INTRODUCTION:

People are faced with the lot of challenges in economic and financial decisions in twenty-first centuries. In the early days, financial decisions were simple and easy. But now- a- days increasing variety of products, developing communication network and changes in individual sales were facilitating and spending is soaring. Financial literacy is based on knowledge about household spending as well as action related to a person's economic situation, how he/she manage their money. Financial literacy consists of knowledge, capability which helps people effectively manage their finances and resources for their life. It expressed in the right understanding of spending behavior and capability of using financial tools to complete financial planning.

In India, many poor people do not have a bank account and only few of them understand the concept of financial literacy. Poverty reduction and financial literacy have been economic development initiatives of the central government of India. Economic growth of India was high and one of the fastest growing economies in world, still financial literacy is low comparing the other countries. In master card survey (2013) report shows that overall financial literacy index rate India was 59 points lower comparing other countries.

D Subbarao governor of the reserve bank of India(2003) says that“ the money management was very poor in India, Bangladesh, and south Africa countries. They need sophisticated financial management and especially poor are carefree and incompetent”.

REVIEW OF LITERATURE:

Financial literacy is an ability to make informed choice and to take effective action regarding the money (Basu 2005:2). A Canadian survey (2014) reported only 43% of men and 31% of women know financial literacy at the age group between 25 to 65. Many studies were conducted on financial literacy with savings, borrowings, investments and others, but only a few studies were conducted on how financial literacy affects the spending on rural household individuals. This study shows that the impact of financial literacy and spending behaviors of rural household individuals.

Financial literacy is ability to understand money and how to manage it, so a person can make better financial decisions, financial literacy is challenged middle and low income nations where bring hardship than richer nations (Annamaria Lusardi and Olivia S. Mitchell 2007). Low and moderate income families lack basic knowledge to save, spend wisely build wealth avoid excessive debt. (Elizabeth bell and Robert I. lerman 2005) Many families spend beyond their means few of them save enough for contingencies. It makes assessing individuals financial position reasonably, Understanding economic situation and being low stressful and worried financial issue.

(Roy 2003) Research shows that financial literacy should reflect on individual circumstance and agree about people being informed and confident decision-making in all aspects including spending. (Jennifer Turnham 2010) Many of the low-income people know how to save money, but they are spending the money beyond their limit. Research report shows that consumer spending was most leveraged in last two years. The Canadian statistics 2009 found that an average household spend 64.4% of income personal taxes, food, shelter and transportation.(Beal and Delpachitra 2003) Insufficient personal financial literacy, which also include irresponsible of overspending on consumption. The men and woman have different spending pattern and also woman tends more financially risk averse than men(Nicole Balhorn 2013).Proper financial literacy will also minimize potential and reduce financial mistakes in the early level of a lifetime, that will contribute economically wealthy nation. (Sheela Devi D. Sunderasan 2014).

Shahryar Sorooshian 2014 study shows that students spend more money on food, but large was spent on cell phone, entertainment and clothing. Now a day's students are demanding luxury items and not seeing the problem of their spending .The majority of students do not put to practice correct skills in money management. Godwin 1994 study shows that the people who are dissatisfied with money management more likely develop a spending plan whereas who expressed more satisfaction with their finance has most likely in spending plan, credit card use and save regularly.

According to Kenichiro (2014) China study shows that half of Japanese students, they were not ready to make own financial decisions only way is financial education. it would be a key role increasing financial independence and confidence, making a financial decision in Japan. such education should promote savings and spending habit, it is the use of a credit avoidance of fraudulent. Dhalia Ibrahim (2009) study reveals that managing money is an important element to achieving quality of life as working adults because students' spending habits on campus will influence the way they manage money through their lives. Other research found that (Norman 2010) income insufficient, because lack of knowledge in spending due to poor financial literacy. Financial literacy enabled person is able to make an informed decision on spending .It's not one person what education he/she acquired, but it is realizing the value of money and how the person spend money.

METHODOLOGY:

The pilot study was carried out in India, Tamil nadu state during the period of August to October 2016.The sample study involves low and middle income individuals in rural household. The convenience sampling method was used in this study. The survey was conducted through interview method directly by the researcher. The questionnaire consists of information on socio-economic background, spending behavior and financial literacy. A total 150 questionnaire was returned and only 120 were completed. Among the 120 response, only 92 was usable. In the questionnaire, 9 items used for spending behavior 5 point likert scale question and high level of financial literacy also measured by the number of right answer from 10 multiple-choice questions. Factor analysis was completed to categorize in various dimensions of spending behavior measurement. The descriptive analysis was carried out to identify frequency, percentage, mean and standard deviation to find out result and discussion. In addition T-test, ANOVA was used to analyze the difference in spending behavior, gender, age, education, income, occupation and financial literacy.

