Financial Literacy

Financial literacy refers to the understanding of basic financial skills and

concepts. It’s not just about knowing the information, but about successfully

implementing it into your own life. When people have financial literacy, they have the

knowledge and confidence to make informed financial decisions. It allows people to

responsibly manage their money, borrow and save, and plan and invest for the future.

Financial literacy is more important than ever before. As technology grows and society

changes, finances become even more complicated. As a result, it’s essential that

college students leave school with solid financial knowledge. Unfortunately, financial

literacy rates are decreasing and Americans’ financial habits show it. Savings rates are

decreasing while debt is increasing, and wages are remaining stagnant. College

students who prioritize financial literacy will be able to overcome these challenges and

live comfortably in the future.

According to Mason and Wilson (2000), a financial literacy is a "meaning -

making process" in which individuals use a combination of skills, resources, and

contextual knowledge to process information and make-decisions with knowledge of the

financials consequences of that decision. From the definition given above, it can be

concluded that financial literacy is an individual decision making that uses a

combination of several skills, resources, and contextual knowledge to process

information and make decisions based on the financial risk of the decision.

Financial literacy is a basic knowledge that people need in order to survive in a

modern society. People should know and understand credit card and mortgage interest,

insurance, and saving and investing for the future. Garman & Forgue (2000) defines
financial literacy as knowing the facts and vocabulary necessary to manage one’s

personal finances successfully. Having knowledge of personal financial management

and the marketplace is indicative of a greater ability to manage the family’s financial

resources (Godwin, 1994). People are more likely to achieve their financial goals with

appropriate knowledge. Lack of personal financial knowledge limits personal financial

management and may cause financial problems, resulting in lower financial well-being.

The Wisconsin Hope Lab recently released a report last 2018 that looked at

43,000 students from 66 colleges, universities and community colleges from 20 states

and the District of Columbia. The survey found that 36 percent of university students

don't have enough money for enough food and 42 percent of community college

students are hungry or not getting a balanced diet (Goldrick-Rab, Richardson,

Schneider, Hernandez, & Clare, 2018). Learning financial literacy is a promising way to

improve financial capacity for today’s young people (Duquette, 2018). Students tend not

to know what to value first, and they tend to spend it on things that are not important.

That is why, it becomes inevitable for people to overspend when they buy things

because they do not know how to prioritize the significant ones (Paine, 2012). Not

knowing what to prioritize is the time when financial planning comes in. Based on the

book "Financial Management” by Ferdinand L. Timbang (2015), financial planning is

useful for both short-range and long-range plans. Financial planning serves as a basis

of the operations or the allocation of funds the person has to undergo. Financial

planning summarizes.

In one word: ‘budgeting. '‘Financial literacy is both an important life skill and a

critical intellectual competency' and 'an essential component of a college degree.'

(Kezar, & Yang, 2015). It is not mandatory to be a 9 professional to be a financial

literate, but one needs to be a person who can maximize present money to gain

financial stability. Logically speaking, it is necessary that students must learn how to

handle money as they are expected to earn at a later stage in their lives.A study by

Acheampong, Kyei-Baffour, Hanson-Cobbinah, & Osei, (2015), about the Assessment

of Financial Literacy among University Students, found out that almost half of the

population surveyed is financially illiterate. One reason for the low level of knowledge is

the systematic lack of personal finance education in the college curricula. Given the lack

of financial education, it is not surprising that the results show that university students

have inadequate knowledge of personal finance.

Another research paper by Mohd Rahim Ariffin and Zunaidah Sulong (2017)

studies specifically about the financial literacy level and students' perception towards

saving behavior of a population, showed that saving behavior, parental socialization and

peer influence had a positive correlation with financial literacy, whereas self-control

showed a negative correlation with financial literacy. In the Philippine economy, prices

of the commodities become higher, and money has gained more value today.

Additionally, there are little to no objects left that cannot be bought by money. It is why it

is essential to spend it wisely and to do so; one must have sufficient knowledge about

budgeting (De Guzman et al., 2012).

Spending Habits

Poor spending habits are a behavioral pattern that is characterized by a lack of

self-discipline regarding continued overspending. According to the social learning

theory, spending habits are learned from parents and other key personalities (Fluellen,
2013). Individual childhood experiences comprise ways parents manage money and the

money management lessons received. Parents are critical impetus in their children‘s

lives when growing. The positive and negative spending habits displayed are subject to

their parents‘ habits (Hadzic & Poturak, 2014). The agents of socialization, such as

family and peer groups, have great influence on an individual ‘s attitude towards money

(Hadzic & Poturak, 2014). Pillai et al. (2010) state that a young adult ‘s spending habits

play a key role in the sustainability of their finance resources and is an important

variable in financial judiciousness. Young adults have the tendency to immediately

spend their money on consumable products, thereby neglecting long-term financing

matters such as investment (Shaari et al., 2013). Financially literate students normally

spend a greater proportion of their money on durable goods, such as housing,

education, and investment rather than on food, clothing, and other luxury goods.

Thus, an improvement in students' financial literacy is desirable and recommended for

universities (Shaari et al., 2013).