FINANCIAL LITERACY

The National Endowment for Financial Education defines financial literacy as "the
ability to read, analyze, manage, and communicate about the personal financial conditions
that affect material well-being. It includes the ability to discern financial choices, discuss
money and financial without (or despite) discomfort, plan for the future, and respond
competently to life events that affect every day financial decisions, including events in the
general economy." (In charge, Education Foundation. 2017). To put it simply, it is "the ability
to use knowledge and skills to manage one's financial resources effectively for lifetime
financial security" (Mandell, 2009).

Meanwhile, Hastings, et al. (2013) refers to financial literacy as:

1. knowledgeable of financial products (e.g. a stock vs. a bond, fixed vs. adjustable rate
mortgage);
2. knowledge of financial concepts (e.g. inflation, compounding, diversification, credit scores);
3. having the mathematical skills or numeracy necessary for effective financial
decision making; and
4. being engaged in certain activities such as financial planning.

Public and private institutions alike have recognized the need for financial literacy to be
incorporated in the school curriculum. Financial education and advocacy programs of
the public and private sectors have been identified as key areas in building an improved financial
system in the Philippines (Go, 2017). Republic Act 10922, otherwise known as the
"Economic and Financial Literacy Act" mandates DepEd to "ensure that economic and financial
education becomes an integral part of formal learning."
The Council for Economic Education, the leading organization in the United States that
focuses on the economic and financial education of students from Kindergarten through high
school developed six standards gearing toward deepening students' understanding of personal
finance through an economic perspective. The standards and key concepts are summarized the
table below.

STANDARDS KEY CONCEPTS

• income earned or received by people
• different types of jobs as well as different forms of
income earned or received
• benefits and costs of increasing income through the
Earning income
acquisition of education and skills
• government programs that affect income
• types of income and taxes
• labor market
Buying goods • scarcity, choice, and opportunity cost
And services • factors that influence spending choice, such as
advertising, peer pressure, and spending choices of
others
• comparing the costs and benefits of spending
decisions
 • basics of budgeting and planning
• making a spending decision
• payment methods, costs, and benefits of each
• budgeting and classification of expenses
• satisfaction, determinants of demand, costs of
information search, choice of product durability
• the role of government and other institutions in
providing information for consumers
• concept of saving and interest
• how people save money, where people can save
• money, and why people save money
• the role that financial institutions play as
intermediaries between savers and borrowers
• the role government agencies such as the Federal
• Deposit Insurance Corporation (FDIC) play in
• protecting savings deposits
• role of markets in determining interest rates
Saving
• the mathematics of saving
• the power of compound interest
• real versus nominal interest rates
• present versus future value
• financial regulators
• the factors determining the value of a person's
savings over time
• automatic savings plans, "rainy-day" funds
• saving for retirement
• concept of credit and the cost of credit
• why people use credit and the sources of credit
• why interest rates vary across borrowers
• basic calculations related to borrowing (principal,
interest, compound interest)
Using Credit
• credit reports and credit Scores
• behaviors that contribute to strong credit reports and
scores
• impact of credit reports and scores on consumers
• consumer protection laws
Financial Investing • concept of financial investment
• variety of possible financial investments
• calculate rates of return
• relevance and calculation of real and after-tax rates
of return
• how markets cause rates of return to change in
• response to in risk and maturity
• how diversification can reduce risk
• how financed markets react to changes in market
conditions and information
 • concepts of financial risk and loss
• insurance (transfer of risk through risk pooling)
• managing risk
Protecting and Insuring
• identity theft
• life insurance products
• how to protect oneself against identity theft

The Benefits of Financial Literacy

One's level of financial literacy affects one's quality of life significantly. It determines
one's ability to provide basic needs, attitude toward money and investment as well as one's
contribution to the community. Financial literacy enables people to understand and apply
knowledge and skills to achieve a lifestyle that is financially balanced, sustainable, ethical, and
responsible.
Increased personal financial literacy affects one's financial behavior. These changes in
behavior pay dividends to society as well. People who work, spend, save, borrow, invest and
manage risk wisely are less likely to require a government rescue. Financial literacy does not
totally eliminate the need for a social safety net because even the most prudent individual can
encounter financial difficulties. But taking responsibility for one's financial life cultivates proper
decision-making skills and discipline. Most of the responsibility for managing financial matters
rests with the individual. That responsibility is easier for adults to bear when they have learned
the basics of personal finance in their youth.

