Introduction
The main purpose of this research is to analyze the information available on household savings and the pattern of consumer investments among the denizens of Cyprus. It is also about setting the scope of research from the databases gathered for the years 1999 and 2002. This survey of consumer finance analyses delves into the constituents of household assets and debts, including the distributional changes across data that have emerged during the years 1999 and 2002.
Central question
The central question that they wish to address is about the main determinants for investments portfolios during 1999 and 2000 and resultant changes over the period under review.
Also the trend of investments in real estate properties and non-financial assets among the older generations and married people.
This research paper has emphasized analyzing the patterns of savings and portfolio investments during the years 1999 and 2002, the post year 2000 Stock market collapse and its aftermath, after an economic renaissance that set the economy back on the road to economic recovery and development since 2000.
Literature review for this study
The literature is drawn from a wealth of archived data collected through personal tet-a–tets and questionnaires- based surveys conducted both in the wealthy and non-wealthy segments of Cypriot society. The main sample is a representative sample from the entire population. During CySCF 1999, 1097 questionnaires (539 for the main and 558 for the wealthy sample) were collected. The corresponding sample sizes for CySCF2002 are 521 for the main population and 376 for the wealthy population. After the implementation of the appropriate weights, the final sample size was raised to 1197. (Alex Karagrigoriou and Ilia Vontae: (2006) On Distributional Changes of Financial Characteristics in Cyprus: What Does the Survey of Consumer Finances Say? Financial Theory and Practice (P 384)
The literature relied heavily on statistical data provided by these questionnaire-based interviews with cross-sectional of Cypriot population and not much evidence has been found that many external links have been used.
The school of thought that has been found is that there has been a strong undercurrent of changing patterns in spending, investments, and mortgages evidenced in that the younger generations having a clearer proclivity towards non-financial assets, while older people are persevering to dispose of their assets for ready financial assets. Moreover, married and responsible persons tend to invest in low speculative investments with low-risk intakes, and yet provide steady returns to them on regular basis.
Coming to the authors’ definitions of key terms and phrases, it could be said that a research work of this kind, does not leave much scope for definitions. This is because, since the economic aspects are well known, and it is more concerned with the collation of demographical data. It also deals with strategic positioning n ranging over a gamut of income, level of education, age, financial and non-financial segregation, etc. Most significantly, the impact of Stock Exchange vicissitudes on incomes and investments during the two years under review, that are is, years, 1999 and 2002 are also examined in this research Study Paper.
Methodology
The methodology pursued by the authors is in terms of questionnaire-based; face-to-face interviews, with a cross-section of the Cypriot population. This constituted both the wealthy and non-wealthy sections of people to involve maximum coverage and avoid statistical errors due to data bias. It is believed that this method would offer adequate coverage of population strata for analysis purposes. Cyprus is a small country with a population of just around 9250 sq. km and a population of 792, 604. (Central Intelligence Agency: 2008: The world fact-book: Geography: People Cyprus).
It is thus possible to conduct face-to-face interviews with the chosen respondents to assess their views on the matter of household asset sourcing and deployment. Moreover, the response rate for both surveys being between 70% and 80%, this method has justified its selection in this study when compared to other conventional methods, like internet questionnaires, secondary sourcing, etc.
It has been seen that the information that has been used to back up its argument could be analyzed from the following Data:
- The Household participation in various assets both in terms of financial and non –financial assets.
- The Household participation in various debts in terms of mortgages, loans, credit cards, bank loans, and other debts from friends, known circles, and pension accounts.
- Family income and family composition by selected characteristics, and percentage of families by family characteristic from 1999 and 2002 surveys in terms of age, education, current work status, house, and family status for 1999 and 2000 (Median and participation for 1999. 2002 )
- Financial and non-financial assets and family composition by selected characteristics, and percentage of families by family characteristic from 2002 survey: (Median and Participation 2002).
- Stocks and family composition by selected characteristics, and percentage of families by family characteristic from 2002 survey (Median and participation for 1999. 2002).
