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Depoo, Enrique Jiménez-Rodríguez
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Novoa-Hoyos, A., Depoo, L., & Jiménez-Rodríguez, E. (2022). Role of financial

literacy and awareness of tax impacts in an emerging economy facing tax reform.
Economics and Sociology, 15(1), 222-240. doi:10.14254/2071-789X.2022/15-1/14

ROLE OF FINANCIAL LITERACY

AND AWARENESS OF TAX IMPACTS
IN AN EMERGING ECONOMY
FACING TAX REFORM
Amalia Novoa-Hoyos ABSTRACT. This study seeks to assess the levels of financial
University of Pablo Olavide, literacy based on demographic characteristics of residents
Seville, Spain in Bogotá, capital of Colombia. Given the massive public
E-mail: anovoah@unal.edu.co demonstrations against tax reforms that have been taking
ORCID 0000-0002-1964-4442 place in large cities in Colombia in 2021, this paper
analyses the knowledge of people of the nature and
Lucie Depoo* impact of tax reforms, especifically their financial
University of Economics and understanding of the impact of these fiscal policies.
Management, Utilizing regression analysis with a quantitative and
Prague, Czech Republic qualitative research design, the article investigates the
E-mail: lucie.depoo@vsem.cz degree of financial literacy and the relation between the
ORCID 0000-0003-4296-875X financial knowledge and the current orientation in tax
*Corresponding author policy changes and their impact on the population. The
data used in this study was gathered from 6,713
Enrique Jiménez- households in Bogotá and supplemented by in-depth
Rodríguez interviews of representatives of each demographic group
University of Pablo Olavide, selected by careful sampling to represent each
Seville, Spain demographic characteristic. The results are structured in
E-mail: ejjimrod@upo.es two parts, firstly, based on the analysis of three variables
ORCID 0000-0002-4809-0215 measuring levels of financial literacy of individuals relating
to the interest rate, inflation and the principle of risk
diversification. Secondly, qualitative research added two
Received: February, 2021 questions on knowledge of tax reform. Logistic regression
1st Revision: May, 2021 was used. Results of both qualitative and quantitative
2nd Revision: November, 2021 research show that there is significant difference in the
Accepted: March, 2022 financial knowledge of people of different age, marital
status and education. Interviews showed the best
awareness and orientation in the mid-age group,
DOI: 10.14254/2071-
789X.2022/15-1/14 predominantly men, who are seen as leaders. The most
vulnerable group is low-educated single women.
Limitation of the study is the narrow focus on households
in one city. This article provides an insight into the
importance of financial literacy, its monitoring,
implementation of continuous improvement based on
feedback loop in an economy in transition.

JEL Classification: A20, Keywords: financial literacy, Colombia, demography, household

D14 economic sustainability, developing country, logistic regression,
content analysis

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Introduction

Increasing financial literacy is considered one of the world's priorities at a social level
in all economies as measured by individuals’ understanding of fiscal policy as well as
management of their financial resources. Financial literacy is an essential element for people to
manage their financial affairs and can make a prudent contribution to the soundness and
efficiency of the financial system and performance of the economy (Kefela, 2011). This study
examines empirical data gathered from participants residing in Colombia, an emerging
economy. In recent times, financial literacy has been widely promoted as a crucial skill
especially after the financial crisis in 2008 (Ayhan, 2019). In today’s economy, it is going to be
one of the determinants of post-Covid restoration of households’ economy. Van Ooijem and
Van Rooij (2016) state that a limited understanding of mortgage contracts and their risks may
have contributed to the outbreak of the 2008 financial crisis. As a result, more and more
governments are concerned with implementing financial education policies and strategies into
compulsory education to promote the impact of financial decisions on long term household
stability as well as nations.
The importance of financial literacy is rooted in the three pillars of sustainable
development which are social justice, preservation of the environment and economic progress
with the purpose of improving the quality of life of the population. Moreover, within the
framework of the seventeen objectives of sustainable development of the United Nations (UN),
specially the objectives aimed at eradicating poverty, improving quality education and
implementing sustainable production and consumption. The results presented in this paper
provides a framework to bring valuable input for economic authorities and educational
institutions to formulate targeted and effective policies and strategies for financial education.
The findings of this study can contribute to UN objectives number one (End poverty)
and four (Quality education), as those will bring input to the implementation of programs and
policies aimed at enabling the population to acquire necessary knowledge to promote
development and sustainable lifestyles. Increasing financial knowledge and awareness of more
sustainable consumption and production in families will contribute to households having
greater stability in their personal finances and possibly access to financial services such as
microfinancing. A low level of public financial awareness can lead to inappropriate decision
making, because households are not necessarily aware nor understand the impact of the risks
they face in their day-to-day financial decisions (Kefela, 2011). This paper contains a review
of the existing literature, present methods and statistical description of the data, in the next
section results are presented, which are further discussed along with conclusions and
recommendations.

