Developing Personal Financial Literacy

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.

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 every day financial decisions, including events in the general economy" (Incharge Education Foundation, 2017). To put it simply, it is "the ability to use knowledge and skills to manage o ne’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 bond, 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 A ct,” 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 United States 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.

Standards

Earning income

Key Concepts

• income earned or received by people • different types of jobs as well as different forms of 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