Poor financial decisions can have a long-lasting impact on individuals, their families and the society caused by lack of financial literacy. Low levels of financial literacy are associated with lower standards of living, decreased psychological and physical well-being and greater reliance on government support. However, when put into correct practice, financial literacy can strengthen savings behavior, eliminate maxed-out credit cards and enhance timely debt. 

Financial literacy is the ability to make informed judgments and make effective decisions regarding the use and management of money. Hence, teaching financial literacy yields better financial management skills. 

Financial Literacy- according to the National Endowment for Financial Education is "ability to read, write, manage, and communicate about the personal financial condition that affects material well-being. It is the ability to discern financial choices, discuss money and financial issues without discomfort, plan for the future and respond competently to life events that affect everyday financial decisions including events in the general economy.

Financial Literacy- the ability to use knowledge and skills to manage one's financial resources effectively for lifetime financial security.

Hastings et al. 2013 refers Financial literacy as:

1. Knowledge of Financial Product

2. Knowledge of Financial Concept

3. Having the mathematical skills or numeracy necessary for effective financial decision making

4. Being engage in certain activity such as in qual financial planning

R.A, 10922- ECONOMIC AND FINANCIAL LITERACY ACT.

-mandates DepEd to ensure that economic and financial education becomes an integral part of formal learning

Council Economic Education-focuses on economics and financial education of students from kindergarten through high school develop six standard gearing toward depeaning students

Standards and Key Concepts: 

Earning income

KEY CONCEPT

• Income earned or received by people

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

• Benefits and cost of increasing

• income through the acquisition of education and skills

• Government programs that affect income

• Types of exam, and taxes

• Labor market

Buying Goods and Services

KEY CONCEPT

• Scarcity, choice and opportunity cost

• Factors that influence spending choices such as advertising peer pressure and spending choice of other

• Comparing the cost and benefit of spending decision

• Basics of budgeting and planning

• Making a spending decision

• Payment methods, cost and benefits of each

• Budgeting and classification of expenses

• Satisfaction, determinants of demand, cost of information search, choice of product durability

• The role of government and other institutions in providing information for consumers

Saving

KEY CONCEPT

• Concept of savings interest

• How people save money, where pedillis can save money, why people save money

• The role that financial institution play as intermediaries between savers and borrowers

• The role government agencies such as Federal

• Deposit Insurance Corporation play in protecting savers deposit

• Roles of markets in determining interest rate

• The mathematics of saving

• The power of compound interest

• Real versus nominal interest rate

• Present before future value

• Financial regulation

• The factors determining the value of a persons saving over time

• Automatic saving plans, "rainy-day" funds

• Saving for retirements

Using Credit

KEY CONCEPT

• Concept of credit and the use of credit

• Why people use credit and the sources of credit

• Why interest rates vary across borrowers

• Basic calculation related to borrowing(principal, interest, compound interest)

• Credit reports and credit scores

• Behavior that contribute to strong credit reports and scores

• Impact of credit reports on consumer

• Consumer protection laws

Financial Investing

KEY CONCEPT

• Concept of financial investment

• 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 reacts to changes in market condition and information

Protecting and Ensuring

KEY CONCEPT

• Concept of financial risk and lost

• Insurance (transfer of risk on risk-pooling

• Managing risk

• Identify theft

• Life insurance products

• How to protect oneself against identity theft

Protecting and Ensuring

KEY CONCEPTS

• Concept of financial risk and lost

• Insurance (transfer of risk on risk-pooling

• Managing risk

• Identify theft

• Life insurance products

• How to protect oneself against identity theft

Financial literacy among Filipinos

The Filipino mindset upon receipt of salaries, as commonly-known, is that upon receipt of salaries, spending comes in before saving. What is left, is saved. If there’s none left, then, there’s nothing saved. According to a study conducted by Philam Life, 96 percent of Filipinos are concerned about their own and their family’s health, however, only 16 percent of them are prepared to pay for medical costs in case they are diagnosed with a critical illness. There is a rising number of senior-dependents or those retirees who depend on their children for financial help, due to lack of financial education. Financial planning teaches individuals to be responsible when it comes to their finances, and instills the discipline needed in order to keep track of their financial goals.9

Financial planning involves educating Filipinos on the different types of goals that they should set: short-term, medium-term, and long-term. Short-term goals involve monthly living expenses that need to be paid, or the person’s basic needs, including the setting-up of an emergency fund.  In contrast, medium term goals are those you want to achieve in one to five years like buying a house or a car, while long term goals are those that take longer than five years to achieve. To address the growing demand for more investments in the country, the financial industry advises that Filipinos should save first and spend whatever is left after putting their savings aside.

