INITAO COLLEGE

BUSINESS EDUCATION PROGRAM

Financial Literacy and Management (EC2)
2nd Semester of S.Y. 2018-2019

Chapter 6: Financial Fitness and Personal Financial Management

Personal Financial Management
* Financial literacy is the ability to use knowledge, skills, and confidence to manage one’s financial resources effectively
for a lifetime financial security, where:
- “knowledge” means understanding personal financial issues;
- “skills” means being able to apply that knowledge to manage one’s personal finances; and
- “Confidence” means feeling sufficiently self-assured to make decisions relating to one’s personal finances.
Benefits of Financial Literacy
1) Financial literacy clearly benefits individual consumers since they are able to make better and more informed
decisions when it comes to saving for their studies or future expenses.
2) People who make good financial decisions are more likely to achieve their financial goals, making them more likely
to hedge against financial risks and negative shocks and support economic growth.

* Personal financial literacy is the ability to know and understand the management of money to achieve personal financial
and investment goals.
* Personal Financial Management is being able to manage the money you have every day and being able to make the
best of it.
* Personal Finance management is the financial management which an individual is required to do to obtain, budget,
save, and spend money over time, considering various money risks and what may happen in the future. It starts with
examining your money management. It is done by clearly knowing how much you get from different sources (income) and
how much you spend on various items.
* Personal Financial planning generally involves looking at your current financial situation and predicting short-term and
long-term needs.
Note: In learning to manage money it’s very important to know what needs are and what wants are. Needs can be defined
as basic requirements that must be met for a living while Wants are things that may be nice but are not required to ensure
our daily living.

Managing Personal Finances

The Rat Race
Kiyosaki has described the rat race as individuals spending more money than they earn. They are not able to decide or control
their money because they have continually overspent their income resulting in higher monthly expenses than their monthly income.
The rat race, which occurs when people do not have control of their money, continue to overspend, do not make progress in paying off
debt, and are not able to invest in assets.
These individuals do not know about Kiyosaki’s Rule #1 or they do not have the discipline to follow Rule #1. The first step that
they must take to get out of the rat race is to realize that they are spending more than they are earning and that they must change
their financial habits and how they use and manage money.

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 INITAO COLLEGE
BUSINESS EDUCATION PROGRAM
Financial Literacy and Management (EC2)
2nd Semester of S.Y. 2018-2019

Financial Fitness Activity

Study the diagram of a “Financially Fit Person” and then compare with the numbered list of descriptions. Stick the
appropriate number on the label on the diagram. Here’s an example; Wise eyes: For noticing bargains that help you spend
wisely. The number for wise eyes is 20 so you stick the number 20 above the label ‘wise eyes’.

20

Descriptions:
1. For listening out for opportunities to make and save
money.
2. For seeing through bad deals that can cost you much
more than you first expect.
3. For noticing bargains that help you spend wisely.
4. For listening to the advice of those with the knowledge
and experience.
5. For smelling the difference between things you really
need to have and things that are just nice to have but
waste your money.
6. For asking questions to learn from others about
making and managing money.
7. For jumping over the many financial risks you have to
face to grow older.
8. For the passion, commitment, and perseverance to set
and achieve financial goals, and for pumping with pride
when you reach your goals.
9. For reaching out to friends and family who support
your goal of being financially fit and for holding back
those who encourage financially unhealthy habits.
10. For drawing out plans for how to spend your money.
11. For thinking of creative innovative ideas to make and
save money.
12. For kneeling down to keep out of sight of predators
who want to take your money in return for things you
don’t need.
13. For walking the long road of regular saving that leads
to financial freedom.
14. For sweat during the hard work you need to do to
make money.
15. For smiling when you become financially
independent.
16. For keeping your head on your shoulders when you
are tempted to lose your head and spend your money
foolishly.
17. For the strengths and firmness to resist all the
temptations to waste money on things that are nice to
have, but that you don’t need.
18. For carefully counting coins and notes.
19. For taking the right steps to become financially fit.
20. For noticing bargains that help you spend wisely.

