR, to Track Economic Mobility of Castes in South Indian Village, circa 1866-2001
Hyderabad. 705

MANAGING HOUSEHOLD FINANCE:

AN ASSESSMENT OF FINANCIAL
KNOWLEDGE AND BEHAVIOUR OF
RURAL HOUSEHOLDS
Krishna Murari*

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 inflation. 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 inflation 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

*Associate Professor, Department of Management, Sikkim University, India.

Email:krishnamurari9@gmail.com

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

706 Krishna Murari

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 efficient household in terms of managing its finances.

Keywords: Household Financial Management, Financial Knowledge, Financial

Behaviour, Rural Households, Sikkim.

Introduction India despite so many supporting schemes

Managing household finance efficiently being run by the government? Is it the lack of
has become the need of the hour in recent proper financial knowledge that makes them
times. It has gained a lot of attention from the unable to manage their household finance?
government and the policymakers because the Are their financial decisions/outcomes/
households are the main social units of savings choices/behaviour dependent on the
in the country. Managing household finance financial knowledge they possess? What is the
in urban areas and that too by the financially connection between financial knowledge and
literate people is not a much problem because behaviour of rural households? What comprises
they possess the necessary skills and ability to household financial management? How
take financial decisions related to their personal people can manage their finances effectively?
finance. In India, majority of the population Do they require the necessary financial
(approximately 70 per cent) lives in rural areas knowledge to manage their household funds?
and they engage themselves in the agricultural Does this level of literacy also account for the
and non-agricultural activities to make both financial decision-making with reference to
ends meet. Besides this, the poverty, illiteracy, the financial knowledge and behaviour among
ill-health conditions and unemployment in rural households? These all are such questions
these rural areas are just like devils which do which need answers. The connection between
not let the people grow in terms of prosperity. financial knowledge and behaviour is well
The only way to come out of such situations explained and established with the urban
is to be financially literate and gain financial population. But, whether such nexus also
knowledge & skills so that rural people can applies to the rural households of an ethnically
manage their funds effectively. and culturally diversified population within in
a small State? This study tries to portray the
Being a student of finance, a few
characteristics of rural households of Sikkim
questions about rural people always make
with reference to the questions raised above.
me tensed. Why rural people are still poor in

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

Managing Household Finance: An Assessment of Financial Knowledge... 707

Conceptual Background Financial Literacy vis-à-vis Financial

The concept of household is based on the Knowledge
arrangements made by persons, individually Financial literacy can be referred to as
or in groups, for providing themselves with the education and understanding of various
food or other essentials for living. A household financial areas. The financial education about
may consist of one or more people who live in personal finance-related aspects makes the
the same dwelling and share meals or living persons financially literate which appropriate
accommodation and may consist of a single decisions about personal finance such as
family or some other grouping of people investing, insurance, real estate, paying
(Haviland, 2003). A single dwelling may be for college, budgeting, retirement and tax
considered to contain multiple households if planning.
either meals or living space are not shared.
The Organisation for Economic Co-
The income of the household is limited operation and Development (OECD) has
and hence, the members or the decision- defined financial literacy as “a combination
maker (Mukhiya or Karta of the household) of awareness, knowledge, skill, attitude and
must manage the finances to meet the daily behaviour necessary to make sound financial
needs and plan contingencies. The various decisions and ultimately achieve individual
financial management activities of the wellbeing.”In previous studies on financial
household can be in terms of making decisions literacy, researchers have used different
ranging from very basic money management dimensions of financial literacy. Few
(tracking expenses, paying bills and dues on researchers have used financial literacy and
time) to more sophisticated ones (diversifying financial knowledge interchangeably (Huston,
investments). The other finance-related 2010) and others have only considered financial
decisions that a household may be involved knowledge and took it as synonymous to
in are arrangement of funds, risk minimisation, financial literacy (Robb & Woodyard, 2011).
investment decisions, contingency planning
Financial Behaviour
and retirement planning. The list of activities
Xiao (2008) defines financial behaviour
in the household as mentioned above requires
as any human behaviour that is relevant to
financial knowledge (of course because of
money management. The common financial
financial education or literacy). There may be
behaviour includes the practices related
many more activities of its kind such as action
to cash, credit, savings and investments.
taken in case of failure in the transaction
Consumer Economists have been studying
with bank or ATM, ATM PIN hacking, cost and
financial behaviour for the last four decades
benefit analysis of any financial scheme, etc.
across the globe. Fitzsimmons et al. (1993) did

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

708 Krishna Murari

a study on financial behaviour from the 1970s encompasses the necessary ability and skills
to early 1990s. The efforts continued over the for taking a decision regarding a range of
years and recently in the last decade, there money-related activities and includes planning
have been more studies on financial behaviour and prioritising short and long-term spending,
(Hogarth, Hilgert, and Schuchardt, 2002; savings, investment, the management of credit,
Hilgert, Hogarth & Beverly, 2003; O’Neill & Xiao, the management of cash flows and budgeting,
2003; Xiao, 2006& 2008). and the management and enhancement
of income generation. This study primarily
To make the readers clear about the
aims at assessing the financial knowledge
concepts, the term financial knowledge is used
and financial behaviour of rural households
to refer the skills and ability to take personal
of people of Sikkim and its connection with
finance-related decisions. This ability to take
household financial management.
finance-related decisions is expected to induce
the financial choice or outcome (behaviour) of Review of Literature
the people. Since economic reforms in 1991, financial
education has been given importance in
In order to make people financially
India by the government agencies and
knowledgeable and capable of taking their
policymakers. Initially, the pace of emphasis
household finance-related decisions and
was slow, but gradually it gained momentum
effective use of money, the financial education
over the years. This increased interest in
programmes organised by government and
financial education has been prompted by the
other financial institutions and agencies
increasing complexity of financial products
should focus not only on financial knowledge
and the increasing responsibility on the part
and financial awareness but also on the
of individuals for their own financial security.
assessment of financial attitude and financial
Well-informed and financially educated
behaviour too (Delafrooz & Paim 2011;
consumers are better able to make good
Bhushan & Medury, 2014).
decisions for their families and thus are in a
Statement of the Problem position to increase their economic security
To develop a comprehensive and well-being (Hilgert, Hogarth, & Beverly,
understanding of rural villagers’ ability to 2003). Thus, financial education is important
manage money, their interaction with the not only to individual households and families
formal financial system, and the relationship but to their communities as well. Amongst the
between these activities and their behaviour, growing concerns about consumers’ financial
rural households’ financial knowledge is to be literacy, the financial education programmes
assessed in this study. Financial knowledge focus on providing information to consumers

