LESSON 6: FINANCIAL LITERACY

At end of the lesson the students will be able to:

* Design a workable financial plan

* Apply the principles of savings, investments, and valuing in spending
one’s money

Introduction:
Learning on finance plays a major role in shaping responsible attitudes and
behaviors with regard to the administration of personal finances, and financial literacy
is an essential component for a successful adult life (Portrich, et al, 2015).

Money is basically a tool used in a bartering, or trading, system which allows

people to obtain goods and services. You can earn money; save money; spend it;
invest it; or give it away.With financial literacy you will know how to do these things
wisely. A good place to begin developing financial literacy is to learn about what
money is and how it works (https://www.linkedin.com/pulse/developing-students-financial-literacy-muscles-
anne-shaw?trk=mp-reader-card).

Preliminary Questions:
1. How important is money?
2. How will you save, spend, invest, earn and even give money?

I. CAPTIVATE

* Watch the video clip https://www.youtube.com/watch?v=GH_JLA-fkBY.

* What does the author mean by the following statements:

- “Saving is not actually sacrificing fun.”
- “Trim cost everyday!”
 II. CONNECT

A. Hastings, et al (2013) refers to Financial Literacy as:

1. knowledge 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.

B. Six (6) Standards of Financial Literacy

https://www.councilforeconed.org/wp-content/uploads/2013/02/national-
standards-for-financial-literacy.pdf

1. Earning Income Income for most people is determined by the market value of
their labor, paid as wages and salaries. People can increase their income and job
opportunities by choosing to acquire more education, work experience, and job
skills.The decision to undertake an activity that increases income or job
opportunities is affected by the expected benefits and costs of such an activity.
Income also is obtained from other sources such as interest, rents, capital gains,
dividends, and profits.

2. Buying Goods and Services People cannot buy or make all the goods and
services they want; as a result, people choose to buy some goods and services
and not buy others. People can improve their economic well-being by making
informed spending decisions, which entails collecting information, planning,
and budgeting.

3. Saving Saving is the part of income that people choose to set aside for future
uses. People save for different reasons during the course of their lives. People
make different choices about how they save and how much they save. Time,
interest rates, and inflation affect the value of savings.

4. Using Credit Credit allows people to purchase goods and services that they can
use today and pay for those goods and services in the future with interest. People
choose among different credit options that have different costs. Lenders approve
or deny applications for loans based on an evaluation of the borrower’s past
credit history andexpected ability to pay in the future. Higher-risk borrowers are
charged higher interest rates; lower-risk borrowers are charged lower interest
rates.

5. Financial Investing Financial investment is the purchase of financial assets to

increase income or wealth in the future. Investors must choose among
investments that have different risks and expected rates of return.
Investments with higher expected rates of return tend to have greater risk.
Diversification of investment among a number of choices can lower
investment risk.
6. Protecting and Insuring People make choices to protect themselves from the
financial risk of lost income, assets, health, or identity. They can choose to accept
risk, reduce risk, or transfer the risk to others. Insurance allows people to transfer
risk by paying a fee now to avoid the possibility of a larger loss later. The price of
insurance is influenced by an individual’s behavior.

C. Benefits of Financial Literacy (Lusardi Swiss Journal of Economics and

Statistics (2019) 155:1 https://doi.org/10.1186/s41937-019-0027-5)

D. Financial Literacy of the Philippines

(https://www.philstar.com/the-freeman/cebu-
business/2017/08/21/1731331/state-financial-education-philippines)

E. According to Rovnick (2017), there are Six (6) Financial Personality Types
(https://www.ft.com/content/5e8da24c-bb09-11e6-8b45-b8b81dd5d080)
1. Anxious Investor
2. Hoarder
3. Social Value Spender
4. Cash Splasher
5. The Fitbit Financier
6. The Ostrich

F. Spending Patterns

1. Habitual Pattern occurs when one spends, out

of a habit, when one buys the same item daily,
weekly, or monthly.
2. Impulsive Spending occurs when mindlessly
purchases items that he/she does not need.

Design by Nary Han

G. Fixed vs.Variable Expenses (https://www.inc.com/encyclopedia/fixed-and-

variable-
expenses.html#:~:text=Fixed%20expenses%20or%20costs%20are,%2C%20management%20salari
es%2C%20and%20advertising.)