The 2014 World Bank report on financial inclusion and literacy indicated that 20 million Filipinos save money, but only half have access to a bank account. The study showed that financial inclusion was a significant issue, with many Filipinos still excluded from formal financial systems. According to an ADB report from 2015, the Philippines lacked a comprehensive national strategy for financial education and literacy, highlighting the need for more robust financial literacy programs across the country.

In 2016, the Bangko Sentral ng Pilipinas (BSP) launched its National Strategy for Financial Inclusion, emphasizing the importance of both broadening financial services and improving financial literacy to ensure greater financial access and inclusion. A survey by Standard & Poor’s (S&P) in 2017 revealed that only 25% of Filipinos are financially literate, with a large gap in understanding fundamental financial concepts like inflation, diversification, and compound interest.

A 2017 study by Go stated that more than 80% of the working middle class in the Philippines do not have a formal financial plan. This reflects the need for broader education on personal finance management among this demographic. While in November 2018, the BSP organized the first Financial Education Stakeholders Expo, aligned with the implementation of Republic Act No. 10922, which aims to improve financial literacy in the Philippines.

Financial literacy in the Philippines remains a significant challenge despite efforts to improve it in recent years. The country exhibits a mix of progress and substantial gaps in terms of understanding financial concepts, managing personal finances, and accessing financial services. Here's a detailed characterization of financial literacy in the Philippines, supported by key studies and legitimate references.

1. Low Levels of Financial Literacy

A major concern in the Philippines is the low level of financial literacy among its population. A 2017 study by Standard & Poor’s (S&P) reported that only 25% of Filipinos are financially literate. The survey found that most Filipinos lack basic knowledge of essential financial concepts such as inflation, diversification, compound interest, and insurance. As a result, a large segment of the population struggles with sound financial decision-making, leaving them vulnerable to financial risks and instability.

2. Limited Access to Formal Financial Services

While the Philippines has made strides in expanding access to financial services, a significant portion of the population remains unbanked. According to the World Bank’s 2014 study, while approximately 20 million Filipinos save money, only about half have access to a formal bank account. This gap in access to formal financial institutions limits people’s ability to save, invest, or get credit, which exacerbates financial insecurity for many.

3. Lack of a National Strategy for Financial Education

As of 2015, the Asian Development Bank (ADB) pointed out that the Philippines lacked a comprehensive national strategy for financial education. The absence of a coordinated effort to promote financial literacy across various sectors meant that financial education initiatives were fragmented, often inconsistent, and unable to reach the broader population. This gap has hindered the development of a financially literate society, especially in rural areas.

4. Financial Inclusion Initiatives and National Strategy (BSP)

Recognizing the importance of financial literacy in driving financial inclusion, the Bangko Sentral ng Pilipinas (BSP) introduced the National Strategy for Financial Inclusion in 2016. This strategy aimed to improve financial literacy while simultaneously increasing access to financial services. It highlighted the need for both formal financial service delivery and financial education to help the public make informed decisions about saving, investing, and borrowing.

5. Financial Education Initiatives and Stakeholder Engagement

To address the growing need for financial education, the BSP organized the Financial Education Stakeholders Expo in 2018. This expo was the first of its kind in the Philippines and aimed to bring together various stakeholders, including financial institutions, government agencies, and educational organizations, to collaborate and promote financial literacy. The event was also aligned with the Republic Act No. 10922, which supports financial literacy initiatives. Such initiatives reflect a more structured approach to raising awareness about financial literacy at the national level.

6. Limited Investment in the Stock Market

Despite the presence of the stock market in the Philippines for over a decade, less than 1% of Filipinos are actively involved in stock market investments. This is partly due to a lack of understanding of investment opportunities and financial markets. A report by Go (2017) found that more than 80% of the working middle class in the Philippines do not have a formal financial plan. This suggests that many Filipinos are either unaware of investment options or lack the skills to make informed financial decisions regarding their investments.

