LESSON 1: FINANCIAL LITERACY

- A core life skill in an increasingly complex world where people need to take charge of
their own finances, budget, financial choices, managing risks, saving, credit and financial
transactions.
- Poor financial decisions can have long-lasting impact on individuals, their families and
the society caused by lack of financial literacy.
- Low levels of financial literacy are associated with lower standards of living, decreased
psychological and physical well-being and greater reliance on government support.
- However, when put into correct practice, financial literacy can strengthen savings
behaviour, eliminate maxed-out credit cards and enhance timely debit.
- Financial literacy is the ability to make informed judgements and make effective
decisions regarding the use and management of money.
- Hence, teaching financial literacy yields better financial management skills.
THE IMPORTANCE OF STARTING FINANCIAL LITERACY WHILE STILL YOUNG.
- National surveys shows that young adults have the lowest levels of financial literacy as
reflected in their inability to choose the right financial products and lack of interest in
undertaking sound financial planning.
- Therefore, financial education should begin as early as possible and be taught in school.
- Akdag (2013) stressed that in the recent financial crisis, financial literacy is very crucial
and tends to be advantageous if introduced in the very early years as pre-school years.
- Financial education is a long term process and incorporating it into the curricula from an
early age allows children to acquire the knowledge and skills while building responsible
financial behaviour throughout each stage of their education (OECD, 2005).
- Likewise, financial literacy is the capability of a person to handle his/her assets,
especially cash more efficiently while understanding how many works in the real world.
FINANCIAL PLAN
- Teachers need to have a deeper understanding and capacity to formulate their own
financial plan.
- It is wise to consider starting to plan the moment they hand in their first salary,
including the incentives, bonuses and extra remuneration that they receive.
- Kagan (2019) defines a financial plan has a comprehensive statement of an individual’s
long term objectives for security and well-being and detailed savings and investing
strategy for achieving the objectives.
- It begins with a thorough evaluation of the individual’s current financial state and future
expectations.
THE FOLLOWING ARE STEPS IN CREATING A FINANCIAL PLAN.
1. Calculating net worth.
- Net worth is the amount by which assets exceed liabilities.
- In so doing, consider (1) Assets that entail one’s cash, property, investments, savings,
jewelry and wealth; (2) Liabilities that include credit card debt, loans and mortgage.
- Formula: total assets – minus total liabilities = current net worth.
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2. Determining cash flow.
- A financial plan is knowing where money goes every month.
- Documenting it will help you see how much is needed every month for necessities, and
the amount for saving and investment.
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- 3. Considering the priorities.
- The core of financial plan is the person’s clearly defined goals that may include:
(1) Retirement strategy for accumulating retirement income;
(2) Comprehensive risk management plan including a review of life and disability
insurance, personal liability coverage, property and casualty coverage, and catastrophic
coverage;
(3) Long-term investment plan based on specific investment objectives and a personal
risk tolerance profile; and
(4) Tax reduction strategy for minimizing taxes on personal income allowed by the tax
code.

FIVE FINANCIAL IMPROVEMENT STRATEGIES.

- Financial literacy shapes the way people view and handle money.
- The following are financial improvements suggested by Investopedia as a journey to
financial literacy.
1. Identify your starting point. Calculating the net worth is the best way to determine
both current financial status and progress overtime to avoid financial trouble by
spending too much on wants and nothing enough for the needs.
2. Set your priorities. Making a list of rated needs and wants can help set financial
properties. Needs are things one must have in order to survive (i.e. food, shelter,
clothing, healthcare and transportation); while wants are things one would like to
have but are not necessary for survival.
3. Document your spending. One of the best ways to figure out cash flow or what comes
in and what goes out is to create a budget or a personal spending plan. A budget lists
down all income and expenses to help meet financial obligations.
4. Lay down your debt. Living with debt is costly not just because of interest and fees,
but it can also prevent people from getting ahead with their financial goals.
5. Secure your financial future. Retirement is an uncontrollable stage in a worker’s life,
of which counterpart are losing the job, suffering from an illness or injury, or be
forced to care for a loved one that may lead to an unplanned retirement. Therefore,
knowing more about retirement options is an essential part of securing financial
future.
Financial Goal Planning and Setting
Setting goals is a very important part of life, especially in financial planning. Before
investing the money, consider setting personal financial goals. Financial goals are targets,
usually driven by specific future financial needs, such as saving for a comfortable retirement,
sending children to college, or enabling a home purchase.
There are three key areas in setting investment goals for consideration.
A. Time horizon. It indicates the time when the money will be needed. To note, the longer
the time horizon, the more risky (and potentially more lucrative) investments can be
made.
B. Risk tolerance. Investors may let go of the possibility of a large gain if they knew there
was also a possibility of a large loss (they are called risk averse); while others are more
willing to take the chance of a large loss if there were also a possibility of a large gain
(they are called risk seekers). The time horizon can affect risk tolerance.
C. Liquidity needs. Liquidity refers to how quickly an investment can be converted into
cash (or the equivalent of cash). The liquidity needs usually affect the type of chosen
investment to meet the goals.
D. Investment goals: Growth, income and stability. Once determined the financial goals
and how time horizon, risk tolerance, and liquidity needs affect them, it is time to think
about how investments may help achieve those goals. When considering any
investment, think about what it offers in terms of three key investment goals: (1)
Growth (also known as capital appreciation) is an increase in the value of an
investment; (2) Income, of which some investments make periodic payments of interest
or dividends that represent investment income and can be spent or reinvested; and (3)
Stability, or known as capital preservation or protection of principal.
An investment that focuses on stability concentrates less on increasing the value of
investment and more on trying to ensure that it never loses value and can be taken when
needed.