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 INITAO COLLEGE
BUSINESS EDUCATION PROGRAM
Financial Literacy and Management (EC2)
2nd Semester of S.Y. 2018-2019

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 INITAO COLLEGE
BUSINESS EDUCATION PROGRAM
Financial Literacy and Management (EC2)
2nd Semester of S.Y. 2018-2019

Chapter 7: Overview on Financial Management

What is finance: cash flows between capital markets and firm’s operations

(1) Cash raised by selling financial assets in financial markets

(2) Cash invested in firm’s operations and used to purchase real assets
(3) Cash generated from firm’s operations
(4a) Cash reinvested in firms’ operations
(4b) Cash returned to investors
Financing decisions vs. investment decisions: raising money vs. allocating money
Activity (1) is a financing decision
Activity (2) is an investment decision
Activities (4a) and (4b) are financing decisions
The role of a financial manager
• Forecasting and planning of firms’ financial needs
• Making financing and investment decisions
• Coordinating with other departments/divisions
• Dealing with financial markets
• Managing risks
Finance includes three areas
(1) Financial management: corporate finance, which deals with decisions related to how many and what types of assets a firm
needs to acquire (investment decisions), how a firm should raise capital to purchase assets (financing decisions), and how a firm should
do to maximize its shareholders wealth (goal of a firm).
(2) Capital markets: study of financial markets and institutions, which deals with interest rates, stocks, bonds, government
securities, and other marketable securities. It also covers Federal Reserve System and its policies.
(3) Investments: study of security analysis, portfolio theory, market analysis, and behavioral finance
Forms of business organization
Proprietorship: an unincorporated business owned by one individual
Advantages:
• Easy and inexpensive to form
• Subject to less government regulations
• Lower income taxes
Disadvantages:
• Unlimited personal liability
• Limited lifetime of business
• Difficult to raise capital
Partnership: an unincorporated business owned by two or more people
Advantages vs. disadvantages: similar to those of proprietorship, in general
Corporation: legal entity created by a state
Advantages:
• Limited liability
• Easy to transfer the ownership
• Unlimited lifetime of business
• Easy to raise capital
Disadvantages:
• Double taxation (at both corporate and individual levels)
• Cost of reporting

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 INITAO COLLEGE
BUSINESS EDUCATION PROGRAM
Financial Literacy and Management (EC2)
2nd Semester of S.Y. 2018-2019
Chapter 8: Analyzing Demand
Market Demand refers to the buyers’ willingness and ability to pay a sum of money for some amount of a particular good or service.
Factors Affect Demand:
1. Average income of consumers
2. Size of the market
3. Price and availability of related goods
4. Preference or taste
5. Climate or weather
6. Expectations about future economic conditions
Note: Price still is the most important consideration.

Activity
Step 1. Create a group with 5-6 members. Decide what product to sell (it must be an innovative product and the group knows all the
related expenses in making the product). Create a survey questionnaire for 50-100 respondents, depending on the group decision. In
creating a survey questionnaire, follow the pattern/sample below:
1. Do you like to eat fried ice cream? _ Yes _No
2. At what price are you willing to pay for 1 cup of fried ice cream?
_ P10 _P15 _P20 _P25
3. Based on your preferred price, how many cups of fried ice cream would you buy in a day?
_ 1 cup _2 cups _3 cups _4 cups _5 cups

Step 2. After the survey ,tabulate/tally the data gathered.

Step 3. In a short bond paper, create a handwritten summary of the survey. Refer to the example below.
Group Member’s Name Subject
Course/Year/Group Date

Respondents: 100
1. Do you like to eat fried ice cream? _ Yes _No
I Frequency Percentage %
Yes 60 60
No 40 40
Total 100 100
2. At what price are you willing to pay for 1 cup of fried ice cream?
_ P10 _P15 _P20 _P25
II Frequency Percentage %
P 10 25 41.67
P 15 20 33.33
P 20 10 16.67
P 25 5 8.33
Total 60 100
3. Based on your preferred price, how many cups of fried ice cream would you buy in a day?
_ 1 cup _2 cups _3 cups _4 cups _5 cups
III Frequency Percentage %
1 cup 20 33.33
2 cups 16 26.67
3 cups 13 21.67
4 cups 7 11.67
5 cups 4 6.67
Total 60 100