The structure of the argument could be seen in terms of the rise in percentage points between the two years in question – 1999 and 2002. The percentage increase/ decrease in asset values and liabilities are ascertained and then certain theories are advanced that could address the possible causes for the increases/decreases as supporting evidence of such variations.
As an illustration, public employment is the most favored work in terms of high and consistent incomes, and in 2002, families in which the head was a public employee had an income with a median value of CY £18,330, which is the maximum value among all groups. This incidentally, happens to be the only category, which has registered a 5% increase between 1999- 2002 figures (Alex Karagrigoriou and Ilia Vontae: (2006) On Distributional Changes of Financial Characteristics in Cyprus: What Does the Survey of Consumer Finances Say? Financial Theory and Practice (P 389)
Again, it is seen that Cyprus Stock Index and stock volumes rose steeply, and according to the CySCF1999, around 25% of all Cypriot households held stocks openly during this period. It makes interesting reading to note that despite the stock exchange crash in 2000, there has been a substantial increase in stock assets investments from 25.3% in 1999 to 51.4 % in 2002, registering an increase of around 103% in just 3 years.
After the analysis of the data for the years, 1999 and 2002, it is seen that the following salient aspects need to be covered:
Family Income and Demographic Categories
Family incomes and demographic categories: The statistically significant increases in House Hold Incomes (HHIs) during 1999 and 2002 have been registered in cases where the head of the family is below 30 years of age, or in cases where the head is between 30-39 years of age. (Alex Karagrigoriou and Ilia Vontae: (2006) On Distributional Changes of Financial Characteristics in Cyprus: What Does the Survey of Consumer Finances Say? Financial Theory and Practice (P 388)
Further, it is also been observed from the arguments that levels of education are linked with higher incomes.
Financial and Non-Financial Assets and Demographic Characteristics
Households in which the before-tax family income is between CY £35,001 and CY £40,000 report the highest financial assets with a median value of CY. £17,220. In all other categories, the financial assets average levels are is lesser.
Stocks and Demographic Characteristics
The character of the stock movements and investment patterns in Cyprus has been individualistically characterized, in the sense that such volatility could be found only in a highly euphoric environment like Cyprus. It was seen that during the boom years, investments were made through hearsay, as a result of which large corpus was invested in the bourses of stock exchanges by ordinary, lower educated people without much knowledge or experience in stock trading.
This is evident in the 1999 statistics where it can observe that 12±6% of the households where the family head had just primary education were involved in direct stockholding and participation rates for secondary level education were 16±8% and 25±4%, respectively. It is also paradoxical that university graduates opted less for stock portfolio investments. figures (Alex Karagrigoriou and Ilia Vontae: (2006) On Distributional Changes of Financial Characteristics in Cyprus: What Does the Survey of Consumer Finances Say? Financial Theory and Practice (P 391)
The research also studied the patterns of savings and the wide range of investments held by investors with large doses of statistical inputs thrown in good measure.
This study also focused upon the causes underlying investment patterns and asset holdings.
Determinants of investment portfolios
Several conclusions have been drawn in terms of the average pre-tax income has been consistently held around Cy.£13,000. However, the proportion of the Lower-income bracket ranging in Income groups between Cy.£5,000 – Cy.£15,000 has dropped from erstwhile 47% to just 40%. figures (Alex Karagrigoriou and Ilia Vontae: (2006) On Distributional Changes of Financial Characteristics in Cyprus: What Does the Survey of Consumer Finances Say? Financial Theory and Practice (P 401)
Finally, it could be said that the following factors were mainly responsible for the determination of investment portfolios in the Cypriot economy:
- Age (significance levels of 0.022)
- Size of the family (significance levels of 0.042)
- Work status (significance levels of 0.052)
- Behavioural aspects (significance levels of 0.090) (Alex Karagrigoriou and Ilia Vontae: (2006) On Distributional Changes of Financial Characteristics in Cyprus: What Does the Survey of Consumer Finances Say? Financial Theory and Practice (P 402)
Critique of the research study
The central question relates to the trend of investments portfolios compared for the two years 1999 and 2002. These years assume significance since hectic economic activities were reported during the mid periods during the intervening four years. It is believed that, even with the Stock Exchange crashing during 2000, the stock and shares investment patterns remained buoyant and even increased from 25.3% in 1999 to 51.4 % in 2002. Thus, it could be seen that the central question has been sufficiently addressed in this study; although it is seen that complete, analysis of the 1999 position has not been carried out.