1. Literature review

Financial literacy is highly relevant and current issue as it is on agenda of the

government of all countries, developed and developing, and has been the object of study
worldwide. This paper provides evidence, as stated by Razen et al. (2020) that financial literacy
is important driver of health, income, and general well-being. Oliver-Márquez et al. (2021)
explored the importance of measuring financial knowledge from a macroeconomic perspective,
to explore its effects on economic variables such as development and inequality.
Bannier and Shwarz (2018) and Razen et al., (2020) stated that greater financial
education leads to greater wealth and higher education reinforces this effect considerably. The
same is supported by Dewi et al. (2020) in their investigation and concluded that the level of
financial literacy defines also level of rationality in financial decision-making. Moreover, Belás

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et al. (2016) stated that knowledge of correct personal financial management leads to successful
and improved quality of life.
It is important, not only to measure the degree of financial knowledge of the population,
but also to identify demographic patterns, which allow to formulate adequate strategies
(Klapper et al. 2013). O'Connor (2019) explored the interaction of demographics with
consumer financial literacy. His results revealed that understanding of the nuances of financial
literacy remains of great importance in ensuring consumer well-being. Lusardi and Tufano
(2009) stated that financial illiteracy is more frequent in the case of elderly, young people and
women. Bahovec et al. (2015) found that gender is statistically significant when analyzing
levels of financial literacy. Also, Brown and Graf (2013) used multivariate analysis with a
probit model to assess financial knowledge, inflation, interest rate and risk diversification. Their
study concluded that women are 19% less likely to know all three questions compared to men.
Sevim et al. (2012) concluded that financial literacy levels are statistically significant with
respect to some demographic characteristics, such as gender, education, and marital status. For
Cull and Whitton (2011), age and education are also significant variables that correlates to the
degree of financial knowledge. Regarding marital status, Totenhagen et al. (2019) confirmed
that sharing financial values with the partner, mediates the relationship between financial
knowledge and relationship satisfaction, they concluded that financial knowledge is important
for improving relationship satisfaction concurrently. Ivy et al. (2020) studied the common
financial decisions that people face considering the most common mistakes and financial
planning practices. All these variables play a fundamental role in household finances and are
interrelated.
Another study conducted in several developing countries concludes that women have
lower financial knowledge scores than men and part of the gender gap appears to be due to
lower income levels of women, but the gender gap persists even when equal income groups
were compared (Karakurum et al., 2018). This trend is also confirmed in developed countries
such as Spain, where the percentage of correct responses to a basic financial literacy test among
women has a trend around 10 percentage points lower than the men’s (Bank of Spain, 2016).
In complementary studies, Chen et al. (2018) analyzed the gender gap in terms of financial
knowledge and its relationship with loan performance.
Regarding income, Brown and Graf (2013) confirmed less financial knowledge in low-
income population and immigrant families. On the other hand, Bahovec et al. (2015) confirmed
that the difference in financial knowledge with respect to the level of household income is not
statistically significant. Lusardi and Tufano (2009) analyzed a similar variable called debt
literacy. They performed a logistic regression analysis to identify the level of debt literacy. As
a finding, they identified age as a statistically significant variable, showing greater ignorance
in the elderly age groups. They also found differences in gender, where women showed the
lowest level of knowledge. This finding is consistent with Hung et al. (2012), who confirmed
the gender gap in financial knowledge. Focusing on Latin America, a recent study of financial
decisions and capacities in the Andean region concluded that financial literacy has a significant
effect on informal savings and formal indebtedness of people (Roa et al., 2019). With regard to
gender in Latin America, in all countries analyzed in the survey to measure financial capacity
in the Andean countries, the proportion of men who achieved a high score in financial
knowledge is higher compared to women. In the case of Colombia, the high level of financial
literacy was achieved by 48% of men and 38% of women (CAF, 2014). The population between
25 and 39 years old has a higher proportion of respondents who achieve a high score in the
financial knowledge test, compared to all other age groups (CAF, 2014). Young households
have less knowledge of the concept of power and inflation (Brown and Graf, 2013). The

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financial knowledge test, which has been used in different countries, analyzes the population's
basic knowledge on three variables: inflation, interest rate and risk diversification.
In the research by Brown and Graf (2013) the authors highlighted that their study is
internationally comparable since the level of financial knowledge is measured with comparable
and consistent indicators. The same three variables were developed by Lusardi and Mitchell
(2014) for United States, Alessie et al. (2011) for the Netherlands, Bucher-Koenen and Lusardi
(2011) for Germany, Sekita (2011) for Japan, Agnew et al. (2013) for Australia, Crossan et al.
(2011) for New Zealand, Brown and Graf (2013) for Switzerland, Fornero and Monticone
(2011) for Italy, Almenberg and Säve-Söderbergh (2011) for Sweden, Arrondel et al. (2013)
for France, Klapper and Panos (2011) for Russia and Beckman (2013) for Romania.
In the United States, only 30% of the American population answered the three questions
correctly. Low levels of financial knowledge are frequent in other countries as well. The
German and the Dutch population are more likely to answer the inflation question correctly
compared to the Japanese (Lusardi and Mitchell, 2014).
Financial education will also help citizens to better understand public fiscal policies and
to participate in their development to avoid fiscal crisis like the one Colombia faced in 2021.
Although, this crisis was triggered by a string of reforms proposed by the government, it has
created an opportunity to make citizens aware of the importance of political and financial
knowledge. Higher levels of financial education will contribute to improve the financial
performance of Colombian households and the economy of the country.
The series of reforms proposed by the Colombian government started in 2020 with
Decree 1174, which constitutes a labor reform as it establishes the conditions for employers
and workers who receive less than one monthly minimum wage. This decree made the hiring
possibilities for employers more flexible but undermined benefits for employees. The
government initiatives continued in 2021 with proposals to reform taxation, health and
retirement. The initial tax reform proposed in 2021 sought to tax basic public services, to
include people who earn more than 600 dollars per month (TRM May 2021: 3,715 COP) in the
income statement, tax funeral services with VAT at a time when the country was facing more
than 500 deaths a day due to the Covid-19 pandemic among the most outstanding measures.
The health reform project promotes the regionalization of the Health System, transforming the
current Health Provider Entities (EPS) and institutions such as hospitals to function in
comprehensive service networks and manage an economy of scale, decentralizing processes
and seeking regional autonomy based on greater resources from more affiliates.
Therefore, the main research question for this study is: What is the degree of financial
knowledge of the population in Bogotá, Colombia in the searched period? To evaluate the
research question, two hypotheses are proposed:
H1: There is a significant difference in the financial knowledge of people with different
demographic characteristics (H1a=Age, H1b=Gender, H1c=Income, H1d=Marital
Status).
H2: There is a significant difference in the financial knowledge of people with different
educational characteristics?
The objective of this research is to identify the degree of financial knowledge of the
population in Colombia, examining whether there is a significant difference in the financial
knowledge of people with different demographic characteristics. (Age, Gender, Income,
Marital Status, Education). The study also includes qualitative analysis by means of interviews,
which allow us to assess current Colombian situation from the perspective of the financial
knowledge. The main source of data is the Financial Burden and Financial Education Survey
and the Large Integrated Household Survey (GEIH by its acronym in Spanish), both conducted
by DANE - National Administrative Department of Statistics in Colombia, data compiled by