Financial Literacy in the Philippines

In his article "State of Financial Education in the Philippines." Go (2017) indicated
several findings of researches with regards to the state of financial literacy in the country
including the following:
• World Bank study in 2014 estimated 20 million Filipinos saved money but only half
had bank accounts.
• Asian Development (ADB) study in 2015 revealed that PH does not have a national strategy for
financial education and literacy.
• In 2016, Bangko Sentral ng Pilipinas released the national strategy for financial inclusion,
stating that while institutions strive to financial literacy should also complement broaden
financial services such initiatives.
• As per Standard & Poor's (S&P) Ratings services last year, only 25% of Filipinos are
financially literate. This means that about 75 million Filipinos have no idea about inflation, risk
diversification, insurance, compound interest, and bank savings.
• Ten years after discovery of the stock market, still less than one percent of PH population is
invested in it.
• More than 80 percent of the working middle class have no formal financial plan.
Because of these findings, public and private sectors alike have recognized the need to
strengthen financial education in the country. Last November 27-28, 2018. more than 1,000
leaders, decision-makers, influencers, and representatives from public and private institutions,
civic society, and the academe gathered for the first ever Financial Education Stakeholders Expo
organized by BSP. The Expo is designed to build an organized network
of players that share the vision of a financially literate citizenry and cohesively implement a
variety of initiatives to achieve this vision. This is in line with the BSP advocacy for financial
education and supports the BSP mandates of maintaining price stability, financial stability, and
efficient payments system. It is the BSP's conviction that a financially educated Filipino is an
empowered Filipino who is able to make wise financial decisions that positively impact personal
financial circumstances, and, consequently, contribute to inclusive and sustained economic
development.
The Expo supports Republic Act No. 10922 which designates second week of November as
Economic and Financial Literacy Week. It is also aligned with the objectives of the Philippine
National Strategy for Financial Inclusion, particularly the pillar on Financial Education and
Consumer Protection.

Developing Personal Financial Literacy

One's attitude about money is heavily influenced by the parents’ attitude and behavior
about money. The attitudes you formed early in life probably affect how you save, spend, and
invest today. Do you behave similarly or differently from your parents about handling money?

There are six major characteristic types how people view money (Incharge. 2017)

Frugal: Frugal people seek financial security by living below their mean saving money.
They rarely buy luxurious items: they save money instead. They save money because they
believe that money offer protection from unprecedented events and expenses.

Pleasure: Pleasure seekers use money to bring pleasure to themselves and to others. They
are more likely to spend than to save. They often live beyond their means and spend more than
they earn. If they are not careful and do not change, they may fall into deep debt.

Status: Some people use money to express their social status. They like to purchase and "show
off" their branded items.

Indifference: Some people place very little importance on having money and would rather grow
their own food and croft their own clothes. It is as if having too much money makes them
nervous and uncomfortable.

Powerful: Powerful people use money to express power or control over others.

Self-worth: People who spend money for self-worth value how much they and tend to judge
others based on the amount of money they have.

Which characteristic closely resembles your attitude about money?

Explain your answer.

Spending Patterns
Are you prudent or have you been accused of spending money lavishly? Are you somewhere in
between? Individuals have different spending patterns. Before one can come up with a financial
improvement plan, one needs to analyze his/her spending habits. There are common spending
patterns: habitual spending and impulsive spending.

Habitual spending occurs when one spends out of a habit, when one buys the same item daily,
weekly, monthly. Daily items may include water, rice, and cup of coffee. Weekly items may be
grocery items. Monthly items are the electricity and Internet bills. Impulsive spending occurs
when one mindlessly purchases items that he or she does not need. Many people are often
enticed by monthly sales at the malls with the attitude that they may lose the items the following
day.

Fixed vs Variable Expenses

Fixed expenses remain the same year-round. Car payment is an example.
Variable expenses occur regularly but the amount pay varies. Electric and gas bills are
examples of these.

Needs vs Wants
Financial discipline starts with an ability to recognize whether expenses are needs or
wants, and followed by ability to prioritize needs over. Needs are essential to our survival.
Wants are things that you would like to have but you can live without, such as new clothes
or a new phone model. You want them but do not necessarily need them. Too many
wants can ruin a budget.