CHAPTER 4

FINANCIAL LITERACY
OBJECTIVES:

At the end of this chapter, you should be able to:

• Define financial literacy
• Assess the level of personal financial literacy using a set of
standards and questions;
• Characterize financial literacy in the Philippines;and
• Start practical steps to develop personal financial literacy.
“The ability to use knowledge and skills to manage one’s financial
resources effectively for lifetime security” (Mandell.2009)

1. Knowledge of financial products( a stock vs.a bond ,fixed vs. adjustable

rate management)
2. Knowledge of financial concepts (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.
The six standards are geared toward deepening students’
understanding of personal finance from an economic perspective

EARNING INCOME
- income earned or received by people
- different types of jobs as well as different forms of income earned or
received
- Benefits and cost of increasing income through the acquisition of
education and skills
- Government programs that affect income
- Types of income and taxes
- Labor market
Buying goods and services

• Scarcity, choice, and opportunity cost

• Factors that influence spending choices, such as advertising, peer pressure, and
spending choices of others
• Comparing the cost and benefits of spending decisions
• Basics of budgeting and planning
• Making spending decisions
• Payment methods, costs, and benefits of each
• Budgeting and classification of expenses
• Satisfaction determinants of demand, costs of information search, choice of product
durability
• The role of government and other institutions in providing information to consumers
 Saving
• Concept of saving and interest
• How people save money, where people can save money, and why people save
money
• The role that financial institutions play as intermediaries 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
• The power of compound interest
• Real versus future value
• Financial regulators
• The factors determining the value of a person’s savings over time
Using Credit

• 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, calculators related to borrowing (principal, interest, compound
interest)
Financial Investigating

• Concept of financial investment

• Variety of possible financial investment
• Calculate rates of turn
• Relevance and calculation of real and after-tax rates of retuen
• How to market cause rates of return to change in response to
variation in risk and maturity
Protecting and Insuring

• Concepts of financial and loss

• Insurance (transfer to risk through risk pooling)
• Managing risk
• Identify Theft
• Life insurance products
• How to protect oneself against identity theft
The Benefits of Financial Literacy

Financial Literacy affects one’s

quality of life significantly. It
determines one’s ability to
provide basic needs, attitude
toward money and investment,
as well as one’s contribution to
the community
Financial Literacy in the Philippines

• A World Bank study in 2014 estimated 20

million Filipinos saved money but only half
of bank accounts
• In 2016, Bangko Sentral ng Pilipinas (BSP)
released the national strategy for financial
inclusion, stating that while institution
strives to broaden financial services,
financial literacy should also complement
such initiatives.
Developing Personal Financial Literacy

• One’s attitude about money is heavenly

influenced by the parent’s behavior about
money. The attitude you formed early in
life probably affects how to save,
spend,and invest.
There are six major characteristics types in
how people view money (Incharge.2017)

• FRUGAL-people seek financial security by living below their means and

saving money.
• PLEASURE- seekers use money to bring pleasure to themselves and 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.
• INDIFFERENCE- some people place very little importance on having money
and would rather grow their own food or 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.
Spending Patterns

• There are two common spending patterns

1. HABITUAL SPENDING –occurs when one spends out of a
habit, when one buys the same item daily, weekly, or
monthly.
2. IMPULSIVE SPENDING- occurs when one mindlessly
purchases items that he or she does not need.
Fixed vs Variable Expenses

• FIXED EXPENSES- remain the same year–round.

Example; Car payment
• VARIABLE EXPENSES- occur regularly but the amount you pay
varies.
Example; Electric and Gas Bills
Setting Financial Goals

1. SHORT TERM GOALS- can be measured in weeks and can provide

instant gratification and feedback,
Example; ‘I will ride on the LRT instead of Taxi’ and ‘I will bring
lunch every day’.
2. MEDUIM TERM GOALS- should be accomplished within one to six
months.
3. LONG TERM –financial goals can take years to achieve.
Developing a 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 Savings

• Emergency Bolster- You should save money to avoid going into debt just to
pay emergencies, 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.
• 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.
THANK YOU !!!