Level of Financial Literacy of Real Estate Employees Towards Property Investments: A

Framework for Sound Investment Decision

_______________________

A Research Proposal Presented

to Ramon A. Victor, Ph.D. of the Graduate School
Institute of Accounts, Business and Finance
Far Eastern University
Manila

_______________________

In Partial Fulfillment
of the Requirements for the Course
RESEARCH METHOD IN BUSINESS

________________________

By

Miel, Ralph Adrian H.

2019
 CHAPTER I

THE PROBLEM AND ITS BACKGROUND

Introduction

Work enables man to earn money and provide for his needs. With a stable

source of income, either through employment or business, he develops practices that

match his lifestyle. Money has always been regarded as an important component in

every man’s economic decision such as how much to save, spend, and invest.

However, individuals inevitably need to make big investment decisions. Thus,

investment knowledge plays a vital role for everyone in developing and achieving

investment growth. Financial management is unique for every individual. For some, it

means taking control of money earned from work and making sure it is adequate to

sustain standard of living. For others, financial management is more than meeting

present needs but more importantly, securing what is needed in times of difficulty and

life after employment, thus, allotting a portion of earning for investing.

A survey conducted in the Philippines, showed that Filipinos value the

importance of investing for future but only 1 out of 10 Filipinos is consciously saving an

amount of money for investing (Duplito, 2008). There are also other people who

engaged themselves on the habit of making money out of their earnings by engaging

with different investing activities such as buying stocks, government bonds, and real

estate. Depending on their risk profile, these people put money in investment

instruments that can potentially improve their financial worth (Gallery, Newton & Palm,
2010). In view of this, Filipinos are deprived to invest in real estate in Philippines, thus it

continuously soars (Inquirer, 2017). The economic boom in the Philippines which is

considered as one of the fastest growing region, shows no signs of slowing down. The

robust macro-economic condition continues to pave the way for the different sectors of

the economy to further flourish, including that of real estate. However, in the Philippines

for instance, many Filipinos are still not formally knowledgeable about real property

investment. They are more likely not to participate in financial and economic activities

that could help them maximize their financial wealth.

This study will focus on the identifying of level of financial literacy of employees in

selected real estate firm and in developing a framework for sound investment decision

based on the result of the study.

Background of the Study

Ayala Land, Inc. (ALI) is a real estate firm based in the Philippines. It is a

subsidiary of Ayala Corporation. It began as a division of Ayala Corporation until it was

spun off and incorporated in 1988. It became publicly listed in the Philippine Stock

Exchange (PSE: ALI) in 1991. Its core businesses are in strategic land bank

management, residential development, shopping centers, corporate businesses, and

hotels & resorts. Support businesses are in construction and property management. ALI

also derives other income from its investment activities and sale of non-core assets.
Ayala Land, Inc. is located at Barangay Bel-Air, along Ayala Avenue, Makati City. This

study will be limited to the employees of Ayala Land, Inc. It has a total workforce of 532

employees as of September 2019.

Theoretical Framework

Decision Theory

Decision theory was developed by Warner in 1968. It is a theory about people’s

actions. It has both a prescriptive and a descriptive version. The prescriptive version

says that a person should choose the action that maximizes expected utility. The

description version says that a person does choose the action that maximizes expected

utility. Real estate decisions are made by a variety of actors pursuing a broad range of

objectives. These actors include homeowners, real estate buyers and renters, builders,

brokers, bankers, and the public agencies that provide physical networks and services

such as streets, utilities and schools. Property managers are facing every day critical

risk management decisions as determining the price for selling or renting of a property,

choice of financing, investment analysis, real estate portfolio management, real estate

valuation. In these cases, a decision support system can be very valuable in order to

minimize the risk of potential losses due to wrong decisions. Roberts and Henneberry

(2007) explore the decision-making processes of property investors. The study covered

a broader sample of countries across three European markets namely France,

Germany and U.K. Interviewees in this study constituted those most likely to engage

directly in property investment decision-making. The study proposes a ten-stage

normative model as it finds the actual decision-making process much simpler than the

normative model suggested. Both the UK and the French and German models are

found to follow a broadly similar path, with investors setting a strategy, searching for

properties, undertaking an analysis of market conditions and purchasing properties that

fulfill that strategy (Roberts and Henneberry, 2007).