RESEARCH GAP:

The research gap in previous studies was that spending behaviour and financial literacy are not considered. In this study measure, the relationship between these two can help in filling up the gap. It is noted that in higher level of financial literacy, positive effect of spending behavior amongst the individuals, because increased financial literacy implies that people have a better understanding of their financial situation, it would be able to plan a better future and make informed financial choice.

OBJECTIVE OF THE STUDY:

To identify the relationship between financial literacy and spending behaviors of rural household.

ANALYSIS AND INTERPRETATION:

Table:1

Item	Frequency	Percentage
Age
20-30	20	21.7
31-40	22	23.9
41-50	26	28.3
Above 50	24	26.1
Gender
Male	46	50
Female	46	50
Education
Elementary	24	26.1
Senior Secondary	44	47.1
Graduation and above	24	26.1
Income
>1 lakh	38	41.3
1 lakh – 3 lakh	41	44.6
Above 3 lakh	13	14.1
Financial literacy
Low level	43	46.7
Moderate Level	43	46.7
High level	6	6.5

Sources: Authors' data

Table 1 shows that information about the respondents' background. The age distribution of respondents comprised equally were 41-50 (28.3%) and above 50 years of age was 24(26.1%) was the maximum. Gender of the respondents also distributed equally. Only 44% of respondents were completed schoolings. Similarly the percentage of respondents who receive income less than one lakh was 41.3%.Mean while the highest 44.6% of respondents who received an annual income between 1lakh to 3 lakh. The majority of respondents are low and moderate level of financial literacy (46.7%) and very few of them are in high level of financial knowledge.

SPENDING BEHAVIOR:

Total 9 items were selected to measure the relative importance of different features of spending behavior related to : Affordability, Necessary spending, Compare price, Discount, sale, Real purchase, Spending within income, Satisfied spending, knowing the way of spending, Monitor on spending behavior. These Items were measured used on 5 Likert scale i) never ii) seldom iii) sometimes iv) often v) always. The alpha co-efficient for the 9 items is.791, suggesting that the items have relatively high internal consistency. The mean score was calculated based on a 5 Likert scale where a higher score the high level of spending behavior. The mean score and standard deviation on spending behavior were 4.24,. 523 respectively. It showed that spending behavior of respondents was relatively high.

Financial Literacy:

Totally 10 question was selected to measure the financial literacy level related to: expenses, insurance, inflation, numerical ability, stock market, risk, withdrawal cash from Bank and investment. Level of financial knowledge classified into three levels i) low (score of 0-3) iii) moderate (score of 4-6) iii) High (score of 7-10).

Spending behavior and Financial Literacy v's Age:

Table 2 showed ANOVA analysis in general, the respondents age group between 30-50 years old have better spending behavior.

Respondents among the age group of more than 50 years old had the mean score of spending behavior and financial knowledge was 4.39,1.25 receptively. Meanwhile, compared to those with less than 40 and 30 years old with the mean score of spending behavior and financial knowledge was 4.18, 4.19 and 1.55,1.73 respectively. The spending behavior difference in mean score was not significantly correlated (p=.555), as well as financial literacy was there has the significant difference was there in age group. This trend can be attributed to the adult people are there more careful their spending expenses have some better financial knowledge.

Table: 2

Particular

20-30

(n=20)

31-40

(n=22)

41-50

(n=26)

above 50

(n=24)

Sig

Spending

4.18

4.19

4.39

.555

Financial literacy

1.55

1.73

1.85

1.25

.003

Sources: Authors' data

Mean of Spending behavior and Financial Literacy by Gender:

Gender was the important factor in measuring the spending behavior of the respondents. In general the mean score on the spending behavior of male was better than female, also in financial knowledge male was better than the female. However, the t –test result showed there are significant differences in spending behavior between male and female (p=.002).The mean score of male and female was 4.01 and 4.47 respectively. In financial literacy consent, there is no significant difference between male and female p value is .027.

Table:3

Particular	Male (n=46)	Female (n=46)	Sig
Spending	4.01	4.47	.002
Financial literacy	1.78	1.41	0.27

Sources: Authors' data

Mean of Spending Behavior and Financial literacy by Education:

The respondents classified into three groups that were Elementary (up to 5th grade), Senior secondary (i.e above 6th Grade but below 12th Grade) and Graduation. The spending behavior means score of elementary was 4.64 whereas senior secondary and graduation was 4.21 and 3.89 respectively. It shows that respondents who are graduated have better spending behavior than who studied lower level. Although financial knowledge of Graduated was better than Elementary level. However, the ANOVA test showed that there is the difference between the spending behaviors in education level. The p value showed that.000.The respondents who studied lower has poor in spending behavior and also poor in financial literacy.