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

Managing Household Finance: An Assessment of Financial Knowledge... 709

and operate under the implicit assumption & Despard, 2014). Besides, the lack of access
that increases in financial knowledge will to formal financial intermediaries pushes
lead to changes in financial management rural households to use their own grassroots
practices and behaviours. The following sub- associations for many services.
sections bring out the contributions of the
The college and school-going students
various researchers in exploring the linkage
have also been the centre of studies (Borden,
between financial knowledge and behaviour
Lee, Serido & Collins, 2008; Mandell & Klein,
of individuals and households.
2009; Xiao, Ahn, Serido & Shim, 2014) to
Financial Knowledge and Behaviour evaluate the impact of financial education
seminar (Borden et al., 2008) or personal
In developed countries, many studies
financial management course (Mandell &
have been carried out to explore the
Klein, 2009) towards the financial responsibility
connection between financial knowledge and
exhibited in their financial behaviours. Not
behaviour of the people. A positive connection
only the students but also the farmers showed
has been found between financial knowledge
better financial knowledge and improved
and behaviour of household respondents
savings and borrowings behaviours on account
(Asaad, 2015; Hilgert et al., 2003; Alhenawi &
of financial literacy training programme
Elkhal, 2013). Hilgert et al. (2003) reported 18
(Sayinzoga, Bulte, & Lensink, 2016). A complex
households’ financial management practices
nature of the relationship between personal
ranging from very basic money management
financial knowledge and credit card behaviour
skills (tracking expenses and paying bills on
of students was also observed by Robb &
time) to more sophisticated ones (diversifying
Sharpe (2009). Contrary to the expectations,
investments). The financial practices were
those with higher levels of financial knowledge
categorised as cash-flow management,
had significantly higher credit card balances,
credit management, saving, investment, and
thus showing a poor financial management
others. The numeracy as one of the variables
approach.
of financial knowledge does not lead to
improved behaviour towards retirement Psychological Traits as the Driver to
planning (Gustman, Steinmeier, & Tabatabai, Financial Behaviour
2012). The saving in the rural household is Financial knowledge is an important
affected by the income, physical wealth, but insufficient driver of responsible financial
household size and years of schooling (Amimo behaviour. In addition to the financial
et al., 2004) and by the contextual factors such knowledge, the psychological traits such as
as proximity to the bank and the presence of self-esteem Tang & Baker (2016); social and
informal savings mechanisms (Chowa, Ansong, economic geography (Stenning et al., 2010);

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

710 Krishna Murari

mental budgeting (Antonides, Groot, & Raaij, knowledge and behaviour of individuals
2011); locus of control (Perry & Morris, 2005) and households (both rural and urban) in
were also found to be significant in explaining developed and developing countries, the
the financial behaviour and thereby overall studies from rural households of India are
household financial management practices. scanty. The determinants and patterns of
The studies suggest that there exist a positive savings and financial practices differ from
relationship (although weak, sometimes) rural to urban region in India (Nayak, 2013;
between financial knowledge and behaviour Kumar & Mukhopadhyay, 2013; Agarwalla et
of people, but the direction of the causality al., 2015. In rural areas, the farmers’ cognitive
is unknown (Hilgert et al., 2003; Allgood & ability being assessed using education
Walstad, 2016). and financial experience, can explain the
financial aptitude and debt literacy, i.e., the
Role of Demographics
financial literacy (Gaurav & Singh, 2012).
The role of demographic variables Besides this, demographic variables such
cannot be ignored in examining the household as age, education, income, occupation, etc.,
financial choices and the determinants are also key determinants of saving and
of financial services in rural and urban investment behaviour of rural households
households (Akpandjar, Quartey & Abor, 2013; (Maheshwari, 2016). In the Indian context,
Robb & Woodyard, 2011; Krah, Aveh & Addo, the need of financial education programme,
2014). The demographic variables that have seminars, discussions has been emphasised
a significant role in determining the financial upon (Bhushan & Medury, 2014; Hira, 2012)
behaviour include household size, age, sex, to increase the financial knowledge of rural
marital status, occupation, income, ethnicity, households and thereby its expected impact
race, remittances and shocks. However, in on the improved financial behaviours that
the study of Loke (2015), age and ethnicity will ultimately lead to sound management of
did not significantly affect financial wellness. household finances.
The results also suggest that when the
alternatives to financial services are available, Rationale of the Study
rural households are more likely than urban The dearth of studies from rural
households to obtain their financial services households of India explaining the connection
from the informal financial sector. Findings between financial knowledge and behaviour
suggested that community characteristics and that too asymmetric are the important
affect rural households’ financial capability. reasons to carry out this study. Additionally, the
literature as reviewed in the previous section
Although many studies have been carried
about the relationship between the ability to
out to explore the relationship of financial

