1. University of Tirana,
Faculty of Economy
Finance Department
14
Albanian Young Adults: The Personal Finance Approach
and the Macroeconomic Perspective of their
Expenditures
"What can be observed in our economic reality is the implementation of a passive
labor culture, where the majority of the Albanian youth is financially supported by
their families. The opportune cost of this passivity is the youth's energy that is
economically translated in potential loss of human capital, so very necessary for our
country aspiring to join European Union"
Erna Gjiriti
3. ERNA GJIRITI
1/1/14
ALBANIAN YOUNG ADULTS: THE PERSONAL FINANCE APPROACH AND THE MACROECONOMIC PERSPECTIVE OF
THEIR EXPENDITURES
Preamble
Currently, according to the official data published by the Institute of Statistics in Albania, it
shows that 16.4% of the total Albanian population consists on young adults form 18-21 years
old. A very high percentage compared to that of the European Union where the share of the
population belonging to the above-mentioned range is only 11.39%. This significant difference
led me to the realization of this research that is oriented on a rigorous study on the
macroeconomic impact of young adults’ expenditures. The reasons that incited me to select
this particular subject are numerous:
Initially, the high percentage of young adults’ population makes you reflect on the great human
potential that our country carries and the economic benefits that would result if this potential
would be effectively managed. The Albanian youth expenditures are affecting more and more
on some of the main macroeconomic variables. Such influence is not documented yet by official
studies in this area, therefore I decided to contribute with the theoretical financial information
acquired during my bachelor studies, to identify the actual impact of young adults expenditures
and how their effective allocation can contribute to the national economic expansion, believing
that this study might also bear a practical significance.
In addition, I consider this paper as a combination and application of theoretical knowledge
obtained during three years of studies in subjects such as statistics, macroeconomics, money
and banking and personal finance.
Last but not least, I believe that the publication of this paper will somehow affect the
awareness of young adults on the macroeconomic impact of their expenditures. What can be
observed in our economic reality is the implementation of a passive labor culture, where the
majority of the Albanian youth is financially supported by their families. The opportune cost of
this passivity is the youth's energy that is economically translated in potential loss of human
capital, so very necessary for our country that is aspiring to join European Union. My reaction to
this reality is to conduct a study of this profile, which highlights the imminent relation between
young adults’ expenditures and some leading macroeconomic indicators, hoping in this way to
grow the awareness of the Albanian Youth towards this topic.
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ALBANIAN YOUNG ADULTS: THE PERSONAL FINANCE APPROACH AND THE MACROECONOMIC PERSPECTIVE OF
THEIR EXPENDITURES
Table of Content
Introduction……………………………………………………………………………………...4
Chapter I – Personal Finance Management.....………………………………………………...6
1.1 The importance of personal finance management....………………………………………………6
1.2 How to effectively manage our personal finances.......……………………………………............7
1.3 Some financial advices to the Albanian Young Adults…………………………………………...9
Chapter II - Survey and Results …………………………………………………………........12
2.1 General structure of the survey ………………………………………………………................ 12
2.2 Method of data structuring and collection .........………………………………….......................14
2.3 Survey results on sub-population................……………………………………………………..15
Chapter III – Regression Analysis …………………………………………………………....18
3.1 Regression analysis and its assumptions …………………………………………………...........18
3.2 Young adults and the macroeconomic indicators ................…………………………………......19
3.3 Factors that affect net exports..............………………………………………………………20
3.3.1 Linear Relationship net export- young adults expenditures………………………………..21
3.3.2 The practical importance of the regression analysis results .....……………………………24
3.4 Factors that affect the inflation rate …………………………………………………………25
3.4.1 The relation between inflation rate- young adults expenditures…………………………..27
3.5 GDP and the calculation methods…………………………………………………………...29
3.5.1 The regressive Relationship between GDP and young adults expenditures………......30
3.5.2 Interpretation of the Regression analysis results...........…………………………………..32
Chapter IV – Information and comparison with the European Union Youth.……............. 34
4.1 How much information has the Albanian Youth on its expenditures............................................34
4.2 Comparison with the expenditures of the EU Youth ....................………………………………38
4.2.1 Identifying the causes of differences ………………………………………………….39
Conclusions and Recommendations.………………………………………………………......42
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ALBANIAN YOUNG ADULTS: THE PERSONAL FINANCE APPROACH AND THE MACROECONOMIC PERSPECTIVE OF
THEIR EXPENDITURES
Introduction
Albania is considered as one of the poorest countries in Europe, although from 2008 to 2010
