Chapter IV: FINANCIAL LITERACY
Time Table: 3 hours
Topic Learning Outcomes:
a. Define financial literacy;
b. Assess level of personal financial literacy using set of standards and questions;
c. Characterize financial literacy in the Philippines; and
d. Start practical steps to develop personal financial literacy.
Enabling Activity
Watch the video entitled “The Most Valuable Financial Asset You Will Ever Have | Importance of
Financial Literacy/Intelligence” thru the link provided below.( [Link]
v=1V_5R6dHNFE. After watching the video, share your thoughts with a pair.
Deepen!
The national Endowment for Financial Education defines financial literacy as ‘’the ability to read, analyze,
manage, and communicate about 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 every day
financial decisions, including events in the general economy’’ (In charge Education Foundation, 2017)
Hastings, et. al. (2013) refers to financial literacy as:
• Knowledge of financial product (e.g., a stock vs. a bond, fixed vs. adjustable rate mortgage);
• Knowledge of financial concepts (e.g., inflation, compounding, diversification, credit scores);
• Having the mathematical skills or numeracy for effective financial decision making; and
• Being engaged in certain activities such as financial planning.
• Public and private institutions alike have recognized the need for financial literacy to be
incorporated in the school curriculum.
• Financial education and advocacy programs of the public and private sectors have been identified
as key areas in building an improved financial system in the Philippines (Go, 2017).
• Republic Act (RA) 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 Six Standards and Concepts
Standards Key Concepts
Earning Income • Income earned or received by people
• Different types of jobs as well as different forms of
income or received
• Benefits and costs of increasing income through the
acquisition of education and skills
• Types of income and taxes
• Labor market
Buying Goods • Scarcity, choice, and opportunity cost
and Services • Factors that influence spending choices, such as
advertising, peer pressure, and spending choices of
others
• Comparing the costs and benefits of spending
decisions
• Basics of budgeting and planning
• Payment methods, costs, and benefits of each
• Budgeting and classification of expenses
• Satisfaction, determinants of demands, costs of
information search, choice of product durability
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 saving deposits
• Role of markets in determining interest rates
• The mathematics of saving
• Real versus nominal interest rates
• Present vs. future value
• Financial regulators
• The factors determining the value of a person’s
savings over time
• Automatic savings plans, ‘’rain-day funds’’
• Savings for retirements
Using Credits • 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,
interest, compound interest)
• Credit reports and credit scores
• Behaviors that contribute to strong credit reports and
scores
• Impact of credit reports and scores on consumers
• Consumer protecting laws
Financial • Concept of financial investment
Investing • Variety of possible financial investments
• Calculate rates of return
• Relevance and calculation of real and after-tax rates of
return
• 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
Protecting and • Concepts of financial risk and loss
Insuring • Insurance (transfer of risk through risk pooling)
• Managing risk
• Identity theft
• Life insurance products
• How to protect oneself against identity theft
Financial Literacy in the Philippines
In this article ‘’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% 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% of the working middle class have no formal financial plan.
The benefits of Financial Literacy
• One’s level of 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 enables people to understand and apply knowledge and skills to achieve a
lifestyle that is financially balanced, sustainable, ethical, and responsible.
Developing Personal Financial Literacy
• One’s attitude about money is heavily influenced by the parent’s attitude and behavior about
money. The attitude 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).
a. Fugal c. Status e. Powerful
b. Pleasure d. Indifference f. Self-worth
Spending patterns
• Before one can come up with a financial improvement plan, one needs to analyze his/her spending
habits
• Two common types of spending pattern:
1. Habitual Spending – occurs when one spends out of habits, when one buys the same items daily,
weekly or monthly.
ex: daily: water, rice, coffee, and the like
weekly: groceries and the like
monthly: electric bills, internet bills and the like
2. Impulsive Spending – occurs when one mindlessly purchases items that he or she does not need.
ex: sales on malls and the like
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 disciplines starts with an ability to recognized whether expenses are needs or wants, and
followed by ability to prioritize needs over wants.
• Needs are essential for survival.
ex: water, rice and the like
• Wants are things that you would like to have but can live without.
ex: cellphones, new clothes and the like
Practical Steps to enhance Financial Literacy
• Setting Financial Goals
1. Short – term goals – can be measured in weeks and can provide instant gratification and feedback.
2. Medium goals – should be accomplished within one to six month.
3. Long-term goals – can take years to achieve.
• Developing a Spending Plan
Three easy steps:
1. Record – keep 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
Here are some reasons why saving is important:
1. Emergency Bolster
2. Retirement
3. Future Events
4. Instability of Social Security
5. A Little Goes a Long Way
There are two ways to save:
1. save before you spend; and
2. 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; and
4. write your goal down and track it; and
5. avoid attempting situations (don’t go to the mall to ‘’hang out’’)