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

Managing Household Finance: An Assessment of Financial Knowledge... 711

manage money and the impact this has on financial knowledge and behaviour of the rural
financial behaviour is fragmented and thus households have been described by asking
has motivated me to focus on disadvantaged certain standardised questions in the form of a
rural households of Sikkim in highly urbanised schedule.
environments. The rural population being
the major representative of the people of Sampling Design
Sikkim, very less information is available about The population for the sampling of the
levels of financial knowledge and patterns of households was all the rural households of the
financial behaviour in rural communities. State of Sikkim. Further, a disproportionate
multi (three) stage area sampling method
Objectives of the Study
is used to select the sample at three levels,
Keeping the background mentioned
above in mind, the study is carried out to i.e. at district, sub-division and village level.
achieve the following objectives: A sample size of 98 households (statistically
calculated sample size=96 based on 95 per
 To study the demographic and ethnic
differences in financial knowledge and cent confidence level and 10 per cent margin
financial behaviour among people of of error) is spread disproportionately (as a
Sikkim. percentage of the rural population of each

 To study the levels of financial knowledge district and sub-division) at each stage of
among rural households of Sikkim. sampling. The structural representation of
the sampling design is presented in Figure
 To describe the behaviour of rural
households towards various areas of 1. The villages and number of households
financial decision-making related to for the survey were selected based on the
household finance. judgemental criteria as mentioned in the

 To explore the relationship between the research design of the study. The criterion for
financial knowledge and behaviour of selection was the accessible road connectivity
rural households. to the villages and households.

Data & Methodology Research Instrument

The blueprint for the collection, Data were collected through primary
measurement and analysis of data has source by designing a schedule addressing the
been prepared keeping in mind the various questions related to the financial knowledge
dynamics of the rural population of the and behaviour of the people. The schedule was
Sikkim. For this study, a descriptive research prepared by customising the internationally
design method has been used, wherein the accepted and standardised questionnaire for

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

712 Krishna Murari

Figure 1: Sampling Approach

measuring the financial literacy developed by cash management (2) and retirement planning
OECD INFE (2011). Some items in the schedules (3). The data collection through schedule was
were also taken from the financial literacy done during a period of five months, i.e., from
assessment quiz developed by the Government March to July 2017.
of Canada (2017) and customised in the
Tools for Analysis
Indian context. In the beginning, the schedule
comprised of demographic information of the Data collected in the above-stated
people such as gender, ethnicity, age, marital manner were entered and processed using
status, children, etc. Financial knowledge of statistical software. A descriptive analysis
the rural people was assessed based on their including cross tabulation, percentage, graphs,
knowledge about credit management (3 etc., for the various dimensions of financial
questions), ATM operations (4) and interest knowledge and financial behaviour was
on Savings account (4), insurance knowledge generated using SPSS & MS Excel.
(1), unit pricing (1), inflation (1) and overall
Analysis of Data
financial knowledge. The financial behaviour
Population Dynamics in Sikkim
of the rural household was assessed based
The North-East Region of the country
on budgeting (2), financial decision-making
is given a special treatment in terms of its
(3), household financial management (4),
balanced growth and development. Among
insurance product (1), financial activeness (3),

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

Managing Household Finance: An Assessment of Financial Knowledge... 713

the eight North-Eastern States, Sikkim is widely Demographic Profile of the Respondents
known for its tourism and pharmaceutical Using the stated sampling methodology,
industries. The people of Sikkim constitute approximately 60 per cent and 40 per cent of
mainly of four ethnic groups- Nepali, Lepcha, the households were surveyed from east and
Bhutia and Sherpa. The Lepchas are the original south districts of Sikkim, respectively. The
inhabitants of the State. Compared to other demographic profile of the sample is shown
ethnic groups, the Lepchas still maintain in Table 1. The studies (Krah, Aveh & Addo,
many of their traditional customs. The Bhutias 2014) have reported that demographic profiles
comprise the Bhutia from Sikkim and Bhutia (gender, income levels, age of household, etc.)
from Bhutan and Tibet. The Sherpas are a have a significant relationship with the levels of
marginal ethnic group in the State. Over 70 per financial knowledge and household financial
cent of the population consists of Nepalese. management practices such as budgeting and
They are a dominant ethnic group in the level of saving.
State. According to the 2011 census, the total
population of Sikkim stands at 610,577 which Gender-wise distribution of the
is the accumulation of 43,709 (7.16 per cent) responding members from the households
belonging to North district, 136,435 (22.34 per shows that males (62.24 per cent) participated
cent) belonging to the West district, 146,850 more in comparison to females (37.76 per
(24.05 per cent) belonging to the South district cent). Majority of the people under the survey
and 283,583 (46.45 per cent) belonging to the were married (78.6 per cent), whereas 19.4 per
East district. Out of this total population, 74.85 cent of respondents were single.
per cent lives in rural areas while 25.15 per cent Ethnicity-wise, 78.6 per cent people in
lives in urban areas (Census of India: Sikkim, the rural households of Sikkim represented
2011). With most of the rural population in the Nepali ethnic group followed by Bhutia
the State, out of total households, 82.4 per and Lepcha both at 9.2 per cent. However, the
cent accounts for rural households in Sikkim. Sherpa ethnic group could not be surveyed
In South district, 85.56 per cent population because of the poor access to their households
lives in rural areas while the remaining 14.44 in the respective villages. Only 3.1 per cent of
per cent lives in the urban areas. Similarly, in the rural people were found to be in another
the case of the East district, 56.81 per cent category, i.e., Muslims.
population lives in rural area while 43.19 per
cent in the urban areas. Besides this, the State The average age of the respondents was
claims to have one of the highest literates 39 years ( Table 1). However, the minimum and
(literacy rate of 81.4 per cent) (Govt. of Sikkim, maximum age of the respondents was found
2013). to be 21 and 70 years, respectively. Maximum