Decision

Selling
Renting Potential Gain
Choice of Financing RISK or
Property Valuation Potential Loses
Investment Analysis

Conceptual Framework

Demographic
 Repondents: Variables:
1. Valuation of Property Framework for
1. Age Sound Investment
2. Interest
2. Gender Decison
3. Inflation
3. Civil Status Figure 1. Research Paradigm
4. Return on Investment
4. Income
Figure 1 shows the schematic representation of the different variables in the

research. The researcher come to this figure to show the profile of the respondents in

terms of age, gender, marital status, and income in relation to their level of financial

literacy. For this reason, using questionnaire that will be provided by the research, the

research intends to have deeper understanding of the financial literacy of the

employees in selected real estate firm and at the same time expecting an output that

will serve as basis for recommendations or a framework for sound investment decision.

Statement of the Problem

The study will determine the level of financial literacy of real estate employees.

Specifically, it will answer the following questions:

1. What is the demographic profile of the real estate employees in terms of:

1.1. Age

1.2. Gender

1.3. Civil Status

1.4. Income

2. What is the level of financial literacy of the respondents as to:

 2.1. Time-value of Money

2.2. Interest Calculation

2.3. Risk and Reward Trade-off

2.4. Inflation

3. Is there a significant difference among real estate employees, when they are

grouped according to demographic profile?

4. What influences the investment decisions of the real estate employees?

5. What framework can be developed for sound investment decision based on the

result of the study?

Objectives of the Study

The main objective of the study is to determine the level of financial literacy of

employees of the subject real estate firm.

The study aims to achieve the particular objectives:

1. Determine the profile of the employee-respondents of the subject real estate firm

in terms of age, gender, civil status, and income.

2. Determine the level of financial literacy of employees in the subject real estate

firm in terms of time-value of money; interest calculation; risk and reward trade-

off, inflation and diversification.

3. Determine the significant difference in the perception of the employee-

respondents, when they are grouped according to profile, with regards to the

level of financial literacy in terms of the time-value of money, interest calculation,

risk and reward trade-off, inflation and diversification variables.

 4. Determine the influences on investment decision of the real estate employees.

5. Build a framework for sound investment decision.

Significance of the Study

Employees at Real Estate. The study will help real estate employees to further

improve their knowledge about investing in real estate.

Real Estate Brokers. The study could improve their marketing or sales strategies

that will address the financial capacity of the potential investors.

Government. The study may contribute to the government’s program of

promoting real estate as investment choice so that a potential investor could participate

in economic activities.

Researcher. The study will help the researcher, who is currently a real estate

employee, to have better understanding on what the factors that influence investment

decisions.

Other Researcher. The study may serve as reference for the future studies

relatively to financial literacy.

Scope and Limitation of the Study

 The study will be focusing on the employees of the subject real estate firm

particularly on their level of financial literacy in regards to their knowledge time-value of

money, interest calculation, risk and reward trade-off, inflation, and taxation.

The study will be limited to the employees of the Ayala Land, Inc. (ALI) – Project

Management Team located in Brgy. Bel-Air, Ayala Avenue, Makati City for a time period

of October to November 2019.

Definition of Terms

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, budgeting, retirement, and tax

planning.

Inflation. Involves investing in an asset expected to maintain or increase its value over a

specified period of time.

Interest Calculations. Refers to the cost of borrowing money and is usually expressed

as a yearly percentage that is paid as part of your monthly loan payment. It can be

change on a daily basis depending on what the current market looks like.
Inflation. Involves investing in an asset expected to maintain or increase its value over a

specified period of time.

Investments. An asset or item acquired with the goal of generating income or

appreciation.

