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    PRED 3210 Chapter 4

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    Jheny Palamara

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    PRED 3210 Chapter 4

    Uploaded by

    Jheny Palamara
    17 views8 pages

    Copyright

    © © All Rights Reserved

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    Copyright:

    © All Rights Reserved
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    Download as pptx, pdf, or txt
    17 views8 pages

    PRED 3210 Chapter 4

    Uploaded by

    Jheny Palamara

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    You are on page 1of 8

    CHAPTER 4:

    FINANCIAL LITERACY FOR


    FILIPINOS: UNDERSTANDING
    FOR BETTER LIVING
    What is financial literacy?
    • Financial literacy, financial knowledge and financial education are used
    interchangeably in formal literature and popular media. Various sources provide
    various definitions to financial literacy, but have one thing in common— everything
    revolves around money, knowledge and use.
    • Mandell (2009) defines financial literacy as “the ability to use knowledge and skills
    to manage one’s financial resources effectively for lifetime financial security.”
    Huston (2010) explains that financial literacy is made up of two elements:
    understanding and use. Understanding financial literacy implies that a person is
    knowledgeable about personal finance, and applies such knowledge in dealing with
    one’s finances.
    Hastings, et al (2013) refers to financial
    literacy as:
    1. Knowledge of financial products (e.g., what is a stock vs. a bond; the difference
    between a fixed vs. an adjustable rate mortgage);
    2. Knowledge of financial concepts (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.

    More knowledgeable individuals “invest in more sophisticated assets, generating


    higher expected returns on retirement saving along with lower nonsystematic risks,”
    according to Mitchell (2014).
    Determinants of financially-literate
    persons:
    1. Plans, saves, invests in stocks, accumulate more wealth (Lusardi and Mitchell,
    2014)
    2. Less credit card debt
    3. Whenthey 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
    Is financial education an antidote to
    poor financial decision making?
    • Bernheim, et al (2001) believe that although financial literacy is a somewhat new,
    policy initiatives in financial literacy is not. In 1950s, the United States began
    recommending policies to improve the quality of personal financial decision making
    through financial education thru the “inclusion of personal finance, economics, and
    other consumer education topics” to children enrolled in the K-12 educational
    curriculum.
    • Financial education should be the best tool to effectively come up with better
    financial outcomes. Previous studies have shown that lower levels of financial
    literacy is associated with lower rates for planning for retirement, lower rates of
    asset accumulation, using higher-cost financials services, lower participation in the
    stock market, and higher levels of debt.
    • Saving is imperative to improve individual and societal welfare. At the personal
    level, savings help households achieve smooth consumption patterns. Savings also
    help finance productive investments in human and business capital. At the
    macroeconomic level, savings rates are strongly predictive of future economic
    growth.
    • However, access to financial education does not guarantee that poor financial
    practices are provided with solutions. In saving, learners should be taught the best
    way to save and safeguard their money. Although saving is now taught in schools
    and various conferences, policymakers need to look into teaching people the
    possibility of saving more by paying down existing debt. In the Philippines, the
    current administration has been taking small steps to pin down the problem on debts
    and encourage saving more by offering lower loan rates to micro and small business
    enterprises.

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