The State of Financial Literacy in PH

Financial literacy and economic development go hand in hand. This is especially true for emerging countries like the Philippines. Financial literacy is key to ensuring the sustainability of an economy into the future. With various market forces affecting global and regional economies, we need to be prepared and familiar with financial matters and information that can empower us and enable us to make the right financial decisions and protect our investments. Unfortunately, financial literacy in the Philippines is an almost foreign concept to the majority of citizens in our country, with only 25% of the Filipino population being able to answer financial literacy questions through surveys. This is generally alarming since financial literacy plays a vital role in ensuring the sustainability of the Philippine economy. In this article, we’ll talk about what financial literacy is, why it’s important for today’s workforce, and how organizations, businesses, and even educational institutions can promote financial literacy. in the Phillippines.

What is Financial Literacy?

Broadly, financial literacy refers to the ability of individuals to effectively apply their financial skills for effective budgeting, investing, and managing personal finances. Although financial literacy is an important factor in the life of every Filipino, it is especially crucial for the middle class and the workforce, with financial literacy strongly dictating how they can have a positive relationship with money in this pertaining to owned businesses, educational support, and retirement.

Without financial literacy, you cannot make important decisions about investing, saving, borrowing and, most certainly, insurance. Indeed, it has been found, for example, that the lack of understanding of interest rates has put creditors at risk.

What is the state of financial literacy in the Philippines today?

Many studies and surveys looking at the financial literacy of the Filipino population have yielded almost the same results, with the majority of Filipinos having no concrete understanding of financial management. One such survey was conducted by S&P, an international credit rating agency that produces financial research. S&P conducted its S&P Rating Services Global Financial Literacy Survey in 2014, billed as the “most comprehensive measure of global financial literacy to date”, and found that the Philippines ranked in the bottom 30 out of 144 countries. studied. Only 25% of adult Filipinos know the basics of finance.

The survey was conducted by asking 150,000 adults in 144 countries about four basic financial concepts: numeracy (interest), risk diversification, inflation and compound interest. The study was conducted with the participation of the Gallup World Poll, the World Bank and the Global Financial Literacy Excellence Center (GFLEC) based at George Washington University.

One of the startling findings is that two-thirds of adults worldwide are financially illiterate. And that only a third of adults in the world are financially literate. This means that approximately 3.5 billion adults worldwide are financially illiterate. He also noted that the people most likely to be financially illiterate are women, the poor and the less educated. Men were more literate (35%) than women (30%).

Interestingly, the study found that those who availed themselves of financial services, such as those from banks and credit card companies, were most likely to have higher financial literacy, regardless of wealth or education level. . Nevertheless, the study concluded that, in general, the rich have better financial skills than the poor. Also interestingly, financial literacy increases as income increases and education level increases. Another amazing finding is that financial literacy improves from general math proficiency.

This is also evident in the prevalence of formal savings in Filipino households. According to statistics, only 40% of Filipino adults save. Of those who save, 68% keep their money saved at home, 33% keep their money in formal financial institutions, 7.5% save through cooperatives, and 2.6% keep their money in group savings, or paluwagan.

However, the blame should not be placed entirely on the population since access to banks and formal financial institutions is scarce in some parts of the Philippines. In 2014, according to data from Bangko Sentral ng Pilipinas (BSP), 595 municipalities in the country did not have a bank. This is out of a total of 1,490 municipalities in the country. This notwithstanding the fact that national banking offices increased from 7,585 in 2001 to 10,315 at the end of December 2014. A significant increase can also be seen in the distribution of ATMs, which increased from 3,882 in 2001 to 15,562 at the end of December 2014. So, while financial knowledge can be easily disseminated across the Filipino population, a significant percentage of the population will still be unable to effectively utilize best practices in financial literacy in the Philippines. This shows that financial literacy must coexist with better banking accessibility to be fully practiced.

Why is financial literacy important in the Philippines?

Today, a significant number of Filipinos are still easily defrauded of their hard-earned money through various elaborate scams. These include high yield pyramid scams that do not hold a strong asset base to generate the expected returns. Financial misinformation can create a ripple effect that can destroy individual savings, households, financial institutions and potentially economies.

The most obvious solution to this financial problem, however, is to promote financial literacy at different levels, regardless of a person’s social status and income level. Through financial education programs in the Philippines, Filipinos can learn how to make effective financial plans, manage their savings and expenses, and set short and long-term financial goals, including planning for retirement, life insurance and pension funds, which can strongly support the mature part of the population.

With better financial literacy in the Philippines, Filipinos can also achieve financial independence through smart investments, as well as demand better financial services and terms for loans and lines of credit. On a larger scale, this can increase national savings rates and foster an environment of “financial inclusion”, which can allow us to increase national productivity in a more sustainable way and create a step change from being focused on consumption to become investment-oriented. economy.

Fortunately, government and private institutions are well on their way to promoting financial literacy. CitisecOnline and BPI Securities offer free stock market investing seminars to educate retail investors. Similarly, local shows like On the Money in ANC feature a wide range of investment topics, financial instruments, and guest experts who share their knowledge with viewers on the basics of spending and investing. investment. Similarly, at Finex, we also contribute to financial literacy by working hand in hand with government and other private sector representatives, organizing a series of seminars aimed at increasing the financial education of the public in order to promote the financial inclusion and sustainable growth.

For private companies, financial literacy may be a secondary goal to your organization’s vision of providing a thriving culture for your employees. The most common financial concern for an employee today is retirement. Collaborative research conducted by Bank of America and Merrill Lynch in 2015 showed that workers respond very well when they benefit from empowerment programs such as personal financial literacy in the workplace. Offering financial solutions can help improve business with increased employee satisfaction. This helps retain employees and productivity, as the study found, could be as high as 91%. This contributes to a healthier bottom line.

The study also found that if employees aren’t stressed about their finances, they’re more engaged at work. In this way, productivity can be doubled. No one can deny the fact that employees with high morale at work are more productive.

The autonomy to make decisions based on their financial situation gives workers a boost in self-esteem. Employers will also be happier if they can keep their employees productive by providing powerful financial literacy programs. The attrition rate will decrease when workers value their workplace where they gain a solid understanding of financial literacy.

The change this nation needs could start in the workplace. Every business wants to not only survive, but also thrive. That’s why good employers must create a sustainable strategy to retain good, productive workers. If you want to have an exceptional organization, invest in your employees and allow them to thrive using crucial knowledge about their finances.

Filipinos can do more with better financial literacy

The Philippines is one of the fastest growing economies in the region and at this point financial literacy is very important. We must help educate individuals to understand basic money management, financial planning, and investments so that we can empower more of the population to support themselves and their families. and invest in the future.

Let me end this article by quoting a good insight I took from the ADBI working paper: “…as economies grow, access to financial products and services will increase, but households and small and medium enterprises need to be able to use products and services wisely and efficiently.More efficient management of savings and investments can contribute to overall economic growth.

Geraldine L. Melton