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the Government of Colombia. In this study, the econometric model based on the logistic
regression is build and analyzed.

2. Methodological approach

This research is carried out using qualitative analysis of households’ survey and
interviews. The combination of quantitative and qualitative evaluation supports the results by
the data triangulation.
We analyze data gathered from households in the urban area of Bogotá. This city is the
financial capital of Colombia, the economic, political and administrative center of the country.
Bogotá's GDP has a 26% share of national GDP and exceeds other countries in the region, such
as Panama and Uruguay. More than 50% of the country's financial transactions are carried out
in Bogotá.

Table 1. General information about Bogotá

Bogotá
GDP 2018 USD 85,878 million
Population (Official Census, 2018) 7,181,469
Economic Growth 2018 3%
Share of the Population of Colombia 15%
Participation in Colombia's GDP 26%
Number of Companies 764,639
Source: DANE/Bogotá Como Vamos, (2019)

In Colombia there have been 12 tax reforms in the last 23 years; some of the most
notable changes began in 1998 when the "2 per 1000" tax on financial transactions was created.
This tax charges to users a rate of COP 2 for every COP 1000 in bank withdrawals. Initially,
this tax was created temporarily for the economic emergency, however this tax is still in force
today. In 2000, the tax increased to COP 3 per COP1000 and in 2003 the tax increased to COP
4 per COP 1000 on each transaction. Other significant change is the increase in Value Added
Tax (VAT) and increases in income tax. See Table 2 for details.

Table 2. Tax Reforms in Colombia

Year Law Description
This law created the temporary tax on financial transactions (COP 2 x COP 1000) during
1998 2330
the economic emergency, and a tax on gasoline
2000 633 Tax on financial transactions (COP 3 x COP 1000)
2002 788 20% Cell phone services - temporary surcharge of 10% on rent
2003 863 Wealth tax and increase from (COP 3 x COP 1000) to (COP 4 x COP 1000)
2006 1111 16% VAT, 40% tax deduction for investments.
2009 1370 Increase in wealth tax. Income reduction for investments
This law eliminated the reduction in investment income and created the electricity
2010 1430
surcharge in the industrial sector
2012 1607 This law created Income Tax
2014 1739 Wealth tax
2016 1819 VAT increased from 16% to 19%; prison for evasion
2018 1943 Financing Law: Gradual reduction of income tax, VAT discount
2019 2010 Growth Law: VAT refund to vulnerable households, three days without VAT per year
Source: Own elaboration with data from the Ministry of Finance and Public Credit Ministerio
de Hacienda y Crédito Público, (2021) and Lozano, (2008)

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This tax reform proposal directly affected the middle class. Specifically, it is a reduction
in the wage limit from which employees would have to pay income tax, the introduction of
VAT on public services or the introduction of VAT on basic food items in the consumer basket.
Although the State has defined some key food items that will not be affected by the reform,
there is still increase or introduced VAT on some raw materials, which will make production
more expensive and the tax will ultimately be paid by the final customer. On the contrary, large
companies will retain tax benefits for instance free zones.
Regarding the demographic profile, Bogotá still has a lower population than New York
and Tokyo censuses, but its growth rates have been higher since the 1950s. Both New York and
Tokyo have been experiencing growth equal to or less than one percentage point since the
1990s, while the growth rate in Bogotá is still above that quota. Bogotá is in advanced stage of
demographic transition, leading the whole nation. It has been developing rapidly, however, it
has also presented a decrease in the growth rates of the population, generated by the decrease
in mortality and fertility rates (Alcaldía de Bogotá, 2018).
Another major characteristic of Bogotá is its stratification system on a scale from 1 to
6. This system depends on physical characteristics of the house and its urban context, such as
materials, access roads, gardens and garages. This classification does not rely on household
income. Its main purpose is to collect differentially for home public services, assigning
subsidies and collecting contributions (DANE, 2018).
The analyzed sample includes data from the GEIH and the Financial Burden and
Financial Education Survey (Survey 2) developed by DANE. The first instrument mentioned is
applied at the national level in urban and rural areas. It collects demographic, housing,
education and workforce information. The approximate annual sample is 240,000 households.
It is a survey whose sampling unit is made up of an average of 10 dwellings, including all
households in each dwelling and each person in each household (DANE, 2015). Demographic
and socioeconomic data are extracted from the General Characteristics module for the city of
Bogotá considered as city #11 within the documents called "Area" in the GEIH. General
characteristics, gender, age, marital status, educational level and income were considered and
analyzed.
The second survey used arises from the question 15 of the GEIH, which uses as a filter
question “Which of the following financial products do you or any household member currently
use?” This question in the Survey of Financial Burden and Financial Education (DANE, 2017)
is applied in an inter-institutional agreement with the Banco de La República since 2010 for the
city of Bogotá and since 2017 also for Medellin and Cali.
The data analyzed in this study were collected in 2015 and describe the results obtained
by the Survey of Financial Burden and Financial Education, made up to track the civil
population residing in private homes in the urban area of Bogotá.
The unit of analysis is 18-year-olds and older in households that use some financial
service. The sample design is probabilistic, stratified with an approximate sample of 9000
households (DANE, 2017). One of the chapters of the survey is on mortgage assets and debt,
financial education, non-mortgage debt, financial and real assets, perception of the financial
burden and credit restrictions.

