FINANCIAL LITERACY

CHAPTER 4

MARY JEAN NAPURAN

NATASHA GOCELA
 Define Literacy

Assess level of personal financial literacy using

set of standards and questions.
OBJECTIVES
Characterize financial literacy in the
Philippines; and

Start practical to develop personal 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 issues without (or despite) discomfort, plan for
the future, and respond competently to life events that affect everyday financial
decisions, including events in the general economy" (Incharge Education
Foundation, 2017).
To put it simply, it is "the ability to use knowledge and skills to manage one's
financial security" (Mandell, 2009).
 HASTINGS, (2013) REFERS
TO FINANCIAL LITERACY
AS:
Knowledge of Knowledge of
financial financial
products. concepts.

Having the Being engaged

mathematic in certain
al skills. activities.
PUBLIC AND PRIVATE INSTITUTIONS
ALIKE HAVE ORGANIZED THE NEEDS FOR
FINANCIAL LITERACY TO BE
INCORPORATED IN THE SCHOOL
CURRICULUM. 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 Kidergarten 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 in
the table below.
STANDARD KEY CONCEPTS

✓ income earned or received by people

✓ different types of jobs as well as different forms of
EARNING income earned or recieved
SAVING
✓ benefits and costs of increasing income through the
acquisition of education and skills
✓ government programs that affect incom
✓ types of income and taxes labor market
 STANDARD KEY CONCEPT

✓ scarcity, choice and opportunity costs

✓ factors that influences spending
choices, such as advertising, peer
BUYING pressure, and spending choices of others
✓ comparing the costs and benefits of
GOODS spending decisions
✓basics of budgeting and planning
✓ making a spending decision
 STANDARD KEY CONCEPT
✓ payment methods, costs and benefits of
each
✓ budgeting and classification of expenses
✓ satisfaction, determinants of demand cost
BUYING of information search, choice of product
GOODS durability
✓ the role of government and other
institutions in providing information of
consumers
 STANDARD KEY CONCEPT

✓ Concept of saving interest

✓ How people save money save money, where
people can save money and why people save
money
SAVING ✓ The role that financial institutions play as
intermidiaries 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
 STANDARD KEY CONCEPT
✓ the mathematics of saving
✓ the power of compound interest
✓ real versus nominal interest rates
✓ present versus future value
SAVING ✓ financial regulators
✓ the factors determining the value of a
person's savings over time
✓ automatic savings plans, "rainy-day"
funds
✓ saving retirement
 STANDARD KEY CONCEPT

✓ concept of credit and the cost of using credit

✓ why people use credit and the sources of credit
✓ why interest rates vary across borrowers
✓ basic calculations related to borrowing (principal,
USING interest, compound interest)
CREDIT ✓ Credit reports and credit scores
✓ behaviours that contribute to strong credit reports and
scores
✓ impact of credit reports and scores on consumers
✓ consumer protection laws
 STANDARD KEY CONCEPT

