4 No iceCHAPTER 4 DONE

CHAPTER 4
FINANCIAL LITERACY
OBJECTIVES:
At the end of this chapter , you should be able to:
 Define financial literacy;
 Assess level of personal financial literacy using set of standards

and questions;
 Characterize financial literacy in the Philippines; and
 Start practical steps to develop personal financial literacy.

Financial literacy is the possession of the set of skills
and knowledge that allows an individual to make informed
and effective decisions with all of their financial resources.
The national endowment for financial education defines financial
literacy as
“the ability to read, analyze, manage, and communicate about the

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 everyday financial
decisions, including events in the general economy”
To put it simply, it is “the ability to use knowledge and skills to manage
one’s financial resources effectively for lifetime financial
security”(Mandell,2009).
Meanwhile, Hastings, et al. (2013) refers to financial literacy as:
1. knowledge of financial products (e.g., a stock vs. a band, fixed

vs.adjustable rate mortgage);
2. knowledge of financial concepts (e.g., 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.

 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 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 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 uderstand and apply

knowledge and skills to achieve a lifestyle that is financially
balanced, sustainable, ethical, and reponsible.
Increased personal financial literacy affects one’s financial
behavior. These changes in behavior pay dividends to society as
well. People who work, spend, save, borrow, invest, and manage
risk wisely are less likely to require a government rescue.
Financial literacy does not totally eliminate the need for a social
safety net because even the most prudent individual can
encounter financial difficulties. But taking reponsibility for one’s
financial life cultivates proper decision-making skills and
discipline. Most of the responsibility for managing financial
matters rests with the individual. That responsibility is easier for
adults to bear when they have learned the basics of persoal
finance in thier youth.
FINANCIAL LITERACY IN THE PHILIPPINES
In his article “State of Financial Education in the

Philippines,”Go (2017) indicated several findings of
researchers 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% of Filipinos are financially literate. This means that about 75 million
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 than 80 percent of the working middle class have no formal

financial plan.
Because of these findings, public and private sectors alike have
recognized the need to strengthen financial education in the country.
Last november 27-28, 2018, more than 1,000 leaders, decision
makers, influencers, and representatives from public and private
institutions, civic society, and the academe gathered for the first ever
Financial Education Stakeholders Expo organized by BSP.
The Expo is designed to build an organized network of players

that share the vision of a financially literate citezenry and cohesively
implement a variety of initiatives to achieve this vision.
The expo supports Republic Act No. 10922 which
designates second week of november as Economic and
Financial Literacy Week. It is also aligned with the
objectives of the Philippine National Strategy for
Financial Inclusion, particularly the pillar on Financial
Education and Consumer Protection.
DEVELOPING PERSONAL FINANCIAL LITERACY
One’s attitude about money is heavily influenced by the parent’s attitude and
behavior abut 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
(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 to others.
• STATUS – some people use money to express their social status.
• INDIFFERENCE – some people place very little importance on having money and
would rather grow their own food and craft their own clothes.
• 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.
Which characteristic closely
resembles your attitude about
money?
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
anlyze 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 maybe 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 peopl are
often enticed by monhly
sales at the malls with the
attitude that they may lose
the items the following
day.
FIXED vs. VARIABLE EXPENSES
Fixed expenses reemain the same

year-round. Car payment is an example.
FIXED vs. VARIABLE EXPENSES
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 recognized wether
expenses are needs or wants, and followed by ability to
prioritized 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 cellphone model. You want
them but do not necessarily need
them. Too many wants can ruin
a budget.
ENHANCE:
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 everyday” are examples of short-term
goals.
Meduim-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, a 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
Because no one can predict the future with certainly, 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 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/er 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”).

Activity: Debate!!
Topic: Rent vs buy.

Payoff debt vs
invest.
REFERENCES:
BOOK: Building and Enhancing New Literacies Across the Curriculum

AUTHORS: Elen Joy P. Alata, MA Ed. and Eigen John T. Ignacio, MA Ed.
Council for Economic Education. (2013). National standards for financial literacy.
Retrieved from https://www.councilforeconed.org
Hastings, J.S., Madrian , B.C.,& Skimmyhorn, W.L.(2013). Financial literacy,

financial education, and economic outcomes. Annual Review of Economics,5,347-
373.
Mandell, L.(2009). The financial literacy of young American Adults: Results of the
2008 National Jump$tart Coalition Survey of High School Seniors and College
Students. Washington D.C.: The Jump$tart coalition for personal Financial Literacy.
THANK YOU 

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CHAPTER 4

 Define financial literacy;

 Assess level of personal financial literacy using set of standards

 Characterize financial literacy in the Philippines; and

 Start practical steps to develop personal financial literacy.

“the ability to read, analyze, manage, and communicate about the

It includes the ability to discern financial choices, discuss money and

Meanwhile, Hastings, et al. (2013) refers to financial literacy as:

1. knowledge of financial products (e.g., a stock vs. a band, fixed

2. knowledge of financial concepts (e.g., inflation, compounding,

3. having the mathematical skills or numeracy necessary for effective

4. being engaged in certain activities such as financial planning.

 Republic act 10922, otherwise known as the “Economic

One’s level of financial literacy affects one’s quality of life

Financial literacy enables people to uderstand and apply

In his article “State of Financial Education in the

• World bank study in 2014 estimated 20 million Filipinos saved money

• Asian development bank (ADB) study in 2015 revealed that PH does

• More than 80 percent of the working middle class have no formal

The Expo is designed to build an organized network of players

• PLEASURE – seekers use money to bring pleasure to themselves and to others.

• STATUS – some people use money to express their social status.

• POWERFUL – people use money to express power or control over others.

Are you prudent or have you been accused of spending

Fixed expenses reemain the same

Variable expenses occur regularly but the amount

Needs are essential to our survival.

SETTING FINANCIAL GOALS

Setting financial goals is the first step to managing one’s financial

Short- term goals can be measured in weeks and can provide

“I will ride on the LRT instead of taxi” and “I will bring

These goals provide opportunity for reflection and

Long-term financial goals can take years to

These include saving money for a down payment

 Time and effort are necessary to build a sustainable

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

HERE ARE SOME REASONS WHY SAVING IS IMPORTANT:

• EMERGENCY BOLSTER – you should save money to avoid going

• RETIREMENT – you will need savings/investments to take the

• INSTABILITY OF SOCIAL SECURITY – pensions from social

• A LITTLE GOES LONG WAY – small consistent savings go a

• Save before you

• Save after you spend

2. Find an accountability partner;

3. Find a savings role model who is successful with his/er money ,

4. Write your goal down and track it; and

5. Avoid tempting situations (don’t go to the mall to “hang out”).

Topic: Rent vs buy.

BOOK: Building and Enhancing New Literacies Across the Curriculum

Hastings, J.S., Madrian , B.C.,& Skimmyhorn, W.L.(2013). Financial literacy,

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