Real Estate. A tangible asset and a type of real property, it includes land, buildings and

other improvements, plus the rights of use and enjoyment of that land and all its

improvements.

Real Estate Broker. Is a licensed real estate professional who typically represents the

seller of a property. 

Risk-Return Tradeoff. The potential return rises with an increase in risk.

Time Value of Money (TVM). The concept that money available at the present time is

worth more than the identical sum in the future due to its potential earning capacity.
 CHAPTER II

REVIEW OF RELATED LITERATURE

Local Literature

There have been numerous studies about Financial Literacy but before any discussion

can be relevant it is pertinent to define Literacy to have a better grasp what

encompasses financial literacy. Literacy as defined by Oxford dictionary is the ability to

read and write. This simple definition is split between the understanding (Reading) and

application (Writing), so by oxford’s definition we can assume that financial literacy is

also cut into two portions which the ability to read, understand, analyze, manage,
communicate financial data and ability to discern financial choices, discuss money and

financial issues without (or despite) discomfort plan for the future, and respond

competently to life events that affect every day financial decisions, including events in

the general economy. In our always-evolving world, financial literacy is crucial in the

development of sustainable welfare and more transparent and fairer society. A several

studies were conducted in the Philippines to revealed the state of financial literacy of

most Filipinos.

According to Bangko Central ng Pilipinas (BSP) 2018, the financial literacy level

of the average Filipinos remains alarming low – a problem that begins with poor

childhood education that persists until their adult years. They also stated that Filipinos

adults could correctly answer only three out of seven financial literacy-related questions

covering basic numeracy, computing compounding interest, fundamentals of inflation

and investment diversification.

COL Financial Group Inc (COL) 2017, stressed the importance of investing early.

They said this will not benefit the person but help in nation-building, as well. However,

as per their study at 41% of Filipinos, in the Philippines, don’t know how to invest. The

reason why Filipinos fail to invest is simply because of lack of awareness or lack of

knowledge on investment options. Some simply haven’t heard of mutual funds or UITFs

and other vehicles, while others may be aware of them but do not know much about

them – how they work, how to buy them, etc. or even have the misconception that you

need a lot of money to be able to invest (Riza Mantaring, CEO of Sun Life Financial,

2017).
 Under different circumstances, JLL says the outlook for the Philippine real estate

industry in 2019 remains positive and expected growth and expansion of the industry in

2019 will hopefully encourage investments. This forecasted information will be a

inspiration of the government, or other future researcher that there is a need for a

effective financial education and awareness to our fellow Filipinos.

Foreign Literature

Financial literacy has been discussed by many researchers from different

aspects. Different research organizations have conducted research to identify the level

of financial literacy of investment decision makers. Financial literacy’s definition varies in

different literature. For example, Hung, Parker, and Yoong (2009) quoted the

President’s Advisory Council of Financial Literacy (PACFL) definition of financial literacy

as “the ability to use knowledge and skills to manage financial resources effectively for a

lifetime of financial well-being”. However, they claimed that it is unclear how widely

accepted this definition is. Thus, they said financial literacy can also pertain to perceived

knowledge, good financial behavior, or financial experiences. Because variety of

definitions for financial literacy, they said that the methods used to measure it also

differ. Surveys such as performance test and self-reports can be used to assess

financial literacy. If the definition given by PACFL, is adapted, methods which measure

a person’s “ability to use knowledge and skills towards achieving financial well-being”

are needed (Hung et. al., 2009). Lastly/ they stressed that a precise definition for
financial literacy will produce clear researches and allow development of practical

interventions.

Almenberg and Widmark (2011), in their work “Numeracy, Financial Literacy, and

Participation in Asset Markets”, differentiated numeracy and financial literacy such that

financial literacy involves “familiarity with financial concepts and products, whereas

numeracy is the ability to process numerical information and perform simple

calculations”. Because they recognized this difference, they measured financial literacy

and numeracy separately. They asked a sample of Swedish nationals to complete a

survey, which is composed of two questionnaires: one for financial literacy, and one for

numeracy. In addition, they examined the relationship between financial literacy and

numeracy on housing market and stock market participation using LOGIT regression.

