Joseph Paul Tadeo Verdan – 11671262

Topic – How to address the lack of financial literacy of Filipinos?

"Wealth does not necessarily mean having millions and millions of pesos. Being wealthy

simply means having the financial resources to support your chosen lifestyle. Wealth is nothing

more than having money to fund your particular needs at any given time." This was a famous

quote from the book “Wealth Within Your Reach: Pera Mo, Palaguin Mo! by renowned financial

expert Francisco Colayco. This is supports the concept of financial freedom by Kim Kiyosaki

(author of Rich Dad Poor Dad) that having lots of money is no assurance that one can be

considered wealthy but having more control over your finances. However, financial freedom can

only be achieved by being equipped with the right amount of financial knowledge and

information. Individuals will not be able to choose the right savings or investments for

themselves, and may be at risk of fraud, if they are not financially literate. Therefore, Financial

literacy is integral in allowing Filipinos to provide for themselves and their families as well as

invest in the future.

According to the World Bank, financial literacy encompasses “concepts ranging from

financial awareness and knowledge, including financial products, institutions, and concepts,

financial skills, such as the ability to calculate compound interest payments, and financial

capability more generally in terms of money management and financial planning. In practice,

however, these notions frequently overlap. It empowers individuals with the capability to

navigate a complex array of financial products and to make sound financial decisions.”

Furthermore, the World Bank emphasizes on financial literacy and the need for financial

planning with the recent financial crisis last 2008 and the shift of retirement planning from
public sector to individuals. This need is very much applicable to the Philippines with the

Bangko Sentral ng Pilipinas (BSP) as well other government agencies and major financial

services in the country started their own financial literacy initiatives.

The 2014 Global Financial Literacy Survey by Standard & Poor discovered that the

Philippines ranked in the bottom 30 of 144 countries surveyed. In line with this, only 25 percent

of Filipinos were considered financially literate while 66% of the world population are

considered financially illiterate. This essentially means around 75 million Filipinos have no idea

of basic financial terminologies of inflation, risk diversification, insurance, compound interest as

well as having a savings account. In a separate survey conducted by Mastercard last 2016, the

Philippines’ financial literacy index score and ranking continues to decline with a score of 62 out

of a possible 100 which is less than the average region scores of 66. The results of the surveys

highlight areas of concern in terms of improving financial knowledge, understanding financial

concepts as well as financial planning.

The way in which a person behaves will have a significant impact on their financial well-

being. According to the 2014 Consumer Finance Survey done by Bangko Sentral ng Pilipinas

(BSP) 51.5% of Filipino households spent as much as their income, 43.8% spent more than their

income and only 4.6% spent less than their income. This was then supported by the World Bank

Survey entitled “Enhancing Financial Capability and Inclusion in the Philippines” states that 23

million Filipinos acknowledge that their household run out of money for necessities. 94% of

these households reported that they use credit cards to cover their expenses. Results further

revealed that 59% budget on how they spend they will earn with 57% have money left in their

bank accounts after expenses. The real problem lies is having the discipline to implement their

financial goals. Filipinos are often clueless about the state of their money. Their preoccupation
about other matters exacerbated by the lack of financial literacy put them at risk of financial

struggles and not being able to be ready for the future. This impact planning in relation to

retirement, health and hospitalization as well as education for children. According to the Sun

Life Solar FLARE (Financial Literacy Advocacy Report) study, only 2 out of 100 Filipino

retirees are financially independent, 45 are still dependent on their relatives, 30 percent rely on

government through pensions (P 8,000 average monthly) and 22 continues to work. In the same

study, out of 100 who get sick, 95% sacrifice their savings while 53% borrow from family

members or relatives. Lastly, the rise of tuition fees has been a burden for Filipino households

with annual increases of 12%. Ordinary Filipino households often are simply saving for

necessities but are not prepared on unexpected expenses and long-term outlook.

The Asian Development Bank Institute argues the case of promoting financial education and

argues the benefit of investing in financial education is substantial in addressing financial

illiteracy. The Department of Finance also acknowledged that financial education is the most

important part of the Philippines financial inclusion policy. Financial inclusion or inclusive

financial system is defined as “a state wherein there is effective access to a wide range of

financial products and services by all.” Financial Literacy is an opportunity and a never-ending

responsibility by the government.

First, the government should formulate a national strategy consulting stakeholder every step

of the way and then launched the strategy along with the issuance of regulations and memoranda

of agreement for coordinated policies and programs. The Republic Act (RA) 10679 or “Act

Promoting Entrepreneurship and Financial Education” had been enacted last August 2015. This

law aims to include entrepreneurship and financial education to be integrated in the educational

system. Financial literacy should include a listing of financial (stocks, bonds, insurance and
mutual funds) products available in the market because these could combat inflation in the long

run compared to savings accounts. This will help Filipino households in the future be more

informed on their personal finances. If the financial educational program succeeds, financial

stability is enhanced because stakeholders make rational decisions and manage their funds and

businesses well. They are also protected from fraudulent transactions and dubious deals.

In summary, Filipinos must be encouraged to be financially literate by educating them about

the basics of proper financial planning and explore a wider array of financial instruments to help

them achieve their financial goals. Financial education helps in facilitating long term thinking

through improving on retirement planning, life insurance and pension funds. Financial literacy is

very important to create a dramatic shift from being a consumer-driven population to savings and

investment-driven that contributes to the economic growth of the country. They must be able to

know their needs, be informed as well as act as soon as possible.

References:

Bangko Sentral ng Pilipinas. (2017). 2014 Consumer Finance Survey. Retrieved from

https://www.bsp.gov.ph/publications/media.asp.

Colayco, F. (2013). Wealth Within Your Reach: Pera Mo, Palaguin Mo! Retrieved from

https://www.franciscocolayco.com.

Llanto, G. (2015). Financial Inclusion, Education, and Regulation in the Philippines. Retrieved

from https://www.adb.org/files/adbi-wp541.pdf

Mastercard. (2015). Mastercard Financial Literancy Index Report. Retrieved from

https://www.masterintelligence.com/research/reports/2015.html

Ravalo, J. (n.d.). The Case and Challenges for the Financial Inclusion and Literacy in the

Philippines. Retrieved from https://www.oecd.org/financial-education.pdf

Sun Life Solar Financial Literacy Advocacy Report. (2013). Retrieved from

https://www.sunlife.com

World Bank. (2014). Financial Literacy Around the World: Insights from the S&P Global FinLit

Survey. Retrieved from https://www.gflec.org/finlit_paper_16_F2_singles.pdf

World Bank. (2015). Enhancing Financial Capability and Inclusion in the Philippines: A

Demand-Side Assessment. Retrieved from https://www.documents.worldbank.org/main-

report.pdf

Department of Finance. (2016). The Philippines Literacy Program. Retrieved from

https://www.dof.gov.ph/index.php