2.1 Quantitative data

This study is based on exploratory, quantitative, and qualitative study design. The
proposed econometric model is a logistic regression.

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𝑃
ln (1−𝑃𝑖 ) = 𝛽0 + ∑𝑚
𝑖=1 𝛽𝑖 𝑋𝑖 (1)
𝑖

This equation correlates financial knowledge with demographic profile of the surveyed
households (see in section Logistic regression model). The financial knowledge variable is
represented by a test designed by Lusardi & Mitchell (2014) that consists of assessing through
three questions related to inflation, interest rate and risk diversification, the level of basic
knowledge of households. The consistency of the model was tested and the p-value of the model
and each question is less than 0.001 thus the model and its parts are statistically significant and
usable for further analyses. The investigated questions are presented below. The questions used
by DANE, are presented in Table 3.

Table 3. Questions used to define financial literacy

Variable Question
Interest rate You have COP 100,000 in a savings account, and the interest rate you earn is
2 percent per year. If you keep the money for 5 years in the account, how much will
you have at the end of these 5 years?
a. More than COP 102,000.
b. Exactly COP 102,000.
c. Less than COP 102,000.
Inflation You have COP 100,000 in a savings account that yields 1 percent interest per year.
You also know that the inflation rate is 2 percent per year. After a year, you will be
able to buy:
a. More than COP 100,000.
b. Exactly COP 100,000.
c. Less than COP 100,000.
Risk Is the following sentence true or false? "Buying a share in a company is less risky
than buying several shares in different companies with the same amount of money."

Source: Colombian Administrative Department of Statistics (DANE, by its acronym in

Spanish, 2017)

Within the process of consolidating the database, the variables mentioned above from
the general characteristics module are unified, extracting the demographic and socioeconomic
information of the people registered in the Survey of Burden and Financial Education.
Due to the methodology employed by DANE, where the head of household answers
questions about financial knowledge and those are loaded for all household members, only
6,713 out of the total sample of 18,411 responses are analyzed. This study works with cleared
dataset only focusing on heads of the family who are the decision-makers in the financial areas
in their household.
The first stage of processing the data focuses on the preparation of data matrix. The data
are sorted and cleaned, and the quality checked. During this stage an analysis of missing values
is conducted. Secondly, 213 empty records that do not contain answers to the questions are
eliminated. Finally, the data matrix is transformed, and variables are coded for entering the
statistical software for analyses. Before data processing, we test the data to make sure they
fulfilled the conditions of further statistical testing (two-dimensional statistical methods and
regression analysis).

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2.2 Logistics regression model

The number of correct answers in the test represents the dependent variable. Within the
first model, the variable is binary; equal to one if the individual has three correct answers,
otherwise, it is zero (e.g., when a respondent answered all three questions correctly, he/she got
100 points). For the second model, the dependent variable represents the probability of
obtaining at least two correct answers, or zero otherwise (e.g., when a respondent answered two
questions correctly, he/she got 67 points). Gender, age, marital status, educational level, and
income were defined as independent variables. Table 4 presents this information.

Table 4. Variables of the model

Variable Name Description Type
𝑥1,𝑖 Gender 0 male categorical
1 female variable
𝑥2,𝑖 Age 18 𝑡𝑜 25 𝑦𝑒𝑎𝑟𝑠 categorical
26 𝑡𝑜 45 𝑦𝑒𝑎𝑟𝑠 variable
46 𝑡𝑜 65 𝑦𝑒𝑎𝑟𝑠
𝑜𝑣𝑒𝑟 66 𝑦𝑒𝑎𝑟𝑠
𝑥3,𝑖 Status Married categorical
(Marital Status) Single variable
Other
𝑥4,𝑖 Education None categorical
School variable
University
Postgraduate
𝑥5,𝑖 Income COP 0 to 5,000,000 categorical
5 to 8,000,000 variable
Over 8,000,001
Source: Authors

The model is presented below:

𝑝𝑖
𝐿𝑜𝑔𝑖𝑡(𝑝𝑖) = ln(1−𝑝𝑖) = 𝛽0 + 𝛽1 𝑥1,𝑖 + ⋯ + 𝛽𝑘 𝑥𝑘,𝑖 (2)
𝑝
ln(1−𝑝) = 𝛽0 + 𝛽1 Gender + 𝛽2 Age + 𝛽3 Status + 𝛽4 Education +𝛽5 ∗ Income (3)

All studies use logistic regression as it is the best fitting method to evaluate demographic
factors according to Klapper, Lusardi, & Panos (2013), Lea, Webley, & Walker (1995), Singh
Thapa & Raj Nepal (2015), Barbic, Palic, & Bahovec (2016). On the other hand, Farias (2019)
also used logistic regression in order to analyze the relationship between financial literacy and
knowledge of personal loans considering similar demographic variables, such as gender,
income, educational level and age.