✓ concept of financial investment

✓ variety of possible financial investments
✓ calculate rates of return
✓ relevance and calculation of real and after-tax
FINANCIAL rates of return
INVESTMENT ✓ how markets cause rates of return to change in
response to variation in risk and maturity
✓ how diversification can reduce risk
✓ how financial markets react to changes in
market conditions and information
 STANDARD KEY CONCEPT
✓ concept of financial risk and loss
✓ insurance (transfer of risk through
risk pooling)
PROTECTIN ✓ Managing risk
G ✓ Identify theft
AND life insurance products
ENSURING ✓ 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. Determines one's ability to provide basic needs, attitude
toward money and investment, as well as one's contribution to the
community. 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 behaviour.
FINANCIAL
LITERACY IN THE
PHILIPPINES
 "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 bank (ADB) study in 2015 revealed that PH does
not have a national strategy for financial education and literacy.
• In 2016, Bangko Sentral ng Pilipinas (BSP) released the national
strategy for financial inclusion, stating that while institutions strive to
broaden financial services, financial literacy should also complement
such initiatives.
• As per Standard & Poor's (S&P) Ratings services survey last year,
only 25% of Filipinos are financially literate.
• 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.
 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.
 THERE ARE SIX MAJOR
CHARACTERISTIC TYPES IN HOW
PEOPLE VIEW MONEY (INCHARGE, 2017):
FRUGAL Frugal people seek financial security by living below their
means and saving money. They rarely buy luxurious items; they save
money instead.
PLEASURE Pleasure seekers use money to bring pleasure to
themselves and to others. They are more likely to spend than to save.
STATUS Some people use money to express their social status. They
like to purchase and "show off" their branded items.
 THERE ARE SIX MAJOR
CHARACTERISTIC TYPES IN HOW
PEOPLE VIEW MONEY (INCHARGE, 2017):
INDIFFERENCE Some people place very little importance on having
money and would rather grow their own food and craft their own clothes.
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 accumulate and tend to judge others based on the amount of
money they have.
 SPENDING
PATTERNS

Individuals have different spending patterns. Before

one can come up with a financial improvement plan,
one needs to analyze his/her spending habits.
 TWO COMMON SPENDING
PATTERNS
HABITUAL SPENDING
occurs when one spends out of a habit, when one buys the
same item daily (water, rice and cup of coffee), weekly
(grocery items), or monthly (electricity and Internet bills).

IMPULSIVE SPENDING
occurs when one mindlessly purchases items that he or she
does not need.
FIXED VS. VARIABLE EXPENSES

remain the same year-round (car

payment).
Occur regularly but the amount you pay
varies (Electric and gas bills).
NEEDS VS. WANTS

are essential to our survival (food).

Are things that you would like to have

but you can live without (new cellphone
model).
 SETTING FINANCIAL GOALS
> SETTNG FINANCIAL GOALS IS THE FIRST STEP
TO MANAGING ONE'S FINANCIAL LIFE.
SHORT-TERM MEDIUM TERM LONG-TERM
GOALS GOALS GOALS
> Can be measured in > Should be accomplished > Can take years
weeks and can provide within one to six months. to achieve (saving
instant gratification and These goals provide money for a down
feedback ("I will ride on opportunity for reflection payment on a
the LRT instead of taxi" and feedback, require home, paying of a
and "I will bring lunch discipline and consistency. car).
everyday")
Developing a Spending Plan
Time and effort are necessary to build a sustainable spending plan.

3 Easy Steps When Developing Your PERSONAL

SPENDING PLAN:

RECORD
- Keep a record of what you spend.
REVIEW
- Analyze the information and decide what you do.
TAKE ACTION
- Do something about what you have written
down.
 IMPORTANCE OF SAVING
HERE ARE SOME REASONS WHY SAVING IS
IMPORTANT:

EMERGENCY BOLSTER
You should save money, to avoid going to debt just to pay
emergency situations (unexpected medical expenses and
damages caused by calamities or accidents).

RETIREMENT
You will need savings/investments to take the place of income
you will no longer receive when you retire.
 IMPORTANCE OF SAVING
HERE ARE SOME REASONS WHY SAVING IS
IMPORTANT:

FUTURE EVENTS
You need to save for future events (weddings, birthdays,
anniversaries, and travels) so as not to sacrifice your fixed
expenses.

INSTABILITY OF SOCIAL SECURITY

Pensions from social security should only serve as
supplementary and not the primary source of income after
retirement.
There are 2 ways to save:

save before you spend;

and save after you spend wisely.
 IN ORDER TO STICK TO
THE SAVINGS HABIT, YOU
SHOULD:
commit to a month;
find an accountability partner;
find saving role model who is successful with his/her
money, through tried and true savings;
write your goal down and track it; and
avoid tempting situations (don't go to the mall to
"hang out")
THANK YOU

MARY JEAN NAPURAN

NATASHA GOCELA