By NEIL HARTNELL
Tribune Business Editor
Nearly 50 per cent of Bahamians are struggling to "make ends meet", the Central Bank revealed yesterday, with monthly earnings "usually insufficient" to cover their living costs.
The regulator, unveiling an analysis of its Financial Literacy Survey 2018, exposed the extent of Bahamian society's personal financial struggles, with many living "above their means", too heavily indebted and struggling with reduced incomes in the post-recession environment.
The survey, conducted on 1,000 Bahamian adults by the Public Domain research firm, found that while many Bahamian households knew what to do for financial self-sufficiency they were finding it "challenging to execute their plans".
While the Central Bank concluded that The Bahamas was "not an outlier" on financial literacy when compared to other countries, the survey found that "only a third of respondents" were able to give answers to "more complex concepts" such as the compounding effect of interest rates and inflation's impact on purchasing power and living standards.
The regulator added that the survey's findings showed Bahamian households' awareness of financial products appeared "not to extend far beyond" traditional savings and loan facilities, and electronic payment solutions were "not widely understood or used" - a major obstacle to coping with the commercial banking closures of Family Island branches.
And the Central Bank said "most households were falling behind in their preparation for retirement", with 26 per cent of respondents planning to rely on their National Insurance Board (NIB) pension despite projections that the social security scheme's reserve fund will be exhausted come 2030 without fundamental reform.
However, the financial struggles of many Bahamians will likely catch the attention of policymakers, given the social and family discord that will result from almost half of society struggling to meet their regular living costs.
The Central Bank revealed: "Another notable result from the survey was the fact that when respondents were asked to reflect on the last 12 months, and indicate whether their income was generally sufficient to 'make ends meet' each month, 47 per cent stated that their earnings were usually insufficient to cover their living expenses."
Public Domain's research showed 41 per cent of male, and 52 per cent of female, respondents fell into this category. Broken down by age, "about half" of all persons aged between 16 to 54 years-old, and 39 per cent of those aged 55 and over, were struggling to cover their living expenses.
Those earnings less than $30,000 per year faced the most difficulty in meeting "all their financial demands", with 44 per cent of households in the medium income bracket of $30,000-$60,000 also reporting similar struggles. Even 35 per cent of those earning greater than $60,000 reported trouble in 'making ends meet'.
"When income was insufficient to cover household expenses, 40 per cent of respondents saw reducing spending as the solution to covering their expenditures, followed by working a second/third job (17 per cent), and borrowing money from family and friends (10 per cent). Each of the other means of coping [including payday lenders and numbers winnings] garnered less than 10 per cent of responses," the Central Bank said.
The analysis highlighted significant differences in financial behaviour based on income and gender. "Men showed higher numeracy competence, women displayed more financial resilience, and households of higher income were disposed to more positive behaviours," the Central Bank said.
When it came to their ability to withstand financial shocks, the Central Bank survey found 13 per cent of respondents had 'less than a month's' worth of savings, while another 15 per cent had coverage for between one to three months. This means more than one in four Bahamians has less than 90 days' worth of saving in an emergency.
"In terms of the amount of savings they had stored for a 'rainy day', the largest percentage of persons who responded (48 per cent) stated that they would be able to cover costs for more than six months if they lost their main income," the Central Bank said.
"A smaller group (16 per cent) indicated that their savings would cover three to six months of expenses. For 15 per cent the coverage was one to three months, and 13 per cent of individuals had less than a month's coverage.
"Taking six months as a comfortable mark, men and women were evenly matched with this question. However, not surprisingly, a higher proportion of older respondents appeared to have greater financial security than younger ones (56 per cent versus 36 per cent), and those with higher incomes were better off than lower income earners (59 per cent versus 37 per cent)."
The Central Bank said "it was not surprising" that the most common long-term financial goal among respondents, at 17 per cent, was debt consolidation "given the high level of arrears and non-performing loans in the banking system". This was followed by home ownership, at 13 per cent, and college tuition at 10 per cent.
"With regards to pension funds, the findings suggest that most households questioned were falling behind in their preparation for retirement," the Central Bank said. "Although 82 per cent had prior knowledge of pension funds, only 33 per cent actually contributed to one, and only 36 per cent were interested in learning more about them.
"A smaller percentage of persons surveyed cited retirement as an important financial goal (7 per cent). Not surprisingly, the share of respondents aged 55 years and over who stated this as important was higher at 13 per cent. Instead, most respondents indicated that they planned to fund their retirement either via their National Insurance Board pension (26 per cent) or from a workplace pension plan (25 per cent)."
The Central Bank survey found that 78 per cent of respondents thought about whether they could afford something before purchasing it, with 68 per cent "strongly agreeing" they paid their bills on time.
Some two-thirds, or 67 per cent of those surveyed, also disagreed with the statement that 'I tend to live for today and let tomorrow take care of itself'. "It appears that sentiments toward the satisfaction derived from spending now as opposed to saving for the long-term were mixed, with some respondents indicating that they preferred to spend now, while others preferred to save for the long-term," the Central Bank said.
"By gender, 47 per cent of males reported that they are more satisfied when they save money as opposed to spending it, while 25 per cent indicated that they are more satisfied spending now than saving for the long-term. In terms of women, a higher 51 per cent preferred to save for the long-term than spend money now, whereas 21 per cent saw the reverse as more satisfying."
Assessing the findings, the regulator added: "It appears that the Bahamas is neither an outlier nor a leader when it comes to the level of financial literacy within the global population. Selective comparison against the 2017 G-20/OECD results places this jurisdiction between the extremes that emerge across OECD members.
"That said, the promotion of increased literacy should remain a priority for the Bahamas. On literacy, skills involving numeracy and assessment against interest rates, and the effect of inflation on the cost of living, the results for the Bahamas rank below the best performing countries in the G-20.
"Overwhelmingly, the survey found that knowledge of financial products and concepts has not translated into the same level of positive changes in personal behaviour."
Roughly one-third of Bahamians showed they understood compounding interest rates and the impact of inflation on purchasing power, while just 14 per cent were able to work out the interest rate charged based on the dollar sum paid.