They found that numeracy and financial literacy are positively correlated with

participation in the asset markets. However, they found that financial literacy is not an

important variable to participate in housing market relative to the importance of

numeracy.

Their study was supported by Lusardi (2012) in her work “Numeracy, Financial

Literacy, and Financial Decision-Making”. She differentiated financial literacy from

numeracy and pointed out that studies showed very low levels of numeracy in USA and

other countries, while lack of numeracy is severe in some demographic groups. She

stressed that there will be negative implications toward individuals and the society

because numeracy is found to be related tom nay financial decisions like mortgage

borrowing, loans and the use of credit cards. She also cited that.
 Many individuals are not able to do economic calculations or to understand the

distinction between nominal and real value. They also do not have sufficient knowledge

about such basic economic terms as basic risk diversification. In addition, they also

need to be informed about such complicated concepts as the differences between

bonds and stocks, investment fund operations and primary asset pricing comparisons

(Lusardi & Mitchell, 2014; Lusardi, 2008). A range of studies into the issue have

revealed that those who lack sufficient financial knowledge are not able to save duly for

their retirement (Lusardi & Mitchell, 2007), use high-interest loans and experience debt

problems (Moore, 2003), follow the financial advice of their family and friends and invest

less in stocks (Van Rooij et al. 2011). Therefore, individuals require education in relation

to a range of financial issues to meet their financial needs and increase their wealth

(Gale & Levine, 2010, Lusardi & Mitchell, 2014).

Financial Literacy was also studied in both developed and developing countries

to determine the state of financial literacy around the world. Xu and Zia (2012)

conducted a study by comparing available survey results of financial literacy for both

developed and developing countries. Surveys around the world consistently showed

that higher-income countries perform better that lower-income countries. The

awareness of basic financial products and concepts of lower-income country is

generally low, with many people never having heard of savings account.

There are factors affecting the level of financial literacy of individuals. An analysis

by Chen and Volpe (2012) further test the difference between the financial literacy of

men and women. Results from various prior studies consistently show that women’s

scores are lower because they either do not know the basis fact, terminology or concept
or they do not perform well in mathematics related questions, theoretically due to the

more “left-brained” intuition of women to men. In any case, there is conclusive evidence

to singe out gender as a significant variable affecting financial literacy scores (2012)

Gender is indeed a principle variable specifically examined in Chen and Volpe’s

study; other characteristics examined include family income, year level, and education:

family income is another singled out to be considerably significant as it relates to the

macroeconomic measuring of household income as per capita, a valuable component of

economic development. Family income also relates to household investing and

management of assets; compare to the measuring instruments discussed in the

previous section relating household wealth, portfolio, diversification and successful

returns on investments to financial literacy (Chen & Volpe, 2012)

The study by Obamuyi, (2013) sought to determine the main factors influencing

investment decisions of investors and how civil status is related to the investors’

characteristics in the Nigerian Capital Market. The study covers individual investors

using convenient sampling method to obtain information from 297 respondents through

a modified questionnaire. The results indicated that the five most influencing factors on

investment decisions of investors in Nigeria are past performance of the company’s

stock, expected stock split/capital increases/bonus, dividend policy, expected corporate

earnings and get-rich-quick. The study found that the civil status of investors statistically

and significantly influenced the investment decisions of investors in Nigeria. Marital

status and dependents, such as children, parents, or siblings, determine whether one is

planning only for yourself or for others as well. If you have a spouse or dependents, you

have a financial responsibility to someone else, and that includes a responsibility to

include them in your financial thinking. You may expect the dependence of a family

member to end at some point, as with children or elderly parents, or you may have

lifelong responsibilities to and for another person. Partners and dependents affect your

financial planning as you seek to provide for them, such as paying for children’s

education.

Age can influence personal financial planning management among people.

Generally, older individuals are more conservative and risk adverse. The deeper life

experiences may encourage the acquisition of skills to secure their financial aspirations

in their life. Ansong and Gyensare (2012) conducted a study among 250 University

students of Cape Coast reveals that the age and work experience are positively related

to financial literacy.

