FINANCIAL
LITERACY
The national endowment for financial education defines
financial literacy as “the ability to read, analyze, manage and
communicate about the personal financial choices, discuss
money and financial issues without discomfort, plan for the
future, and respond competently to life events that affect every
day financial decisions, including events in the general
economy” (Incharge education foundation, 2017)
Mandell, 2009- the ability to use knowledge and skills to
manage one’s financial resources effectively for lifetime
financial security.
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 US that focuses on the economic and financial
education of students from Kindergarten 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.
STANDAR KEY CONCEPTS
DS
Earning • Income earned or received by people
• Different types of jobs as well as different forms of
Income income earned or received
• Benefits and costs of increasing income through the
acquisition of education and skills
• Government programs that affect income
• Types of income and taxes
• Labor market
• Scarcity, choice, and opportunity cost
Buying goods • Factors that influence spending choices, such as
and services advertising, peer pressure and spending choices
of others
• Comparing the costs and benefits of spending
decisions
• Basics of budgeting and planning
• Making a spending decision
• 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 for consumers
• Concept of saving and interest
Saving • 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)
• Role of markets in determining interest rate
• The mathematics of saving
• The power of compound interest
• Real versus nominal interest rates
• Present versus future value
• Financial regulators
• The factors determining the value of a person’s savings over time
• Automatic savings plans, “rainy-day” funds
• Saving for retirement
Using • Concept of credit and the cost of using credit
• Why people use credit and the sources of credit
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 protection laws
Financial • Concept of financial investment
Investing • Variety of possible financial investment
• 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 • Concepts of financial risk and loss
and • Insurance (transfer of risk through risk
Insuring pooling)
• Managing risk
• Identify theft
• Life insurance products
• How to protect oneself against identify
theft
The benefits of financial literacy
Financial literacy enables people to understand
and apply knowledge and skills to achieve a
lifestyle that is financially balanced, sustainable,
ethnical and responsible.
Financial Literacy in the Philippines
Go, 2017 the state of financial education in the Philippines
• World bank study in 2014 estimated 20 million Filipinos saved money but only
half had ban accounts
• Asian Development Bank (ADB) study in 2015 revealed that PH does not have
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 initiative
• As per Standard and Poor’s (S&P) Ratings services survey
last year, only 25% of Filipinos are financially literate.
This means that about 75million Filipinos have no idea
about inflation, risk diversification, insurance, compound
interest, and bank savings
• Ten years after discovery of the stock market, still less
than one percent of PH population is invested in it.
• More that 80 percent of the working middle class have
no formal financial plan
Developing Personal Financial Literacy
One’s attitude about money is heavily
influenced by the parent’s attitude and behavior
about money. The attitudes you formed early in
life probably affect how you save, spend, and
invest today.
Six major characteristics types in how people
view money
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: 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 dept.
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 if having too much money makes them nervous and
uncomfortable.
Powerful: people use money to express power or control over others.
Self-worth: who spend money for self- worth value how much they
accumulate and tend to judge others based on the amount of money
they have.
