FINANCIAL
LITERACY
OBJECTIVES
At the end of this chapter, you should
be able to:
1. define financial literacy
2. assess level of personal financial
literacy using set of standards and
questions:
3. characterize financial literacy in the
Philippines; and
4. start practical steps to develop
personal financial literacy.
FINANCIA LITERACY defined
National Endowment on Financial Education
defines it as
"the ability to read, analyze,
manage, and communicate
about the personal financial
conditions that affect material
well-being.
Mandell (2009) simply put it as
“the ability to use knowledge
and skills to manage one's
financial resources effectively
for lifetime financial security"
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
event in general economy.
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According to HASTING (2013)
Financial Literacy
could also mean:
1. knowledge of financial
products (e.g.. a stock vs. a
bond, fixed vs adjustable rate
mortgage):
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Financial Literacy
could also mean:
2. knowedge of financial concepts
(e.g.. inflation, compounding,
diversification, credit scores)
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Financial Literacy
could also mean:
3. having the mathematical
skills or numeracy necessary
for effective financial decision
making
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Financial Literacy
could also mean:
4. being engaged in certain
activities such as financial
planning.
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Determinants of
financially-literate
persons:
1. Plans, saves, invests in stocks, accumulate more
wealth (Lusardi and Mitchell, 2014)
2. Less credit card debt
3. When they borrow, they manage their loans
better, paying off the full amount each month
rather than just the minimum due.
4. They refinance their mortgages when it makes
sense to do so
5. Less likely to use high-cost borrowing methods
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“
“invest in more sophisticated
assets, generating higher
expected returns on
retirement saving along with
lower nonsystematic risks,”
according to Mitchell (2014).
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Is financial education
an antidote to poor
financial decision
making?
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Financial education should be the best
tool to effectively come up with better
financial outcomes.
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Saving is imperative to improve
individual and societal welfare.
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However, access to financial education
does not guarantee that poor financial
practices are provided with solutions.
Financial literacy
among Filipinos
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The Filipino mindset upon receipt
of salaries, as commonly-known, is
that upon receipt of salaries,
spending comes in before saving.
What is left, is saved. If there’s
none left, then, there’s nothing
saved.
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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.
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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").
There are two ways to save:
a. save before you spend; and
b. save after you spend wisely.
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According to a study conducted by
Philam Life, 96 percent of Filipinos
are concerned about their own and
their family’s health, however, only
16 percent of them are prepared to
pay for medical costs in case they
are diagnosed with a critical illness.
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There is a rising number of seniordependents or those retirees who
depend on their children for
financial help, due to lack of
financial education.
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Financial planning teaches
individuals to be responsible when
it comes to their finances, and
instills the discipline needed in
order to keep track of their
financial goals.
short-term
medium-term
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long-term
To address the growing demand for
more investments in the country,
the financial industry advises that
Filipinos should save first and
spend whatever is left after putting
their savings aside.
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Importance of Saving
Emergency Bolster
Retirement
Future Events
Instability of Social Security
Little Goes a Long Way
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