FINANCIAL LITERACY

CHAPTER 4
What is the meaning
of financial
literacy?
 Financial literacy is the ability to
understand and effectively use
various financial skills, including
personal financial management,
budgeting, and investing. The
meaning of financial literacy is the
foundation of your relationship with
money, and it is a lifelong journey of
learning.
What is financial
literacy and why is
it important?
 In a nutshell, financial literacy is
being able to manage your money
wisely. Financial literacy involves
knowing and using the basic
concepts of financial literacy. As
mentioned above, these include
saving, investing, budgeting, and
borrowing.
The Benefits of
Financial Literacy
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 in how people view money

1. Frugal
2. Pleasure
3. Status
4. Indifference
5. Powerful
6. Self-worth
Frugal:
Frugal people seek financial security by living
below their means and saving
money. They rarely buy luxurious items: they
save money instead. They save money
because they believe that money will 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 craft their
own clothes. It is as it 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
accumulate
and tend to judge others based on
the amount of money they have.
Spending Patterns
Are you prudent or have you been accused of spending money
lavishly? Or 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 two 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. or monthly. Daily items may include
water, rice, and cup of coffee. Week 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 you 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 wants. 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 cell
phone model. You want them but do not
necessarily need.
ENHANCE

Here are practical steps you can

undertake to enhance your
financial literacy.
Setting Financial Goals
 Setting financial goals is the first step to managing one's
financial life. Goals may be short, medium, and long-
term. Short-term goals can be measured in weeks and
can provide instant gratification and feedback. "I will ride
on the LRT instead of taxi" and "I will bring lunch every
day" are examples of short-term goals. Medium-term
goals should be accomplished within one to six months.
These goals provide opportunity for reflection and
feedback and require discipline and consistency. Long-
term financial goals can take years to achieve. These
include saving money for a down payment on a home, o
child's college education, and retirement. They may also
include paying off a car, student loans, or credit card debt.
Developing a Spending Plan

 Time and effort are necessary to

build a sustainable spending plan.
Three easy steps are proposed below
when developing your personal
spending plan:

 1. Record-Keep a record of what you spend.

 2. Review-Analyze the information and
decide what you do.
 3. Take action-Do something about what you
have written down.
Importance of Saving

 Importance of Saving, because no

one can predict the future with
certainty, we need to save money
for anything that might happen.
Here are some reasons why
saving is important:
Emergency Bolster
 You should save money to
avoid going to debt just to pay
emergency situations, like
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.
Future Events
 You need to save for future
events like 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.
A Little Goes a Long Way

 Small consistent savings go a long

way.
There are two ways to save:

 save before you spend; and

 save after you spend wisely.
In order to stick to the
savings habit, you should:
 1. commit to a month;
 2. find an accountability partner:
 3. find a savings role model who is
successful with his/her money, through
tried and true savings:
 4. write your goal down and track it; and
 5. avoid tempting situations (don't go to
the mall to "hang out").