Financial literacy was also considered to be significant for potential investors to

make better informed investment decision. An essential element of investment is the

anticipated return therefore management of the asset invested must be done to ensure

that at least assets appreciate in value. Investment decision is the determination made

by the investors, in case of an individual investment or management where a

corporation is involved, as to how, when, where, and how much capital will be spent on

investment opportunities (Bhalla, 2012). These decisions are usually supported by

decision tools, literacy being one of the necessity, that would help achieve a satisfactory

return after performing an investment analysis using the fundamental and technical

analysis The decision to invest is usually followed by research to determine the costs

and returns for various options available. Musundi (2004), investment planning being
an integral part of investing and positive inducement in planning for protection has two

main reasons why people have to engage in it.

Bhushan (2014), examined the connection of level of financial literacy to

understand risk and return concepts as well as choice financial products correctly. He

concluded that high levels of financial literacy created more financial awareness of the

financial products hence were found to be likely to make wiser investment decisions as

compared to their counterpart with low financial literacy. Those with low financial literacy

are usually constrained in terms of the choice where to invest and therefore opt to invest

in limited traditional products. Though traditional products are considered safer and to

yield more return, they carry riskier.

Local Studies

Relatively little analysis of the Filipino’s Financial Literacy was done in the past.

One of them is study of Sucuahi (2013). He used four topics such as record keeping,

budgeting, personal finance, and savings to measure the financial literacy of micro

entrepreneur in Davao City. These micro entrepreneurs would include owners of sari-

sari store, beauty salon, fish vendors, eatery, and auto repair shop. The results show

that micro entrepreneurs were not knowledgeable in record keeping, savings, financing

and budgeting because the respondents did not utilize their skills. In addition,

educational attainment influences financial literacy, while gender is not a significant

factor.

Another study by Mandigma (2012) assessed the financial capability of academic

personnel among Universities. The sample population includes faculty, guidance

counselors, and librarians in an academic institution in Philippines. Majority of the

respondents have above average financial capability, which is defined as “the ability to

manage their day-to-day finance and long-term plan” (Mandigma, 2012). As a result,

respondents show no difficulties in managing money, savings, and financial planning

behaviors, awareness of financial products, and where to seek financial advice.

Foreign Studies

According to Ayieko, (2004) investment planning is one of most important areas

of personal financial planning. It is an integral part of retirement and a direct inducement

protection planning. Financial independence after and during retirement, and with a

view of your estate is largely determined by effective retirement planning. Investment

planning includes developing investment strategies. These strategies should include

designing a systematic investment plan and developing an asset allocation strategy.

Investment planning is major part of retirement planning

Mahmood (2011) conducted a study in Pakistan to examine the role of various

socioeconomic and demographic factors affecting the investment decision of investors.

An investment model was developed that described the impact of past investment

experiences of investors, variation in regulatory policies, asymmetric information, their

marital status, gender, and reinvestment intentions of investors. They suggested that

risk perception performs the key role in the investment decision process and that the

variation in the government policies can impact the risk perception of an investor. An

empirical study conducted by Shyan, Gow and Hui (2010) among Taiwanese investors
to determine their past experiences and their outcomes when exposed to the economic

signals. Empirical results found no difference by gender to investor propensity to take

risk. However, higher and lower perceptions of risk were indicated by investors

according to their personal investment experience. Investors with little experience and

structured notes were found to have significantly heightened perception of risk.

Furthermore, the married subjects believed that they have adequate financial

management knowledge and can make better investment decision.

CHAPTER III

RESEARCH METHODOLOGY

This chapter presents the procedures followed in gathering and analyzing the

data needed to address the problems identified in previous chapter. It will include the
research design, target population, research locale of the study, respondents of the

study, sample size and sampling technique, research locale, research instrument,

validity and reliability tests, and statistical treatment of data.