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

714 Krishna Murari

(39.8 per cent) respondents were the age group matters. However, 23.5 per cent of people take
of 30-40 years followed by young people (21- financial decisions in consultation with their
30 years) with 22.4 per cent. partner. 14.3 per cent claims that the financial
decision-making is done by their partner and
Financial Decision-Making in Day-to-Day
other family members in the household.
Matters
Usually, the financial decision-making Among ethnic groups, Nepali and Bhutia
in day-to-day matters is performed by the communities follow the same pattern, but
Mukhiya of the family and it is also evident in Lepcha community, the Mukhiya and the
from the Table 2. 42.9 per cent of the people partner together (66.7 per cent) prefer making
in the sample claim that they are solely financial decisions related to day-to-day affairs.
responsible for decision-making in all financial

Table 1: Demographic Profile of the Respondents

Demographic Profile of Respondents Count Percentage (%)
Male 61 62.2%
Gender
Female 37 37.8%
Married 77 78.6%
Single 19 19.4%
Marital Status
Separated/ Divorced 1 1.0%
widowed 1 1.0%
Nepali 77 78.6%
Bhutia 9 9.2%
Ethnicity
Lepcha 9 9.2%
Others 3 3.1%
21-30 years 22 22.4%
30-40 years 39 39.8%

Age Profile 40-50 years 20 20.4%

More than 50 years 17 17.3%
Minimum Age 21 years
Maximum Age 70 years
Mean Age 39 years
Source: Sample Survey Data.

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

Managing Household Finance: An Assessment of Financial Knowledge... 715

Table 2: Ethnicity-wise Decision Making in Day-t0-Day Matters

Who is responsible
for decision making
Statistics Nepali Bhutia Lepcha Others Total
in day-to-day
matters?
N 37 2 1 2 42
You
N% 48.10% 22.20% 11.10% 66.70% 42.90%
You and your N 15 2 6 0 23
partner N% 19.50% 22.20% 66.70% 0.00% 23.50%
You and another N 4 1 0 0 5
family member N% 5.20% 11.10% 0.00% 0.00% 5.10%
N 11 2 1 0 14
Your partner
N% 14.30% 22.20% 11.10% 0.00% 14.30%
Another family N 10 2 1 1 14
member N% 13.00% 22.20% 11.10% 33.30% 14.30%

Financial Knowledge Score Construction of financial knowledge as the State claims to

Financial knowledge implies that rural be 78.9 per cent of literacy rate in the rural
households can make a rational choice among sector (Sikkim, 2013). The financial knowledge
different financial alternatives based on their aspects of the respondents are mapped on
inclusive knowledge of everyday financial a scale of 0 to 3 (3.16 to be exact), according
matters. The level of financial knowledge of the to their weighted responses to the questions.
rural households was assessed using a series The correct answer for each question is given a
of 14 basic questions which aimed at testing score of one and then the total score was later
their knowledge related to basic concepts and converted into percentage. The categorisation
operational aspects of day-to-day finance. of different financial knowledge scores and
These questions included the aspects such as levels is explained in Table 3.
credit management, ATM operations, interest
Table 4 depicts the methodology for
on savings accounts, insurance awareness,
construction of the weighted scores to assess
unit pricing and inflation. The questions
the financial knowledge of the households.
were simple and did not require any tricky
Based upon the number of questions asked
calculations, and we expect that the rural
in each dimension of financial knowledge,
households possess a moderate or high level

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

716 Krishna Murari

Table 3: Distribution of Score for Financial Knowledge

Weighted Score of Financial Knowledge Level of Financial Knowledge
Less than1 Low
1 to 2 Moderate or Average
More than 2 High

Table 4: Weighted Average Score Construction

No. of Maximum
*FK dimension Weight
questions weighted score
Credit Management 3 0.21 0.64
ATM operations 4 0.29 1.16
Interest on Savings 4 0.29 1.16
Insurance 1 0.07 0.07
Unit Pricing 1 0.07 0.07
Inflation 1 0.07 0.07
Total 14 1 3.16
*FK: Financial knowledge

the proportionate weight was assigned. Later, credit management and 52 per cent were even
a maximum weighted score was obtained by unaware of the basic knowledge about the
multiplying the number of questions in each interest on savings accounts (see Figure 2).
dimension of financial knowledge with their Further, the knowledge about ATM operations
respective weights. and insurance is also a matter of concern since
31 per cent and 32 per cent, respectively,
Assessment of Financial Knowledge
could not answer the questions under these
The performance on different dimensions. Even on the questions related to
dimensions of financial knowledge is shown in inflation, 38 per cent of the respondents could
Figure 2 which suggests inadequate financial not give the correct answer. These findings
knowledge in terms of credit management, are in line with (Dara, 2014) who stated that
interest on savings accounts and inflation. one-third of the households in three districts
Sadly, 60 per cent of the households were of Andhra Pradesh are still marginalised with
not even able to understand the concepts of