2.3 Qualitative data and analysis

The qualitative data were gathered by telephone using semi-structured interviews. Each
participant was contacted individually and his/her answers were recorded together with his/her
subjective evaluation of current tax reforms. These questions are explained in Table 5.

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Table 5. Interview questions used to define knowledge of reforms

Variable Question
Current Colombia is currently facing a difficult situation since its population does not agree
situation with the proposed reforms. These include a change in tax, labor (Decree 1174 of
2020), health and retirement. With regard to the Tax Reform, do you know what are
the main proposed changes and who will be impacted the most?
Interest rate The country's indebtedness continues to grow and interest rates are decreasing. In
August 2020, the Central Bank of Colombia lowered the monetary policy interest
rate to a historic low of 2%, this is the sixth time it has lowered the rate consecutively.
Do you know what effects or consequences this reduction can have?
Inflation Is it possible that changes in taxes affect inflation?
Risk Regarding to the current situation of uncertainty, insecurity, violence, shortages, do
diversification you think that the possibility of selling your assets and / or withdrawing your current
savings and investments in Colombia would be an action to diversify risk?
Impact of the What role plays income inequality related to current discussion on tax reform, labor
reform reform, health reform and retirement pension reform?

Source: Authors

A total of 45 interviews were conducted in May 2021 for individuals selected within
each segment. The number of interviews is sufficient for systematic, structural sampling,
according to Poynter (2012), Hodges (2011), Young (2014) and Disman (2018). The structure
of the respondents was designed to match the data from DANE quantitative survey from 2015.
The statistical description of the demographic characteristics is: gender: 53% male, 47%
female; age: 18 to 25 years (15.6%), 26 to 45 years (44.4%), 46 to 65 years (22.2%) and over
66 years (17.8%). Education levels: no education (4.5%), school (13.3%), university (37,8%)
and postgraduate (44.4%). Household´s income (in $ COP): $0 to $5,000,000 (68.8%),
$5,000,001 to $8,000,000 (15.6%) and over $8,000,001 (15.6%) Marital status: married
(26.7%), single (68.8%) and other (4.5%).
All qualitative data are analysed based on the transcript of answers. Responses are
gathered by an in-depth, detailed study of individual responses resulting in a narrative
description of financial literacy or experience with the nature of the proposed reforms.
The content analysis of the answers is conducted to assess knowledge of the proposed
reforms and their impacts. To make replicable and valid outcomes from texts, we use categories
based on the matter of the contexts and their use. The method clearly identified areas of text
that are not clear in the responses at first. The steps of our quantitative content analysis reflect
main steps according to Disman (2018). Firstly, all responses are read and elements which can
be used as statistically usable variables are defined, e.g. words, phrases or parts of text with
defined meaning which are repeatedly seen in the text. In the second step, all variables are
classified into categories. Mostly nouns and its synonyms are used as categories. Synonyms are
merged in one category. The qualitative categories form units for analysis. A unit is a word or
phrase which is repeatedly used by respondents. The units and their context are analysed and
attention is also paid to individual words. Logical clusters of units are recorded. Finally, 20
categories of qualitative variables are found and further use for analysis. Defined qualitative
categories are listed in the Table 6 below.

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Table 6. Qualitative categories

Category of
qualitative Characteristics of category No of occurrences
variables
Inequality inequality, (lack of or no) equity 36
Tax reform tax, tax reform, VAT 78
Income income, salary, purchasing power, money, expense, pesos, % 90
Middle class middle class, average people 14
Lower class poor, lower class, less favoured, poverty 37
Upper class rich, wealthy minority, top class 13
Increase increase, affect, distribution 86
Reform change, reform, differ, difference 62
Beneficent benefit, stability, balance 19
Government government, state, politics, policy 26
Labour market work, employee, employer, employment, job 18
Economics economics, company, market, entrepreneur, sector 49
Problem problem, risk, negative 22
Family family, social 19
Payment pay, payment 18
Source: Authors

This reduction of data and elimination of the less important variables highlight the most
important information in responses. To create system for statistical analyses, the nominal
quantification is used to monitor frequencies of occurrence of each unit or category. The final
number of occurrences of each unit and category is loaded. The outputs from this analysis are
further studied and statistically processed. The data are inserted in tables and descriptive and
two-dimensional statistical tests run to evaluate the results. The occurrence of characteristics in
case of high-level financial literacy compare to low levels is tested. High awareness and
financial literacy is coded as 1, low or no level of knowledge or not relevant answers were
coded as 0. The coded answers are used for statistical analyses.
The respondents’ answers are categorized according to the identification questions (e.g.,
gender, age, marital status, income and education) which formed independent variables.
Finally, the data are further analyzed by means of a one-dimensional analysis based on
the frequency distribution then a two-dimensional analysis of the dependence of selected
variables by testing the hypotheses stated based on the theoretical background and starting
points. The hypotheses are tested to establish whether there is a difference between defined
groups of respondents and their financial literacy e.g. knowledge about nature of the reforms.
The goal is to identify which characteristics play an important role in financial literacy. The
null hypothesis is rejected in case the p–value calculated by means of the test is lower than the
selected level of significance α = 0.05.