Budget and Budgeting

A budget is an estimate of revenue and expenses over a specified future period of time
and is usually complied and re-evaluated on a periodic basis. Budgets can be made for a
variety of individual or business needs or just about anything else that makes and spends
money. Budgeting, on the other hand, is the process of creating a plan to spend money.
Creating this spending plan allows one to determine in advance whether he/she will have
enough money to do the things he/she needs or likes to do.
Thus, budgeting ensures to have enough money for the things needed and those
important ones and will keep one out of debt.
Seven Steps to Good Budgeting
The following are seven steps that may help in attaining good budgeting.
Step 1:Set realistic goals. Goals for the money will help make smart spending choices upon
deciding on what is important.
Step 2:Identify income and expenses. Upon knowing how much is earned month and
where it all goes, start tracking the expenses by recording very single cent.
Step 3:Separate needs from wants. Set clear priorities and the decisions become easier to
make by identifying wisely those that are really needed or just wanted.
Step 4:Design your budget. Make sure to avoid spending more than what is earned.
Balanced budget to accommodate everything needed to be paid for.
Step 5: Put your plan into action. Match spending with income time. Decide ahead of time
what you will use each payday. Non-reliance credit for the living expenses will protect one
from debt.
Step 6: Plan for seasonal expenses. Set money aside to pay for unplanned expenses so to
avoid going into debt.
Step 7:Look ahead. Having a stable budget can take a month or two so, ask for help if things
are not getting well.
Spending
If budget goals serve as a financial wish list, a spending plan is a way to make those
wishes a reality. Turn them into an action plan. The following are practice strategies in
setting and prioritizing budget goals and spending plan:
1. Start by listing your goals. Setting budget goals requires forecasting and discussing
future needs and dreams with the family.
2. Divide your goals according to how long it will take to meet each goal. Classify your
budget goals into three categories: short-term goals (less than a year), medium-term
goals (one to five years), and long-term goals (more than five years). Short-term goals
are usually the immediate needs and wants; medium-term goals are things that you and
your family want to achieve during the next five years; and long-term goals extend well
into the future, such as planning for retirement.
3. Estimate the cost of each goal and find out how much it costs. Before assigning priority
to goals, it is important to determine the cost of each goal. The greater the cost of a
goal, the more alternative goals must be sacrificed in order to achieve it.
4. Project future cost. For short-term goals, inflation is not a big factor, but for medium
and long-term goals, it is a big factor. To calculate the future cost of the goals, there is a
need to determine the rate of inflation applied to each particular goal.
 5. Calculate how much you need to set aside each period. Upon knowing the future cost
of the goals, next is to determine how much to put aside each period to meet all the
goals.
6. Prioritize your goals. Upon listing down all the goals and the estimated amount needed
for each goal, prioritize them. This serves as guide in decision-making.
7. Create a schedule for meeting your goals. It is important to lay down all the goals
according to priority with the corresponding amount of money needed, the time it will
be needed, and the instalment needed to meet the goals.
Investment and investing
As teachers, when you have saved more money than what you expect at a time of need,
consider investing this money to earn more interest than what your savings account is paying
you. There are more many ways you can invest your money but consider four aspects:
1. How long will you invest money? (Time Horizon)
2. How much money do you expect your investment to earn each year (Expectation of Return)
3. How much of your investment are you willing to lose in the short-term in order to earn more
in the long-term? (Risk Tolerance)
4. What types of investment interest you? (Investment Type)
Savings
In order to get out debt, it is important to set some money aside and put it into a
savings account on a regular basis. Savings will also help in buying things that are needed or
wanted without borrowing.
Emergency Savings Fund. Start as early, setting aside a little money for emergency savings
fund. If you receive a bonus from work, an income tax refund or earnings from additional or
side jobs, use them as an emergency fund.
10 Reason Why Save Money
With credit so easy to get, here are ten practical reasons why it is important to save
money that everyone, including teachers, must know.
1. To become financially independent. Financial independence does not have to depend
on receiving a certain pay but setting aside an amount to have savings that can be relied
on.
2. To save on everything you buy. With savings, you can buy things when they are on sale
and can make better spending choices without being compromised on credit card
interest charges.
3. To buy a home or a car. Savings can be used in buying a home in full or down payment,
especially in times of promo deals, bids and inevitable sale and at a reasonable interest
rate.
4. To prepare for the future. Through savings, you can be confident to face the future
without worrying on how you will survive.
5. To get out of debt. If you want to get out of debt, you have to save money.
6. To augment annual expenses. In order to attain a good, stress-free financial life, there is
a need to save for annual expenses in advance.
7. To settle unforeseen expenses. Savings can respond to unforeseen expenses in times of
need.
8. To respond to emergencies. Emergencies may happen anytime and these can be
expensive so, there is a need to get prepared rather than potentially become another
victim of an emergency.
9. To mitigate losing your job or getting hurt. Bad things can happen to anyone, such as
losing a job, business bankruptcy or crisis, being injured or becoming too sick to work.
Therefore, having savings is the key to resolve such a dilemma.
10. To have a good life. Putting aside some money to spend when needed can bring about
quality and worry-free life at all times.