achieved an average economic growth of 6%. This was the highest economic performance in
Europe in terms of growth rates during these years. However the situation remains difficult for
our country, where GDP per capita is several times below the European average. Referring to a
report carried out by experts of two international institutions, the IMF and the World Bank, at
the end of 2013 is underlined that "although Albania withstood the crisis of 2008 relatively well,
the economy is weak, the macroeconomic imbalance is increasing and financial sector faces
several risks ". In the report it is noted that "Mitigation policies have been exhausted, while a
large proportion of short-term public debt contains renovation risks. Trade and strong links
with the EURO area economy is sensitive to external risks ". Moreover unemployment figures
become frightening as times passes by. The major indicator of economic problems is the decline
in total consumption that Albania has experienced in the recent years. Experts say that the
decline in consumption is associated with two factors. First reasons the crisis has changed the
consumers behavior, who are reluctant to spend and tend more towards saving due to
uncertainties. In the past two years the growth of deposits in banks has been at least 2 times
higher than the growth rate in the previous years. Although, part of this increase is related to
the transfer of savings from immigrants because of the non-favorable financial situation in
some neighboring countries, again the Bank of Albania says it reflects a change in the behavior
of individuals. However, the reluctance and uncertainties due to the economic crisis are not the
only reasons Albania is hindering the consumption. Bank of Albania states that the previous
year some families might have experienced a major reduction in their incomes. Families
dependent on remittances from their relatives in emigration are the most affected. Since after
2007, remittances have fallen on an average by 7-8% per year and continues decrease in higher
rates. According to the official data published by The Institute of Statistics Albania, which are
used as a referring point the National Bank of Albania, in the second trimester of the previous
year, real wages in the economy decreased by 1.8% especially for those working in the private
sector, due to the refrainment in wage growth rate by the businesses or due to the fact that
they have increased less than the inflation rate. Consumption is the main component of
demand in the economy, occupying 60% of it. Meanwhile since the young adults expenses
constitute in 16.4% of total consumption, the connection between youth expenditures and
important macroeconomic variables is inevitable. The purpose of this research is the projection
of young adults expenditures in a macroeconomic reality, where the importance of financial
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ALBANIAN YOUNG ADULTS: THE PERSONAL FINANCE APPROACH AND THE MACROECONOMIC PERSPECTIVE OF
THEIR EXPENDITURES
planning, the study of relationships between variables and information are vital to the financial
health of the young generation.
The importance of effective expenditure management and some practical ideas to achieve this,
are lodged in the first chapter. Aiming to increase the awareness of young people about the
economic impacts of their expenses, a survey was conducted in different universities, the data
collected from the survey are later used to construct the regression analysis where this
research is based. The compilation of statistical hypotheses and regression analysis will
contribute to establish a theory whether there is a connection between the fluctuations of
young adults expenses and the fluctuations of macroeconomic variables (GDP, Net Exports,
Inflation). In addition the level of compliance between the information that young adults
actually have and the one they claim to have when it comes to their expenses will be an
essential part of this research paper. Comparing the survey results and the EU rates when It
comes to several voices of young adults expenditures will be another objective of this study,
that will help us to shed light on the gap in consumption and some of the reasons that explain
this difference
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ALBANIAN YOUNG ADULTS: THE PERSONAL FINANCE APPROACH AND THE MACROECONOMIC PERSPECTIVE OF
THEIR EXPENDITURES
Conclusions and Recommendations
1. The main law of the personal finance is to maintain the balance in the income-expenditure
report. To achieve this target individuals set financial objectives based on the estimated
financial risk and return criteria. The most important objective in compliance with personal
finances theory is considered management of consumer spending that influences the saving
rates, ones welfare and his financial future
Highlighting the importance of the effective expenditures management greatly effects the
awareness of the young generation in particular. In this paper, there are several strategies and
financial advices submitted in accordance to the effective expenditures management.
My recommendation in this case would be rigorous following of at least one of the Strategies
outlined in this paper, and also the use of the advices given in order to take wise financial
decisions.