In a comparative research study of this type, it is necessary that all data concerning the two years 1999 and 2002 needs to be addressed. Nevertheless, this has not been done with relevant interpretations for the year 1999.
Again it is seen that the definitions that have been provided are concerning “other loans” and “retirement accounts “which have not been considered to the full extent.
Although the statistical data for debts, under different heads have been provided, its total implications on the total study have not been elucidated, and to that extent, it needs to be reviewed.
During the study, it is seen that some claims have been made, especially about Non –financial assets. It is seen that there are now large investments of almost cent percent in property in Cyprus, fuelled by the desire for families to have residences of their own. Also about vehicle ownership, those are currently needed for both domestic and official purposes.
The aspect that needs to be further elaborated in the statistical context would be the valuation of the property that is currently not in the jurisdiction of the Republic of Cyprus. Thus, the gross value attributable to these properties needs to be correctly attributed.
Again, the data of household participation in the various assets concerning Retirement Accounts, including social security for 1999 needs to be provided.
Comparative study of 1999 and 2002 data
It is necessary that an exercise involving a comparative study of two years, in this case, 1999 and 2002 should focus on each aspect of financial interest and investment on an individual basis. This is for both the periods under consideration; it is also obligatory that the reports need to dwell on both the periods separately which has not been carried out for 1999 in this research study.
Moreover, while the analysis has been carried out, for reasons relating to increases /decreases in portfolio holdings, suitable recommendations for the future and how manifest challenges in these areas could be tackled have remained outside the purview of this study. Necessary recommendations and strategies must be outlined that beset the study.
For instance, it is common knowledge that nearly 37% of the area of Cyprus has been under Turkish domination since 1974.
Whether the property under the present study falls under the Turkish Cyprus domain needs to be assessed.
Strong areas of this study
It could be said that the strongest aspect of this study would be in terms of the demographic analysis concerning the household participation in the various assets. The authors have made suitable comments regarding the movements of assets, both financial and non-financial assets, the latter being a major investment source for the years under review
The increase /decreases in asset holdings as a percentage of total assets have been well documented and are plausible to a large extent. The authors believed that the decrease in one set of assets has given rise to an increase in another set, which could be evidenced by the fact that reduction in government investments have given rise to higher stock and share investments, with the question of mutual funds investment outside the purview of investments in the country due to Governmental controls.
However, it is seen that the question of the analysis and interpretation of household participation in various debts has not been well organized or represented. It is necessary that in a research study of this sort, the reasons and justifications for the rise of debts and their extinguishment, what are the contributory factors for occurrences of such debts needs to be delved to a plausible and reasonable extent.
Weak areas of the study
It has been said that a lot of factors impinge upon the borrowing capacity of individuals, like repayment ability, earnings, age, borrowing potential, etc. (398)
However other factors need to be taken into account in terms of past debt management records, prospects, interest rates, etc. This assumes greater significance in the context of a more conducive and borrower-friendly milieu and the government’s readiness to provide loans and financial assistance to its people taking advantage of lower interest regimes and softer repayment terms.
In the present research study, the individuals’ aspects of debts have not been addressed.
But instead, a macro view of how debts affect borrowings and its overall treatment has been discussed, This includes borrower and lender psyches, and the practical aspects of lending and borrowings, but it is also necessary for the research study to consider the various types of debts that are in vogue in Cyprus, the relative merits and demerits of each form of lending and, which methods of borrowing would be most beneficial to both transactors.
Again, net wealth being the difference of assets over real debts, it is necessary to know both the real values of assets and debts to arrive at the correct figures. The study has dealt with the proportion, or percentages of assets and debts to the total values.
It is necessary that besides the percentages, the real values of debts and assets also need to be provided for a better comprehends and interpretation of the research results.