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

Managing Household Finance: An Assessment of Financial Knowledge... 717

limited or no access to basic financial services, percentage of people (48.7 per cent) and 43.6
including microfinance and insurance. This is per cent was seen in high and moderate scale,
again a matter of concern for policymakers as respectively.
the rural households are poor with respect to
Across the ethnic groups of the
the basic financial knowledge. Jayanthi & Rau
households, Bhutia household managed to
(2017) also found that a low level of financial
possess high score (55.6 per cent) of financial
knowledge will contribute to poor financial
knowledge in comparison to Nepali (41.6 per
decisions and that can be harmful to both
cent) and Lepcha (11.1 per cent) communities.
individuals and society.
However, majority of the Lepcha households
The financial knowledge score between were in moderate category of financial
males and females do not vary much in the knowledge score followed by Nepali (49.4 per
category of high score although the females cent) and Bhutia (33.3 per cent) in the same
(51.35 per cent) scored more than the males category. However, among Lepcha households,
(47.54 per cent) in moderate category of 33.3 per cent being in the low category of
financial knowledge score (Figure 3). However, financial knowledge score, is a matter of
males were more in the lowest score category concern (Figure 4).
than females. These findings have also
Based upon the self-assessment about
been endorsed by Semmler (2016) stating
financial knowledge, the respondents were
that females are more knowledgeable and
asked to rate themselves. The results show
responsible towards financial matters.
that among those who considered themselves
The young people in rural households knowledgeable, only 50 per cent could make it
were expected to possess the high score on into the high score category followed by 43 per
the scale of financial knowledge, but it was cent in moderate score (Figure 5). This shows
revealed that only 31.8 per cent could make the over-confidence of the rural households
it in age group of 21-30 years and 50 per related to the financial knowledge they
cent and 18.2 per cent scored as moderate possess. Further, 79 per cent of households
and low scores, respectively, in the same age rated themselves as not very knowledgeable
group (Table 5). This is again a grave concern and their scores were also in low to moderate
and needs serious attention because this age category. This again adds to a little worrisome
group is the future of the household. A similar situation of rural households in terms of their
trend was also observed in the age group of 40- perception about the financial knowledge
50 years where 60 per cent scored moderate they should have, to deal with their household
followed by only 35 per cent in high score of financial management.
financial knowledge. However, a satisfactory

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

718 Krishna Murari

ŽƌƌĞĐƚ ǁƌŽŶŐ ĚŽŶ͛ƚŬŶŽǁ

ϭϬϬй
ϴй ϴй ϭϯй
WĞƌĐĞŶƚĂŐĞŽĨZĞƐƉŽŶƐĞƐ

ϵϬй Ϯϯй ϭϱй ϭϴй

ϴϬй Ϯϯй Ϯϰй ϭϬй
ϳϬй ϭϵй
ϯϳй
ϲϬй ϯϳй
ϱϬй
ϰϬй ϳϳй
ϲϵй ϲϳй ϲϮй
ϯϬй
ϮϬй ϰϬй ϰϴй
ϭϬй
Ϭй
ƌĞĚŝƚ dD /ŶƚĞƌĞƐƚŽŶ /ŶƐƵƌĂŶĐĞ hŶŝƚƉƌŝĐŝŶŐ /ŶĨůĂƚŝŽŶ
DĂŶĂŐĞŵĞŶƚ KƉĞƌĂƚŝŽŶƐ ^ĂǀŝŶŐĐĐŽƵŶƚ ǁĂƌĞŶĞƐƐ

ŝŵĞŶƐŝŽŶƐŽĨ&ŝŶĂŶĐŝĂůŬŶŽǁůĞŐĞ

Figure 2: Assessment on Dimensions of Financial Knowledge

,ŝŐŚ DŽĚĞƌĂƚĞ >Žǁ

&ĞŵĂůĞ ϰϬ͘ϱϰй ϱϭ͘ϯϱй ϴ͘ϭϭй

DĂůĞ ϯϵ͘ϯϰй ϰϳ͘ϱϰй ϭϯ͘ϭϭй

Ϭй ϮϬй ϰϬй ϲϬй ϴϬй ϭϬϬй


Figure 3: Gender-wise Score of Financial Knowledge

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

Managing Household Finance: An Assessment of Financial Knowledge... 719

>Žǁ DŽĚĞƌĂƚĞ ,ŝŐŚ

ϭϬϬй
ϭϭ͘ϭй
ϵϬй
ϯϯ͘ϯй
WĞƌĐĞŶƚĂŐĞŽĨZĞƐƉŽŶĚĞŶƚƐ

ϴϬй ϰϭ͘ϲй
ϳϬй ϱϱ͘ϲй

ϲϬй ϱϱ͘ϲй

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ϰϵ͘ϰй ϲϲ͘ϳй
ϯϬй ϯϯ͘ϯй
ϮϬй
ϯϯ͘ϯй
ϭϬй
ϵ͘ϭй ϭϭ͘ϭй
Ϭй Ϭ͘Ϭй
EĞƉĂůŝ ŚƵƚŝĂ >ĞƉĐŚĂ KƚŚĞƌƐ
ƚŚŶŝĐŝƚLJŽĨZƵƌĂů,ŽƵƐĞŚŽůĚƐ 
Figure 4: Ethnic Groups and Financial Knowledge
^ĞůĨĂƐƐĞƐƐŵĞŶƚŽĨĨŝŶĂŶĐŝĂůŬŶŽǁůĞĚŐĞ

ŽŶƚŬŶŽǁ ϱϬй ϱϬй

EŽƚǀĞƌLJŬŶŽǁůĞĚŐĞĂďůĞ Ϯϱй ϱϰй Ϯϭй

&ĂŝƌůLJŬŶŽǁůĞĚŐĞĂďůĞ ϲй ϱϬй ϰϰй

<ŶŽǁůĞĚŐĞĂďůĞ ϳй ϰϯй ϱϬй

sĞƌLJŬŶŽǁůĞĚŐĞĂďůĞ ϭϬϬй

Ϭй ϮϬй ϰϬй ϲϬй ϴϬй ϭϬϬй

>Žǁ DŽĚĞƌĂƚĞ ,ŝŐŚ WĞƌĐĞŶƚĂŐĞŽĨZĞƐƉŽŶĚĞŶƚƐ

Figure 5: Self-assessment of Financial Knowledge

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

720 Krishna Murari

Table 5: Age-wise Financial Knowledge Scores

Financial Knowledge Score
Age categories Low Moderate High
Count Row N % Count Row N % Count Row N %
21-30 years 4 18.2% 11 50.0% 7 31.8%
30-40 years 3 7.7% 17 43.6% 19 48.7%
40-50 years 1 5.0% 12 60.0% 7 35.0%
More than 50 years 3 17.6% 8 47.1% 6 35.3%
Source: Author’s Calculations.