3. Conducting research and results

This chapter analyzes and presents outputs from the analysis of data from questions
related to the financial literacy of respondents representing households and using financial
services in Bogotá. Descriptive statistics and two-dimensional methods were used to evaluate
the primary data gathered from the survey in 2015 (for tested questions see Table 3) and
interviews in 2021 (for tested questions see Table 5). Examination of respondents’
characteristics was conducted to identify differences among groups that forms the base of
financial literacy within the population and current society. Specific results impacting financial

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education and its development are further discussed. The results show current approaches
towards financial competency development in developing economy.
The overall results show that out of three questions on financial literacy 3,423
respondents answered two correctly (51% of the sample) and 1,025 respondents answered all
three questions correctly (15% of the sample).
The most important characteristics and results according to the demographic groupings
are presented in Table 7. The financial literacy levels are presented according to gender, age,
education, income and marital status. The results are statistically processed and results further
discussed below. Because the p-value of the model is less than 0.001 thus the model is
significant and usable for further analyses. The p-value of each of the tested question is
statistically significant (p<0.001) as listed in the Table 7.
The overall Omnibus test with a chi-square result shows that the model as a whole is
significant (p= 0.000). Nagelkerke test R2=0.028 (Step 3), which shows a weak dependence.
The Hosmer Lemeshow test p-value is 0.370, which signals the consistency of the model and
data.

Table 7. Levels of financial literacy

Fin. literacy levels – survey p-value p-value
survey interview
results results
High% Medium% Low%
(consistency (hypotheses
test) testing)
Gender Male 15.9% 65.8% 18.3%
<0.001 <0.001
Female 14.1% 64.5% 21.4%
Age 18 to 25 years 15.5% 66.3% 18.2%
26 to 45 years 17.0% 64.9% 18.0%
<0.001 <0.01
46 to 65 years 14.8% 67.0% 18.2%
Over 66 years 11.4% 61.3% 27.3%
Education None 13.0% 60.0% 27.0%
School 15.7% 65.8% 18.6%
<0.001 <0.001
University 19.5% 69.0% 11.5%
Postgraduate 26.2% 67.1% 6.7%
Income 0 to 5,000,000 14.8% 65.3% 19.9%
(COP) 5 to 8,000,000 27.2% 64.6% 8.2% <0.001 <0.001
>8,000,001 28.4% 63.0% 8.6%
Marital Married 17.5% 66.5% 15.9%
Status Single 16.5% 66.3% 17.1% <0.001 <0.01
Other 13.9% 64.5% 21.7%
Source: Own elaboration with DANE data
Note: High level of financial literacy = 3 correct answers; Medium level = 2 or 1 correct answer; Low level of
financial literacy = no correct answers or refused to answer

As the results show in the Table 7, men have slightly higher percentage of high and
medium financial literacy, but the values are very similar. This was confirmed by analyses, the
gender does show significant results in two-correct answers model only on level 0.05, but no
significant difference was found in case of model with all correct answers. This result meets
expectations but as based on other studies we expected greater differences among gender. But
as our sample contains only respondents who make financial decisions and are head of
households, the results are slightly different. Analysis of interviews shown the same results.
Men were usually more well-aware of the situation, e.g.: “Increasing the ceilings to declare

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income, placing taxes on more items of the family and other services makes the middle class,
which has been hit hard by the pandemic, the most affected. The SME Entrepreneur and the
employee are greatly affected, not only in their companies but also in their homes, and the effect
may be to continue reducing their ability to save and worsening their quality of life.” On the
other hand, some women were not so sure, even though holding university degree: “No, I only
know that the tax reform was going to expand the population that would pay income taxes and
the new products and services that would have new or more taxes.”
Regarding age groups, the highest financial literacy can be found in the mid-age group.
The lowest literacy and threatened group is among elderly people over 66 years. Similarly, the
financial literacy and awareness is rising together with education. The higher the degree an
individual obtain, the better financial literacy is observed. The same result was found within
the income levels. The higher salary means also higher awareness in financial decision-making.
In case of marital status, married individuals performed the best in the test. Accordingly,
qualitative analysis of interviews confirmed these results. Mid-age group and people with
higher education or higher salary provided correct, comprehensive and more complex answers.
I.e. description of phenomena by mid age group is characterized by: “The reforms seek to lower
current inequality. However, precisely the argument of those who oppose them is that they do
not completely solve the issue of inequality. Currently, the Gini before and after taxes does not
vary much so these are not having the effect of leveling the playing field for the entire
population. Regarding pensions, the current system leaves out the poorest and subsidizes those
with the highest income. For these reasons, reforms can help if it is understood that despite
having shortcomings, they represent an improvement compared to the status quo.” E.g. answers
provided by respondents over 66 years were typically: “Lack of equity in people's salaries.”
To evaluate the results of regression analysis, two regression models were conducted
(see resultant tables attached and Methods for details on models). Both models were compared
to find differences among financial literacy of respondents. Also, both models are statistically
significant (p<0.001). Firstly, the model for two correct answers was created. In this model, it
is possible to find significant impact of education (university 0.734, p<0001) and age (up to 65
years, p<0.05) on financial literacy. In case of two correct answers, also technical education
plays a significant role in improvement of financial literacy (0.658; p>0.001). There is slightly
better performance in financial test in case of married respondents (0.164, p<0.05).
Results of model on higher levels of financial literacy (three correct answers) showed
no differences among gender, although married respondents performed slightly better (0.186,
p<0.05). Education proved to be essential, as the levels of financial literacy increased with
higher level of education (always p<0.001). Further, university and graduate education explains
the most the dependent variable (0.641 in university education; 0.890 in case of postgraduate,
both p<0.001). Mid-age group (26 to 45 years old) obtained the best results (0.289, p<0.05).
Based on both models, education plays a crucial role in financial literacy. To improve level of
education of the population is therefore suggested.
Testing the hypotheses, the following results were observed. The output data show that
age groups significantly differ (H1a was confirmed). Older age groups over 66 years old and
more performed worse in the test (see Table 1 and confirmed by regression models). The
preposition of less knowledge involving people and older adults was confirmed. The highest
score in the test was found within the mid-age group, compared to younger and older age
groups. There is a significant difference in the financial knowledge and age. The testing
revealed that there is no difference between gender in the investigated group (H1b was refused
in the case of three correct answers model where slight differences were found in the case of
medium financial literacy). Also, higher salary leads to better performance in financial literacy
tests and groups with different income statistically significantly differ (H1c was confirmed).