2. After collecting the data resulting from the survey, and committing relevant calculations an
upward trend of young adults monthly expenses is easily noticed from 2012 to 2014. As well as
this growth a significant proportion of household income have increased (35.3% ), while the
bulk has remained unchanged, namely 48.7%. Moreover 75.6% of young adults have claimed
that they have never been actively integrated in campaigns and seminars aiming to provide an
effective management of their expenses. My recommendation for this situation would be the
implementation of programs by the ministry of education in universities by conducting
seminars on how we can manage our expenses and reduce our costs without affecting the
quality of our lifestyle. In addition the role of media should be enhanced with regard to the
above-mentioned topic.
3. Even though the logical induction directs us toward a positive correlation between
Youth expenses and significant macroeconomic indicators such as (net export, inflation, GDP),
the regression analysis provides some interesting conclusions. The Relationship between net
exports and young people expenditures is a statistically significant linear relationship.
My recommendation in this case would be that Albanian government undertakes reforms to
enhance the exploitation of domestic manufacturing capacity in order to meet the needs of
young adults. It should also increase the role of marketing in promoting a campaign with the
slogan "I consume Made in Albania". However, this regression analysis had a low explanatory
ability, therefore I would suggest the conducting of further studies by taking into consideration
other factors such as the exchange rate for better explaining the fluctuations in the value of net
exports
4. The regression analysis between the inflation rate and young adults expenses resulted
statistically insignificant. One reason that explains this conclusion would be the fact that the
expenditure of the Albanian youth make up only 16.4% of total consumption weighted by the
share of consumption to other factors affecting inflation, and the margin of error of the model,
makes this factor insignificant. I recommend that in this case the annual differences in the
inflation rate should be studied in correlation to another factor that directly affects the
inflation rate such as money supply.
5. On the other hand the connection between young adults expenses and gross domestic
product besides resulting statistically significant, has a high explanatory coefficient as well,
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ALBANIAN YOUNG ADULTS: THE PERSONAL FINANCE APPROACH AND THE MACROECONOMIC PERSPECTIVE OF
THEIR EXPENDITURES
which means that the regression model is more efficient in this case. My recommendation
would be to build time series through which to study periodically the functionality of the
connection between GDP and young adults expenses. Because of the importance that this
macroeconomic indicator has, it is advisable to build another model of regression on the
relationship of GDP and emotional factors that derives from the consumer behavior especially
when it comes to young people who are more impulsive in their consuming behaviors.
6. Through the analysis of the survey results, it can be concluded that although young adults
stated to a considerable extent they have information about their monthly expenses, only a
very small fraction of them actually resulted to poses such information. In total, young adults
who have information are: 28 (from the 101 who claimed to have complete information) +44
(out of 213 who claimed to passably have information), thus 72 individuals or 20% of total
respondents. The rest of the 278 individuals or 80% of total respondents did not have
information about their monthly expenses. My recommendation in this case, would be the
implementation of an accurate invoice system, for any purchase made by the consumers, in
this way young adults would have more information since every expense would be recorded. In
addition, visual and social media can be used to promote an initiative to motivate young people
to keep a diary of their monthly purchases. This will affect not only the effective management
of their expenses but the growth of the information level as well.
7. The difference between the expenses of European and Albanian Youth are visible for each of
the items studied. This gap is attributable to a set of factors such as: the level of the average
salary and welfare, differences in the price range, the possession of an individual mean of
transport, the level of awareness about health care, the unemployment rate and the national
work culture. My recommendations to reduce these differences are as following: Raising
awareness on health care since a healthy youth is converted in a human capital potential full of
energy, which is beneficiary for the national economy. In addition favorable student loans
should be provided in order to increase the level of education. Having Young educated people,
means less crime, more active workforce, more opportunities to develop, more welfare.
Government initiatives should be taken to reduce young adults unemployment rate, and to
promote employment opportunities would be my most essential recommendation. A new work
culture is what young adults in Albania need. The promotion of financial independence, the
acquisition of experienced, and the exploitation of given opportunities, are certain steps
towards integration into the European Union.
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ALBANIAN YOUNG ADULTS: THE PERSONAL FINANCE APPROACH AND THE MACROECONOMIC PERSPECTIVE OF
THEIR EXPENDITURES
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