To sum up, it is observed that the among rural households of Sikkim is the
knowledge about credit management, interest information from the business and financial
on savings account and inflation-related programme on radio and television (68.8
dimensions are really serious concerns and per cent of the respondents) followed by
can lead to poor financial decision-making and the 65.6 per cent of the respondents getting
adding to the poverty among rural households financial knowledge from newspapers. Due
of Sikkim. However, females were found to be to the increase in reachability of smartphones
more concerned and aware than males about and cheaper access to the internet, 42.7 per
the financial issues in line with the findings cent people also prefer to be updated about
of Arora (2016) which indicate the financial financial knowledge through the internet.
empowerment among women of the State. A substantial percentage of people come
Most rural people in the age groups of 21-30 to know about the various financial aspects
years and 40-50 years possess a moderate level related to their day-to-day operations, from
of financial knowledge and need to be given their children and financial advisors figuring
attention by the policymakers. In addition to at 28.1 per cent and 20.8 per cent, respectively.
this, the Bhutia community scored highest Financial magazines, current event magazines
in terms of financial knowledge followed by and other sources (such as people, friends and
Nepali and Lepcha communities among the family) are least preferred sources of financial
ethnic groups of rural households of Sikkim. knowledge among rural households of Sikkim
(Table 6).
Sources of Financial Knowledge
It is evident from the Table 6 that the Assessment of Financial Behaviour
preferred source of financial knowledge The study also attempted to capture

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

Managing Household Finance: An Assessment of Financial Knowledge... 721

Table 6: Source of Financial Knowledge among Rural Households

Responses
Source of Financial Knowledgea Per cent of Cases
N Per cent
Newspapers 63 25.5% 65.6%
Financial/Business section of the newspaper 7 2.8% 7.3%
Financial magazines 5 2.0% 5.2%
Current event magazines 3 1.2% 3.1%
Information given by children 27 10.9% 28.1%
Business & financial programmes on radio & TV 66 26.7% 68.8%
Internet 41 16.6% 42.7%
Financial Advisor 20 8.1% 20.8%
Any other (people, friends & family members) 4 1.6% 4.2%
Don’t Know 11 4.5% 11.5%
Total 247 100.0% 257.3%
a
Dichotomy group tabulated at value 1.
Source: Author’s Calculations.

the financial behaviour of rural households, Financial knowledge does seem to

particularly the ways they handle their influence specific financial management
personal finances. For this purpose, the people behaviours (Bell, Gorin & Hogarth, 2009).
in the selected rural households were asked 18 Hence, to identify the financial management
questions in total to understand the important behaviours, the responses related to the
dimensions about how these people behave household budgeting, bill payment and
while handling money in their daily lives. These retirement planning were re-coded as desirable
dimensions included the questions which or undesirable behaviour as shown in Table 7.
were asked in the OECD survey. The financial Only 35 per cent of the rural households of
behaviour of the rural household was assessed Sikkim prepare the budget of their income
based on Budgeting (2 questions), Financial and expenses. However, most of the rural
Decision Making (3 questions), Household households (76 per cent) have not failed in
Financial Management (4 questions), Risk paying their due bills in the last 12 months.
Management (1 question), Financial Activeness
In addition to this, as expected, due
(3 questions), Bill payment (1question), Cash
to poor financial knowledge in managing
Management (1 question) and Retirement
the household finance, 70 per cent of the
Planning (3 questions).
rural households do not bother about their

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

722 Krishna Murari

Table 7: Desirable Behaviour of Rural Households to the Dimensions of Financial

Behaviour
Desirable Percentage of
Dimension of financial behaviour
behaviour responses
Household Budgeting (Do you prepare a budget of income
Yes 35
and expenses for your household?)
Bill Payment (In the last 12 months, were you ever behind two
or more consecutive months in paying your rent, bills, loan or No 76
mortgage?)
Retirement Planning (Do you have a good idea of how
much money you will need to save to maintain your desired Yes 30
standard of living when you cross 60 years?)
Source: Author’s Calculations.

retirement planning and only 30 per cent care based upon the expected behaviour according
and think about the money they would need to the level of financial knowledge. Basically,
to live the desired standard of living after they rural households are expected to be ‘agree’
cross 60 years (Figure 6). for showing positive behaviour, ‘disagree’ for
negative behaviour and ‘don’t know’ for neutral
Further, among those who prepare the
behaviour with respect to FDM dimension
household budget, only 20 per cent showed
of financial behaviour. Similarly, a financially
positive financial behaviour, i.e., staying within
knowledgeable or knowledgeable household
the budget either ‘always’ or ‘usually’ ( Table 8).
is expected to show the positive behaviour if
This is a serious concern which again needs the
they rate themselves in ‘very good’ or ‘good’
attention of the policymakers with respect to
the financial behaviour of the rural households category; the negative behaviour with ‘fairly
in Sikkim. However, out of those 76 per cent good’ or ‘not very good’ category and neutral
who claimed that they did not have any behaviour with ‘don’t know’.
problem in paying the bills in last 12 months, Among rural households, 86 per cent
only 52 per cent could show the positive expressed their positive behaviour towards
behaviour towards cash management, i.e., financial decision-making (FDM) and
‘keeping up with the payments without any household financial management (HFM).
problem.’ However, 52 per cent and 53 per cent in FDM
The financial decision-making and HFM, respectively, showed a negative
(FDM) behaviour and household financial behaviour of the rural households (Figure 7).
management (HFM) behaviour were re-coded
As expected, the awareness in rural
as positive, negative and neutral behaviour
households about the risk management
for the items included in both the dimensions