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Regarding marital status (H1d), married population on average achieved better results
in the test shown in Table 1 compared to the single or other marital status in population. The
difference is statistically significant. For divorced people income is an important determinant.
On average, married people have higher financial literacy than singles, which also correlated
with age.
When evaluating H2, the results show that any education, even general education is
better than none. No significant differences were found between lower levels of education. High
school graduates are more likely to answer the test correctly compared to those with general
education or none. On average, university students perform significantly better than other
investigated groups. The university degree makes significant difference in the results on
financial knowledge. Moreover, graduate students also achieved better results than
undergraduate students and other respondents. Results confirm that 𝛽 will grow as the person
acquires knowledge and increases his/her level of education.
Based on content analysis of qualitative data, overall 72% of respondents shown
awareness of the financial impacts of tax and other reforms. People are mostly well informed.
The lack of information was shown in half of low educated respondents. Among other groups,
respondents were reaching over 50% of knowledge in all questions. Surprisingly, we found that
people over 66 years are mostly seeing inequality as the source of protests (during
demonstrations).
Through the interviews (see Table 4), people were mostly focusing on areas such as
changes in income (90 occurrences), inequality (36 occurrences), increase (of taxes, prices,
inflation) mentioned by 62 respondents, impact on lower class (above all other classes)
mentioned by 37 respondents, role of the government was mentioned by 26 respondents, impact
on families by 19 respondents and necessary changes or impacts on economy was discussed by
45 respondents. The results are pointing at the most related areas in the eyes of respondents
from Bogotá. Their financial literacy was proven also in practice when searching the theme of
tax (and other) reform.

4. Discussion

In this study, the influence of variables such as educational level and age is evidenced
as determining factors of the level of financial knowledge. Singh and Raj (2015) observed the
same findings, with their study that included demographic variables such as gender, income,
age, education and their attitude towards finances. Floyd (2015) reached a similar conclusion
with a study comparing the student population. Both studies concluded that that age and
educational level are significant variables that explain the degree of financial knowledge.
Since economic growth is dependent on the wealth and financial literacy of households
and represents the foundation stone of the whole society, the financial literacy possibilities
represent the most important factor and predictor of the development of the depths in the
searched economy.
According to our findings, there were statistically significant differences in gender in
the model of two correct answers. Men have higher probability to select two correct answers.
The model with three correct answers did not show this difference. On the other hand, results
by Fornero and Monticone (2011) and Lusardi and Mitchell (2007) and other studies mostly
confirm the gender gap. The difference in this study is that we analyzed only heads of
households who make financial decisions. Furthermore, the difference is getting lower with
university education and disappears in case of graduate and postgraduate level of education. It
is possible to affirm that education is the greatest determinant of literacy which was confirmed

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also by field research conducted to map financial awareness in practice interviewing people in
the middle of demonstrations against the proposed reforms.
Greater knowledge of financial management and financial products were found in the
mid-age group, which is also confirmed by Brown and Graf (2013). At the family level, one of
the studies indicated that spouses in households acquire financial knowledge and are nourished
by tools for the better management of resources over time (Hsu, 2011). This was confirmed
also in this paper. Similarly, Kadoya and Khan (2019) state that spousal’s education is
positively related to financial literacy, suggesting that better educated spouses help their
counterparts to achieve greater financial knowledge.
The results also showed that women increase their financial literacy after they go
through some unusual situation, such as a separation or death of a spouse, which is in line with
results by Hsu (2011). Regarding education level, we found significant dependence between
level of education and financial literacy. The literacy and ability to manage finances is better
with higher level of education. Each level of education significantly differs from the lower level
in the ability to answer the questions on interest rates, inflation and risk. On average, university
students perform better than other groups in this test with results consistent with (Atkinson and
Messy, 2012, Fornero and Monticone, 2011 and Lusardi et al., 2013). These results are
supported by the CAF report, which also shows a positive relationship between financial
literacy and the educational level of individuals (CAF, 2014).