7. The Growing Role of Digital Finance

As the Philippines becomes more digitally connected, there has been a push towards integrating digital finance into the financial literacy landscape. The rise of mobile money platforms, online banking, and digital investment tools has created opportunities to increase financial inclusion and improve financial literacy. However, this also presents new challenges, as many Filipinos are not fully equipped with the knowledge to safely navigate these digital financial tools

1. Develop financial education policies and set up robust financial products available to the financial intermediaries and their customers.7

2. Develop financial education policies and set up robust financial consumer protection frameworks to ensure that consumers are informed and understand the financial products available to them.7

3. Involve financial service providers and other key stakeholders to build the financial capabilities of the youth and adults through a variety of delivery channels. 8

4. Empower teenagers to deliver financial education on issues such as savings to younger children. This peer-to-peer approach is useful because young people tend to listen to their peers more than adults, and the participative approach helps foster youth as agents of change in their own communities.8

Financial literacy programs can reduce economic inequalities as well as empowering citizens and decreasing information asymmetries between financial intermediaries and their customers.

Step 1: Create a Budget

Why It’s Important: Tracking your income and expenses is essential for understanding your financial situation. By knowing exactly where your money is going, you can make informed decisions about saving and spending. According to a survey by Fidelity Investments (2020), 73% of successful savers attribute their success to budgeting. The practice of budgeting allows individuals to track their spending and save consistently. Furthermore, NerdWallet (2021) states that setting a budget helps you prioritize essential expenses and avoid overspending.

Step 2: Keep Track of Your Expenses

Why It’s Important? Tracking your expenses allows you to create an accurate budget and see where your money is going. It also helps identify areas where you may be overspending, so you can make adjustments. A study by Mint.com (2020) found that 60% of people who track their expenses are able to save more effectively. By tracking your spending habits, you can also identify impulse purchases and eliminate unnecessary expenses. Apps like Mint, YNAB (You Need a Budget), and others make tracking easy and accessible.

Step 3: Save Money

Why it’s Important? Saving is a crucial part of financial well-being. By setting specific savings goals, you are more likely to stay motivated and consistent in your efforts. The National Bureau of Economic Research (2021) found that setting specific savings goals increases the likelihood of saving. Additionally, a report from Bankrate (2020) noted that having a concrete goal (like buying a home or funding a vacation) helps individuals stay on track with their savings.

Step 4: Build Your Emergency Fund

Why it’s Important? An emergency fund acts as a financial buffer to help you avoid debt during unexpected financial challenges like medical bills, car repairs, or job loss. According to a 2021 Bankrate survey, only 41% of Americans could afford an unexpected $1,000 expense. Having an emergency fund is crucial in ensuring financial stability and preventing individuals from falling into debt when faced with the unexpected.

Step 5: Pay Yourself First

Why It’s Important? "Paying yourself first" means prioritizing savings before spending. This habit helps ensure that saving becomes an automatic and regular part of your financial routine. According to The Simple Dollar (2020), 85% of people who practice paying themselves first are able to save consistently. By automating your savings, you're less likely to dip into your savings account for non-essential expenses. Experts like Dave Ramsey recommend setting up automatic transfers to a savings account as an effective strategy.

Step 6: Invest in Your Future

Why it’s Important? Investing is one of the most effective ways to build wealth over time, and it can provide substantial returns compared to savings accounts or other low-interest options.

A Vanguard (2020) report found that long-term investments, such as stocks, outperform cash savings accounts in the long run. Furthermore, Fidelity Investments (2021) recommends that individuals take advantage of employer-sponsored retirement plans, like a 401(k), especially if there is an employer match.

Step 7: Read Personal Finance Books

Why it’s Important? Continuous learning about personal finance helps increase financial literacy, improves money management skills, and equips you with knowledge to make better decisions. A study from Harvard Business Review (2018) showed that reading personal finance books increases both financial literacy and the likelihood of making informed investment decisions. Books like Rich Dad Poor Dad by Robert Kiyosaki and The Total Money Makeover by Dave Ramsey are particularly popular for their accessible insights into managing money and investing.