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

Managing Household Finance: An Assessment of Financial Knowledge... 723

ĞƐŝƌĂĂďůĞĞŚĂǀŝŽƵƌ hŶĚĞƐƐŝƌĂďůĞĞŚĂǀŝŽƵ
Ƶƌ
ϴϬй
ϲй
ϳϲ

ϳϬй й
ϳϬй
ϲϱй

ϲϬй

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ϮϬй

ϭϬй

Ϭй
,Kh^,K>h'd/E' />>^WzDEd Zd/ZDEdW>
EE/E'

Figure 6: Pattern of Financial Behaviour among Rural Households in Sikkim

WŽƐŝƚŝǀĞ EĞŐĂƚŝǀĞ EĞƵƚƌĂů

ϭϬϬй
ϭϮй
ϵϬй ϯϴй ϰϳй
ϴϬй

ϳϬй ϯϲй
ϲϲй
ϱϮй
ϲϬй ϱϯй

ϱϬй

ϰϬй

ϯϬй
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ϮϬй

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ƵĚŐĞƚŝŶŐ ŝůůWĂLJŵĞŶƚƐ &ŝŶĂŶĐŝĂůĞĐŝƐŝŽŶ ,ŽƵƐĞŚŽůĚ&ŝŶĂŶĐŝĂů
DĂŬŝŶŐ;&DͿ DĂŶĂŐĞŵĞŶƚ;,&DͿ
EKd͗dŚĞWĞƌĐĞŶƚĂŐĞƐŝŶ&DĂŶĚ,&DĂƌĞĐŽƵŶƚĞĚĂƐDƵůƚŝƉůĞƐZĞƐƉŽŶƐĞƐ

Figure 7: Levels of Financial Behaviour

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

724 Krishna Murari

Table 8: Financial Behaviour across Various Dimensions

Percentage
Dimension of Financial Behaviour Positive Behaviour
of cases
Budgeting (How often do you stay within your budget?) Always or Usually 20
Cash Management (How have you been keeping up with
Keeping up without
payment of bills and other commitments during the last 12 52
any problem
months)
Financial Decision Making (FDM)
I have a clear idea of the financial products that I need Agree
I know enough about investments to choose those that Agree 86*
are suitable to my circumstances
I always research my choices thoroughly before making Agree
any financial decisions
Household Financial Management (HFM)
Very good or Good
Keeping track of money
Very good or Good
Making ends meet
Very good or Good 86*
Shopping to get the best financial products such as
loans or insurance
Very good or Good
Staying informed about financial issues
*taken as percentage count of multiple responses
Source: Author’s Calculations.

instruments is poor. Approximately, 47 per respect to the changes in that area. The results
cent of rural households do not use any in Table 10 show that inflation (by 57.7 per
risk management instrument. However, life cent) and consumer goods & services (by 43.3
insurance is used by 46 per cent of the rural per cent) are the preferred areas among rural
respondents. This can be treated as a signal households for keeping themselves financially
of relief against uncertainties to the life active.
of the key person in rural families. Yet, the
The changes in the housing sector and
other risk management instruments such as
taxation (this is surprising because there is no
auto insurance, medical insurance, property
personal income tax on the income of people of
insurance, travel insurance, etc., are not used
Sikkim origin) are being monitored by 28.9 per
by rural people ( Table 9).
cent of the respondents followed by interest
Whether the rural people keep rates and pension plans and other retirement
themselves financially active? To answer this, benefits by 21.6 per cent and 20.6 per cent,
they were asked to respond to the financial respectively. However, the rural households
areas which they personally keep an eye with showed least interest in the stock market,

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

Managing Household Finance: An Assessment of Financial Knowledge... 725

Table 9: Risk Management Behaviour of Rural Households

Responses*
Risk Management Instrument Used Percentage of Cases
N Per cent
Auto Insurance 10 8.5% 10.2%
Life Insurance 45 38.5% 45.9%
Disability/ Medical Insurance 11 9.4% 11.2%
Property Insurance 4 3.4% 4.1%
Travel Insurance 1 0.9% 1.0%
None of the Above 46 39.3% 46.9%
Total 117 100.0% 119.4%
*responses are counted as Dichotomy from multiples responses.
Source: Author’s Calculations.

currency market and any other area such as family members (by 27.4 per cent), earnings
land, gold prices and insurance market. 22.7 from employment during retirement (by 27.4
per cent of the rural people also showed their per cent) and through maturity of personal
inactiveness towards the changes in any of the savings plans made for retirement benefit (by
listed areas. This shows the lack of awareness 25.3 per cent). Selling of financial and non-
among rural people about the formal financial assets and inherited property for
components of the financial system. meeting the expenses are also seen as a mode
of livelihood as a way of retirement planning in
As far as the means of future contingency
rural households. In addition to this, around 14
planning is concerned, 48.4 per cent of rural
per cent of the households are even not aware
people rely upon the income from farming
of any source of income for their retirement.
and self-employment activities for meeting
both the ends during their life post 60 years Factors Influencing Financial Behaviour
of age while 32.6 per cent believes that Based upon the sources of financial
the government pension will be a financial knowledge as shown in Table 6, the factors
support during their tough time ( Table 11). actually influencing their financial decision-
This shows the lack of retirement planning making (behaviour) is shown in Table 12. The
skills among rural households and it can be financial and business programmes on radio or
directly attributed to the poor levels of financial television play a significant role in influencing
knowledge. Other preferred modes for the financial behaviour of rural people (69.8
sustaining life post 60 years of age are relying per cent).
upon the financial support from the extended