Research Design

Research design has been explored under diversified definitions. According to

Groenewald (2004), research design has been noted as an advanced set of decisions

that creates the master plan for the determined methods as well as proceedings for the

collection of data analysis of the same. This study will follow descriptive research

design. A descriptive study is concerned with finding out who, what, where, when, or

how much (Cooper and Schindler, 2006). This research is descriptive because it is

concerned with discussing the extent of financial literacy of real estate employees and

factors associated with regards to their investment decisions. The descriptive design will

be used since it ensures complete description of the situation as it is, making sure that

there is minimum bias in the collection of data and to reduce errors in interpreting the

data collected.

Population of the Study

The target population of this study will be employees of the Ayala Land, Inc.

specifically under Project Management Team in Makati City. The total target population
of this study is five hundred thirty two (532) employees, who were hired as of October

2019.

Respondents of the Study

The respondents of the study will be the employees of Ayala Land, Inc. Through

the use of Slovin’s Formula it came up with a total of 228 respondents, with total

population of 532 and a margin of error of 5%. Sloven’s formula is used to calculate the

sample size (n) given the population size (N) and a margin of error (e). -It is computed

as n = N / (1+Ne2). - If a sample is taken from a population, a formula must be used to

take into account confidence levels and margins of error.

Sampling Technique

The sampling technique that will be used in this study is simple random sampling

technique in order to meet the objectives. Simple random sampling technique will help

to ensure that the sample represented the entire population, and was not biased or

prejudiced towards any particular groups within the population.

Research Instrument

The primary data will be collected using survey questionnaires which will be

randomly distributed to the employee-respondents. This method will be appropriate

since it will encourage prompt response from the respondents. The survey

questionnaires was divided into three parts. The first part of the questionnaire contains

the demographic profile of the respondents such as age, gender, civil status, and

monthly income. The second part of the questionnaire contains the key financial literacy

questions. The third part contains respondent’s investment decision. Respondents will

be asked to indicate their degree of how they were influenced by each of the items on

four point scale. The range of four point scale is shown in the table 1.

Table 1.

Range of Four Point Scale

No. Verbal Interpretation Range

4 Strongly Agree 4.20 – 5.00

3 Agree 3.40 – 4.19
2 Disagree 2.60 – 3.39
1 Strongly Disagree 1.80 – 2.59

Validity and Reliability Test

To ensure validity and reliability of the data that was collected, formulated survey

questionnaires were pre-to ten (10) employee-respondents to establish their validity

before they were administered to the respondents. The questionnaire were structured to

enhance the research objective. Further, the internal consistency of a measurement

scale is assessed by using Cronbach’s Alpha. It is generally recommended that if a

measurement scale having Cronbach’s value above 0.70 is acceptable as an internally

consistent scale so that further analysis can be possible. However, if the scale has a

coefficient alpha below .70, the scale should be examined for any sources of

measurement errors such as inadequate sampling of items, administration errors,

situational factors, sample characteristics, number of items, and theoretical errors in

developing a measurement scale (Gable & Wolf, 1993).

Table 2.

Variables Cronbach's Alpha

Financial Literacy 0.727

Investment Decision 0.766

This table shows that value of cronbach‘s alpha of variables is greater than 0.6 and

for financial literacy and investment decision value of cronbach‘s alpha is 0.727 and

0.766 respectively. So it is evident through statistical results that our instrument

is reliable to gauge the level of the financial literacy and factors influences their

investment decision.

Data Gathering Procedure

A survey questionnaire will be used to gather information. The questionnaire

consisted of the different questions relevant to the study, which were related to the

respondent’s level of financial literacy and influences their investment decisions. A brief

explanation about the research topic will be given. The researcher also understood that
people’s consciousness may also affect their honesty and effectiveness in answering

the survey, and so, the researchers gave people the option of being anonymous.

Research Locale

This study will be conducted in Ayala Land, Inc. which is located in Ayala

Avenue, Ayala Triangle, Makati City.

Statistical Treatment of Data

Responses to the questionnaires will be analyzed and interpreted using statistical

tools