1. Fixed expenses or costs are those that do not fluctuate with changes in
production level or sales volume. They include such expenses as rent,
insurance, dues and subscriptions, equipment leases, payments on loans,
depreciation, management salaries, and advertising.
2. Variable costs are those that respond directly and proportionately to changes
in activity level or volume, such as raw materials, hourly production wages,
sales commissions, inventory, packaging supplies, and shipping costs.

H. Needs vs. Wants

Wants and needs are two different words whose meanings are both well
understood and also conveniently interchanged — depending on our desires and
motivations. Deconstructing the interplay between these words is key to better
understanding ourselves.
 Needs are essential to our survival. Wants are things you would like to have but
you can live without, such as new clothes or a new cellphone model.

I. Setting Financial Goals

Setting financial goals is the first step to managing one’s financial life. Goals may
be short, medium or long-term.
1. Short Term goals can be measured in weeks and can provide instant
gratification and feedback.
2. Medium-Term goals should be accomplished within one to six months. These
goals provide opportunity for reflection and feedback and require discipline
and consistency.
3. Long-term financial goals can take years to achieve.
J. Developing a Spending Plan:
1. Record
2. Review
3. Take action

K. Importance of Saving
Here are some reasons saving is important:
1. Emergency Bolster
2. Retirement
3. Future Events
4. Instability of Social Security
5. A Little Goes a Long Way

* In order to stick to the savings habit, you should:

A. Commit to a month
B. Find an accountability partner
C. Find a savings role model
D. Write your goal down and track it.
E. Avoid tempting situations

III. COLLABORATE

A. Complete the table.

1. Put a check mark on the corresponding expenses as to fixed or variable.

Indicate the monthly total.

Expenses Fixed Variable Monthly Total

Grocery
Medicine
Transportation
Internet
Clothing
 2. List down all your expenses in a month and classify them as to NEEDS and
WANTS.

NEEDS WANTS

IV. CREATE

A. How does your Current budget look like compared to your Ideal budget? Use the
link https://www.rapidtables.com/tools/pie-chart.html to map them in a pie chart using
the following categories or use more as needed.

* Food * Phone bills

* House rent * Clothing
* Transportation * Education
* Electric bills * Debt
* Internet * Water bills

B. Define and differentiate the 3 financial goals and give examples.

GOALS DEFINITION DISTINCTION EXAMPLES

Short-term

Medium-term

Long-term
C. How would the six financial personality types react on the following
advertisement? Describe and draw their respective reactions.

PERSONALITY
TYPES REACTION ILLUSTRATION

V. ASSIGNMENT

Interview a classmate, a friend, a teacher, a parent, and a sibling, about their

financial as well as spending and saving behavior. Present your data through any of
the following: infographic, meme or cartoon.

REFERENCES:

1) Swiecka, Beata, et al. (2020). Financial Literacy: The Case of Poland.

www.mdpi.com/journal/sustainability.https://doi.org/10.3390/su12020700

2) https://www.researchgate.net/publication/288246131_Defining_literacy_in_the_21
st_century_A_guide_to_terminology_and_skills/link/567f88b808ae051f9ae6785c/do
wnload

3) Potrich, Ani Caroline Grigion ,Kelmara Mendes Vieira, and Guilherme Kirch
(2015), Determinants of Financial Literacy: Analysis of the Influence of Socioeconomic
and Demographic Variables. https://doi.org/10.1590/1808-057x201501040.

4) Rovnick, Naomi, (2017) https://www.ft.com/content/5e8da24c-bb09-11e6-

8b45-b8b81dd5d080
5) https://www.scielo.br/scielo.php?pid=S1519-
70772015000300362&script=sci_arttext&tlng=en#:~:text=Thus%2C%20the%20OEC
D%20addresses%20financial,financial%20behavior%2C%20and%20financial%20atti
tude.

6) http://www.ictliteracy.info/rf.pdf/Digital-Skills-and-Learning-Report2017.pdf

7) https://www.councilforeconed.org/wp-content/uploads/2013/02/national-standards-
for-financial-literacy.pdf

8) https://link.springer.com/content/pdf/10.1186/s41937-019-0027-5.pdf

9) https://medium.com/indian-thoughts/wants-vs-needs-understanding-ou
rselves-better-96a2c35fbc23