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

726 Krishna Murari

Table 11: Financial Behaviour towards Retirement Planning

Retirement Planning Responses* Per cent of
(Sources of income considered for retirement) N Per cent Cases
Government pension benefits (old age pension 31 14.00% 32.60%
scheme, etc.)
Occupational or working place pension plan 10 4.50% 10.50%
benefits
Personal retirement savings plan benefit (by the 24 10.90% 25.30%
maturity of investment made in pension plans)
Sell your financial assets (such as stocks, bonds, 7 3.20% 7.40%
mutual funds)
Sell your non-financial assets (such as car, home, 12 5.40% 12.60%
jewellery, etc.)
Use an inheritance 8 3.60% 8.40%
Rely on financial support from your extended family 26 11.80% 27.40%
Drawing an income from your own (or spouse or 15 6.80% 15.80%
partner’s) business
Earnings from employment in retirement 26 11.80% 27.40%
Income from Farming and self-employment 46 20.80% 48.40%
activities
Others (friends & family support) 3 1.40% 3.20%
Don’t know 13 5.90% 13.70%
Total 221 100.00% 232.60%
*counted as Dichotomy group from multiples responses tabulated at value 1.
Source: Author’s Calculations

The second most powerful financial making behaviour (Krah, Aveh & Addo, 2014)
behaviour influencing factor is advice from of rural people in Sikkim (Table 12).
a knowledgeable friend or family member
Conclusion
(45.8 per cent) and is followed by newspapers
(36.5 per cent) at third place. Surprisingly, The entire study is focused on the
the rural households consider the advice finding out the status of financial knowledge
from financial advisor as a source of financial and behaviour of the rural households of the
updating (knowledge), but the words of advice Sikkim and explaining the role of these two
of the financial advisor are not preferred as a (knowledge and behaviour) in managing the
key factor to influence the financial decision- household finances. The sample in this study

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

Managing Household Finance: An Assessment of Financial Knowledge... 727

Table 12 : Factors Influencing the Financial Behaviour of Rural Households

Responses
What influences the financial behaviour?a Percentage of Cases
N Per cent
Advertisements 29 12.1% 30.2%
Magazines 8 3.3% 8.3%
Newspapers 35 14.6% 36.5%
Radio or TV 67 27.9% 69.8%
Internet 34 14.2% 35.4%
Advice from financial advisor 10 4.2% 10.4%
Advice from a knowledgeable friend or fam-
44 18.3% 45.8%
ily member
None of the above 2 0.8% 2.1%
Don’t know 11 4.6% 11.5%
Total 240 100.0% 250.0%
a
Dichotomy group tabulated at value 1.
Source: Author’s Calculations.

comprises the rural households from the The common financial practices such as
selected districts of the Sikkim State of India. preparing the household budget, managing
In contrast to the results of the similar studies the cash flow, planning for retirement or saving
in urban areas, it was expected that the rural for contingencies are not in the habit of rural
households will have the poor knowledge households to manage their finances. This
about the financial issues that are required is really a challenge to the policymakers that
to be dealt with while managing the day even in the 21st century the rural households
to day finance. As per the expectations, the are deprived of such basic financial planning
rural households had poor knowledge about tools and techniques. If this is the case, how
credit management, interest on savings can we think of a poverty-free India?
account and inflation concepts. However, the
Policy Implications
financial knowledge about ATM operations,
insurance and the concept of unit pricing was The findings of the study can be of great
satisfactory. The programmes on radio and concern to the policymakers in the areas of
television, newspapers and the internet are rural development. The financial knowledge
the preferred sources of acquiring knowledge among rural people can be improved with the
related to financial aspects. necessary steps and measures by government

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

728 Krishna Murari

or even by the private sector by conducting Further, it is also important that rural
financial knowledge enhancing workshops, households exploit such financial knowledge
campaigns, role plays (explaining through in their financial behaviour as an outcome of
enacting a financial concept and its use in daily the gained knowledge for wealth accumulation
life), etc. (Bhargava, 2016; Bhattacharya & Dutta, (Krah, Aveh & Addo, 2014). The State
2016; Xu & Zia, 2012) Till date, the focus of such policymakers may think of asking the branches
programmes had been in the urban areas only, of banks or financial institutions in rural areas
but they can be extended to villages as well. to adopt at least one village for ensuring
These financial literacy programmes should the enrichment of financial knowledge of
be specifically designed by understanding its habitants. The government can sponsor
the needs of rural people. The content of such programmes or provide incentives to
such programmes can be any topic which can such villages that help in promoting financial
help the uplifting of rural households such as literacy in the State and country, thereby
savings and expenditure management, need boosting the economic development.
of insurance and retirement planning, credit
Lastly, there can be many other factors
and debt management, investment avenues,
like education of family, quality of education
risk management, formal financial system and
and self-confidence of the rural people which
effective financial decision-making.
influences the financial knowledge and
Initiatives can also be taken to provide behaviour of the households and these can be
financial education at the grassroots level, i.e., considered in future studies. There is a need
to the kids at the school level or at least in the to examine the financial literacy programmes
colleges (Bell, Gorin & Hogarth, 2009). This may leading to improved knowledge, behaviour
help in inculcating the financial knowledge and attitude of the rural households at the
and attitude among students so that they can country level. It is possible that the results may
implement the learnings in managing their differ if the same survey is conducted in States
household finances efficiently and effectively having large population and geographical
during their adulthood. areas.

Journal of Rural Development, Vol. 38, No. 4, October - December : 2019

Managing Household Finance: An Assessment of Financial Knowledge... 729

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