Conclusion

This study investigates financial literacy and factors affecting financial decisions of
households in Bogotá, Colombia. The results confirm that financial literacy differs significantly
among age groups. In particular, elderly population is less familiar with the concepts of
financial management and financial decision-making. The proposition of less knowledge within
young people and older adults was confirmed, but results show that younger educated
individuals (students and those with technical education) have significantly higher knowledge
than the elderly (66+).
Most importantly, these results depict the real lives of people in Bogotá. Based on results
of interviews conducted in reaction on financial and social reforms in Colombia in 2020-2021,
it was found the financial knowledge significantly impacting people’s awareness of decisions
through crisis. The level of education was proven as the crucial factor. The mid-age group,
especially men are able to process and be well aware of the situation and gain relevant
information the best.
The hypotheses were evaluated as follows: There is a significant difference in the
financial knowledge of people of different age (H1a was confirmed, as there are differences
between mid-age group, who rated higher in financial knowledge among younger and
especially older age groups). On the other hand, there seems not to be significant differences
among gender (H1b was confirmed but although there are some differences, those are not
statistically significant in model with all correct answers); this may be because of rising number
of single (or divorced/widowed) women who needs to have financial knowledge and be able to
make decisions. Furthermore, higher income leads to better performance on financial literacy
tests (H1c was confirmed). Marital status significantly affects level of financial literacy (H1d
confirmed, but results show only low impact of marital status on financial literacy). In addition,
the level of education significantly affects the financial knowledge and management, as
expected based on other studies (H2 was confirmed). The level of education is the highest
predictor of correct financial decisions among all other variables.

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Based on the results of this study, it is possible to recommend the support of financial
education at all levels. Especially university education, which shows significant differences
among results and leads to high financial literacy. Also, life-experience plays an important role
and people who have to live on their own also need to raise the level of their financial
knowledge. It is related also to current trend of smaller households run by people with higher
or university education who are aware of their expenses, investments and finances in general.
A limitation of this study is a narrow focus on households in one city. However, the
results are representative and presented as a case study supported by qualitative research, and
these findings may help other researches in an increasingly discussed area, especially due to the
economic impacts on households and financial reforms in Latin America. Furthermore, this
article provides an insight into the importance of financial education, its monitoring and
implementation of continuous improvement based on feedback loop. This study is bringing
important insight into Latin America financial literacy as there are lack of studies focusing on
those emerging economies in South America.
Promising avenues for further research are areas measuring the impact of financial
education on economic performance. Additionally, revealed factors may be surveyed separately
to validate their impact on quality of teaching-learning process in educational institutions and
further differences in approaches to learning process.

Acknowledgement

We express our gratitude to the AUIP – Asociación Universitaria Iberoamericana de

Postgrado, Universidad EAN and Universidad Pablo de Olavide for supporting this research.

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Model 1. Two correct answers

Variables in the Equation
B S.E. Wald df Sig. Exp(B) 95% C.I.for
EXP(B)
Lower Upper
Step 1a Woman -.165 .064 6.693 1 .010 .848 .749 .961
Married .164 .069 5.663 1 .017 1.178 1.029 1.349
Divorced .071 .079 .791 1 .374 1.073 .919 1.254
Widow .016 .118 .018 1 .893 1.016 .806 1.281
Single .113 .090 1.578 1 .209 1.120 .938 1.337
No .110 .193 .323 1 .570 1.116 .764 1.629
education
Basic .369 .063 34.051 1 .000 1.446 1.277 1.636
Technic .658 .085 59.723 1 .000 1.932 1.635 2.283
Univer .734 .098 55.650 1 .000 2.083 1.718 2.526
Gradua .679 .130 27.477 1 .000 1.972 1.530 2.541
E18a25 .273 .137 3.964 1 .046 1.314 1.004 1.718
E26a45 .178 .087 4.151 1 .042 1.195 1.007 1.418
E46a65 .245 .082 8.993 1 .003 1.277 1.089 1.499
Income .000 .000 11.681 1 .001 1.000 1.000 1.000
Constant -.598 .093 41.623 1 .000 .550
a. Variable(s) entered on step 1: WOMAN, MARRIED, DIVORCED, WIDOW, SINGLE, NO EDU, BASIC,
TECHNIC, UNIVER, GRADUA, E18a25, E26a45, E46a65, INCOME.

Model 2. Three correct answers

Variables in the Equation
B S.E. Wald df Sig. Exp(B) 95% C.I.for
EXP(B)
Lower Upper
Step 1a Woman -.058 .088 .429 1 .512 .944 .795 1.121
Married .186 .094 3.939 1 .047 1.204 1.002 1.447
Divorced -.010 .112 .007 1 .932 .990 .795 1.233
Widow -.034 .178 .037 1 .847 .966 .682 1.369
Single .012 .122 .009 1 .923 1.012 .796 1.286
No Edu .208 .286 .530 1 .467 1.231 .703 2.155
Basic .390 .093 17.526 1 .000 1.476 1.230 1.772
Technic .575 .115 24.949 1 .000 1.778 1.418 2.228
Univer .641 .128 25.267 1 .000 1.899 1.479 2.438
Gradua .890 .155 32.777 1 .000 2.435 1.796 3.303
E18a25 .242 .194 1.563 1 .211 1.274 .872 1.862
E26a45 .289 .128 5.137 1 .023 1.335 1.040 1.715
E46a65 .181 .122 2.205 1 .138 1.199 .944 1.523
Income .000 .000 3.453 1 .063 1.000 1.000 1.000
Constant -2.394 .138 302.252 1 .000 .091
a. Variable(s) entered on step 1: WOMAN, MARRIED, DIVORCED, WIDOW, SINGLE, NO EDU, BASIC,
TECHNIC, UNIVER, GRADUA, E18a25, E26a45, E46a65, INCOME.

Economics & Sociology, Vol. 15, No. 1, 2022

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