Table : 4

Particular

Elementary (n=24)

Senior secondary(n=44)

Grauavation

(n=24)

Sig

Spending

4.64

4.21

3.89

.000

Financial literacy

1.21

1.64

1.92

.000

Sources: Authors' data

Mean of spending behavior and Financial literacy by Income:

Table 5 showed that income between l lakh to 3 lakh have higher mean scores (M=4.54) on spending behavior as compared to other two income level. Although income levels above 3 lakh have low (M=3. 73) spending behavior than an income level below 1 lakh. The ANOVA test shows that there is the significant difference between spending behavior among the income level p <. 05. But the financial literacy, income level below 1 lakh(M=1.34) and above 3 lakh (M=1.85) was poor compared to income level between 1 lakh to 3 lakh (M=1.54).

Table :5

Particular	<1 lakh(n=38)	1 lakh -3lakh(n=41)	> 3 lakh (n=13)	Sig
Spending	4.12	4.54	3.73	.000
Financial literacy	1.34	1.54	1.85	.001

Sources: Authors' data

Mean of Spending Behavior and Financial Literacy:

Table 6 shows that since prior studies explain there is a correlation between financial literacy and spending behavior. Comparing both factors was important that to know how spending behavior affect the financial literacy in the present scenario. In general, there were levels of financial literacy, differences in mean score of spending behavior. However, the ANOVA result (p=.003) showed that there is the significant difference in mean score, those who are low level of financial literacy, poor spending behavior compared to the other two levels. The mean score of low-level financial literacy was M=4.45, moderate and low level was 4.19 and 4.03 respectively.

Table: 6

Particular	Low (n=43)	Moderate (n=43)	High (n=6)	Sig
Spending	4.45	4.19	4.03	.003

Sources: Authors' data

FINDINGS:

The findings of research shows that respondents who have low financial literacy leads to higher in spending behavior. However, the overall research reveals that only very little or few have a high level of financial knowledge all others have low and moderate level of financial knowledge. This leads to higher in spending habit of individuals.

Findings shows that the age above 50 years are high in spending behavior and low in financial knowledge because of low awareness of financial literacy as compared to the younger age group people. The female was the one who manages the entire family, the female spending behavior was high as well as financial knowledge also low compared to male. There is no exposure for female compared to male. Also, less participating in household financial decision making and property holding, male dominating society is the one of the reasons for the low level of financial literacy in India. Culture is playing very important role in getting financial knowledge. However, female financial knowledge and spending level is low compared to the men (Hung, A., J. Yoong and E. Brown 2012).Education level who studied elementary and secondary level are higher in spending behavior and low level in financial literacy compared to those who have completed the graduation level. Higher level of education leads to good in financial literacy and low level of spending behavior (Zamih R 2013). However, income level less than 3 lakh Rupees are higher in spending behavior and lower financial literacy. The lower level income persons are those who go for daily labors and farmers mostly, these people who are not or less participating in financial markets. These evidence supports of the Annamaria lusardi and Mitchell 2007.

This study result reveals that Low level of financial literacy leads to poor in spending behavior of rural household individuals. Those who are in poor financial literacy are high in spending behavior. Further study identified it can be analyzed; factors influenced spending behavior and financial literacy for lower income household, daily laborers and farmers specifically. It is important to identify for this set of people because in developing countries 70% of people are lower income and middle income group people only. If the people are financially literate then developing nations become a developed country.

SUGGESTION:

The study analyzed spending behavior and financial literacy among rural household people of India. The difference in spending behavior and financial literacy in term of age, gender, education, occupation, and annual income. Financial literacy would play a vital role in contributing to poverty reduction in developing countries by building people’s knowledge and skills to optimize the use of resources. Financial literacy also develops the ability of people to manage risks in their day-to-day lives for the future. And it plays an important role in promoting savings, household asset accumulation and spending. These are important in developing countries not only for benefit of individuals. It is important to identify for this set of people because developing countries,70% of people are lower income and middle income group people only. If the people are financially literate developing nations will become as developed Nations.

CONCLUSION:

The Reserve Bank of India (RBI) and OECD (organization of Economic development) jointly launched a financial literacy website and set up a credit counseling center for giving advice on personal finance for individuals. Also, RBI started the project on financial literacy this project aims at giving information about basic banking concepts through various media, books, cartoons, films, games and essay writing competitions especially for school going children.RBI gave advice to the bank offer No-Frills account those who excluded open a savings account. There is a no minimum balance required for this savings account. The greater part of account opening in Rural area people. Many schemes are available in bank, but majority of the population in rural areas are unaware of the availability. Reserve Bank of India (RBI) is taking more steps for improving financial literacy, but still could not achieve 100% result. Let us Aim for the Best.

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Received on 09.06.2017 Modified on 16.07.2017

Asian J. Management; 2017; 8(4):1115-1119.

DOI: 10.5958/2321-5763.2017.00170.6