The level of financial capabilities among poor households from rural regions of Poland

Potocki, Tomasz Jan (2016). 'The level of financial capabilities among poor households from rural regions of Poland' Paper presented at the annual conference of the HDCA, Tokyo 2016.

The application of Capabilities Approach to poverty assessment in the European Union has been receiving more attention in the recent years, especially in the so-called affluent and old EU Members [see: Volkert et al. 2003; Volkert, 2006; Volkert and Schneider 2011, compare with Sen 1999, Atkinson et al. 2002]. One of the major concerns in the UE is functional illiteracy and lack of numeracy which severely restrain financial capabilities and result in functionings failure [Volkert and Schneider 2011, p.14; Arndt and Volkert 2007, p.8; compare with Maddox 2008, Nussbaum 2006]. Especially when financial capabilities are “essential skill for individuals in all walks of life and a central public policy concern throughout the world” [Hastings et al. 2012, p.IX]. Moreover, the lack of financial capabilities might play the dominant role in increasing vulnerability to social exclusion [see European Parliament 2008; European Commision 2007, 2008a, 2008b, 2008c, 2011, OECD 2005, OECD 2009]. On top of that the lack of financial and risk literacymay have far-reaching consequences, (put at risk different capability sets, resulted in negative freedom) especially in the face of overwhelming financialization, which led to an enormous increase of complexity of financial products, as well as shifting responsibility for financial decisions from a state (public goods) to a free market (private goods). The financialisation might lead to reflection irrationality as a result of complex world [compare with Sen 2002, s.229, 240]. Flejterski claims that “in an advanced modernity economic welfare increase goes hand in hand with social risk increase, which gives rise to a new paradigm of the risk society” [Flejterski 2007, p.59; compare with Beck 1992, Mandel 1996, Gigerenzer 2015].
Unfortunately, there is  little discussion concerning the application of Capabilities Approach, especially financial capabilities in the Post Communism countries. If well-educated, wealthy individuals with comprehensive knowledge and financial capabilities from rich countries are not able to make right financial choices, then the uneducated, poor individuals from rural regions of Post Communism countries, who have not yet or incidentally used financial services are doomed to failure. Panek showed that the deprivation of high and unexpected debt exposure is the highest for Post Communism countries [Panek 2011, p.201-205]. The main reason for such a deprivation in Post Communism countries is that centrally planned system did not require establishing the financial literacy as capability set, as well as making the structure of social opportunities which would help in taking wise and rational financial decisions (allow the right functionings). Frieske said “not lack of money but the lack of access to knowledge and capabilities is a fundament of poverty in Poland” [Frieske 1996, p.237]. Paternalistic approach of a state to this matter in the form of “privileges”, i.e. full protectionism resulting in professional and financial stabilization, encouraged passivity in decision-making [Goszczyńska 2010, p.231] and resulted in the negative freedom [Sen 2002 p.586]. It could be mainly observed among residents of rural regions. Such regions were characterized by three factors increasing the distance to big cities: financial one (too expensive education), socio-psychological one (self-exclusion resulting from the lack of motivation) and institutional one (poor quality of the lowest education levels) [Kozarzewski 2008, p.172]. Moreover, the transition from centrally planned to free market economy created permanent high risk decision environment, in which risk became a central component of every decision and high constant exposure. Only a limited group of households managed to adapt to the new reality, whereas a great number of them is doomed to failure [Szopa (ed.) 2012, p.9]. The first ten years after systemic transformation were a time of attempts of the Polish society to adjust to new rules of the free market, and a series of costly “attempts and errors” occurring at the same time as problems resulting from the so-called big transformation shock (drastic decrease in income) [Bywalec 2010, p.262].
The goal of the study is to understand the level of financial literacy as well as the most important financial capabilities among low income households from the rural regions of Poland. To achieve that goal Author (with support from Statistical Office in Rzeszów) conducted interviews in the place of residence using a standardized technique of interview questionnaires (the PAPI method) on a random, representative sample of households with a low level of income and the highest risk of poverty of Podkarpacie voivodeship (areas at risk of social exclusion). Podkarpacie voivodeship is located along the eastern border of the country and is among those less developed (rural) ones, as well as those that do not use in full their economic and social potential (these are simultaneously border regions of the European Union). Before Bulgaria and Romania were accepted to the European Community, these had been the poorest regions in the EU. A personal interview was conducted with the “head” of the family, who is responsible for financial decisions in a household. The questionnaire included a set of variables grouped according to its two dimensions [the division was taken from: Johnson and Sherraden, 2007; Kempson 2009; Hoelzl and Kapteyn 2011; Sherraden 2013]: subjective – defined as financial capabilities and referring mainly to financial attitudes and behaviors, and objective – defined as financial literacy and referring mainly to financial literacy and competences. The choice of methods for analysis and interpretation of results was based on multilevel models including i.e. cluster analysis and logistic regression.
The analysis carried out by the Author focuses mainly on Poland, however the conclusions may be also of great significance for societies, in which there were no institutional structures increasing combined financial capabilities and there is still informational exclusion, such as post-communist countries or the ones that have recently experienced radical socio-economic transformation. The result might help:
researchers in delivering conceptual framework for financial capabilities set and selecting the right financial capabilities allowing better functionings,
policy makers in establishing better forms of intervention (social policy), building cost effective education solutions (national financial education strategies).

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