The absence of concrete figures for assets and liabaitls has limited the scope for further analysis and deeper research on the important factors unearthed during this research study.
Further, it is seen that the CySCF does not keep details of the households that refuse to participate in the survey. This is a drawback of the CySCF because the actual number of refusals is not known and as a result, the response rates reported above are inaccurate. The rates reported have been calculated assuming that the household lists have been exhausted and the households that did not complete the questionnaire, refused to participate in the survey. (The Survey of Consumers Finances; Sampling and Surveying in Cyprus: Alex Karagrigoriou (2005) Discussions P. 13).
Multiple imputations
It would be necessary to seek recourse to techniques such as multiple imputations to determine the accuracy of data. It also needs to be said that this survey, both in 1999 and 2002 did not suffer from high-unresponded proportions. As a matter of fact, in the 1999 survey, almost 30% of the variables in 1999 CySCF had no missing values and another 63% had a non-response rate lower than 5% (6.5% had a non-response rate higher than 5%).
Even delicate household characteristics such as the total family gross income had an (un-weighted) non-response rate of 12.8% in 1999 CySCF which reduced to (8%) in 2002 CySCF.advanced techniques, such as multiple imputations seem to be necessary to ensure the accuracy of the derived results. It should be though clearly pointed out that the CySCF does not suffer from heavy non-response rates. Almost 30% of the variables in 1999 CySCF had no missing values and another 63% had a non-response rate lower than 5% (6.5% had a non-response rate higher than 5%).
Even delicate household characteristics such as the total family gross income had an (un-weighted) non-response rate of 12.8% in 1999 CySCF which reduced to (8%) in 2002 CySCF. (Alex Karagrigorioul (2005): The Survey of Consumer Finances: Discussions: (P14).
Conclusion
It has been attempted to make an earnest appraisal and review of the participation rates of the Households in Cyprus regarding their use of various financial and non-financial assets and debts during the years 1999 and 2000. It has been observed that certain useful facts emerge from this study regarding the investment and spending patterns of Cypriots.
- Stocks markets report better business almost at the expense of government bonds which registered falls in 2002. more and more elderly people began investments in stocks
- There have been marked increases in portfolio investments spread over various assets. “ About a fifth of households were reported to hold four assets and over 60 percent of households invested in “safe and fairly risky assets only” compared with 41 percent in 1999. Assets and Debts of Cyprus Households: Cyprus Surveys of Consumer Finances: Changes between the 1999 and 2002 : (2004) Georgia Antoniou Christiana Argyridou,c Michael Haliassos, Alex Karagrigoriou, a George Kyriacou,c Michalis C. Michael Maria Papageorgiou, and George Syrichasc.
- The aspects of personal loans have received major impetus and stimulus due to falling interest rates during 1999 and 2002, which has resulted in greater demand for overdrafts, vehicles loans intended on buying bigger vehicles, etc. However, the fact that parents in Cyprus financially supported their children in education, property buying, and settling down in their lives is amply evidenced by a fall in the use of credit cards by the student community.
- The comparative studies of the two years show that there are marked tendencies for the purchase of the real estate by people, especially married and having responsibilities of rearing families. The overall trends speak of married couples investing in houses for the future and making investments in safer assets which could also fetch returns over a long period.
The latter surveys must incorporate the much-needed features of a greater degree of financial accuracy and reliability especially with figures relating to pensions with social security attachments and also aspects regarding the valuation of assets for determination of gross value. Over the years, it has been seen that mutual fund investments have been very low, but given a change in governmental attitudes and controls, it is believed that this segment of high returns with the benefits of the safety of investments would meet the increased approval of financial regulators in this country.
This study needs to end with a note of optimism for the investing public and the various players that form the nucleus of financial governing bodies of this country. The entire world is now going through the phase of financial restructuring ushered by the winds of globalization and the omnipresent use of e-commerce technology and its deployment in almost all areas of public and private accountability.
Given the excellent infrastructure, climatic, and tourist development potential of Cyprus, it could not only transform itself into a major tourist attraction but could also create waves in the commercial and trading activities of the world.