The Sona and financial literacy

One of the critical policy statements released by President Duterte during his first State of the Nation Address was this mandate: “A mandatory financial education for all migrant families and their communities shall be pursued.” This was not highlighted by the analysts and the media, and was drowned in with other statements stressed by the President. However, to researchers in economic and financial literacy, this is an important pronouncement; it is actually one of the policy outcomes that have been coming out in our studies. Similarly, other national studies have impliedly shown the need for financial education. Our take is that it would be critical to not just focus on overseas Filipinos and their families but push for this policy to a broader scale, including everyone.

The October 2015 Financial Inclusion and Capability Survey for the Philippines, made by the World Bank, found that 23 percent of Filipinos run out of money for food and other necessities. Moreover, for those with higher income and who are those in the middle class, those earning P50,000 still run short of money for basic necessities. Among these households running short of money, the use of credit is near universal at 94 percent. Credit is also availed at the informal sources rather than banks, cooperatives or microfinance institutions. Last, the World Bank study found that only 20 percent of Filipinos have savings and only 10 percent have bank accounts.

These results are corroborated by our research, titled the “Remittance Investment Climate for Rural Households” (Ricart). This research, originally funded through a grand prize in the Global Development Research Awards in 2011 and supported by other donors, has covered four municipalities: Magarao in Bicol, Maribojoc in Bohol, and Pandi and Guiguinto in Bulacan. Ricart had extracted critical findings on the behaviors of Filipinos in regard to money. Originally focusing on the remittance behavior of overseas Filipino workers (OFWs) and the use of money by their relatives, the study has been adjusted to consider also the money behaviors of nonremittance receiving households.

Among the key findings of the study are a) Remitters, migrant and nonmigrant families rely on their own ideas in handling money; b) They assess their handling money skills as “good;” and
c) They do not need help in handling money. To validate their capacities in handling money, respondents were asked if they record their income and expenses. The most common reply is that there is no record kept but they have a general idea of how much money is received and spent during a month. Juxtaposing the two group of findings easily conclude that there is a gap in financial capacities regardless of income source and income levels. To further strengthen these findings, we are currently working on our fourth round of Ricart, with the support of the Japan International Cooperation Agency Research Institute. This will be done in the municipalities of Dingras in Ilocos Norte and Bansalan in Davao del Sur.

Another national study, AmBisyon 2040, showed that about 80 percent of the population aspires only for a simple and comfortable life. Among the 80 percent, some 61 percent wanted a medium-size house; 59 percent a vehicle; 73 percent education of children; 48 percent to have jobs that finance their day-to-day needs; 66 percent to have enough cash for day-to-day needs; and 28 percent to have savings for unexpected expenses. These findings show that ordinary Filipinos are simply aiming to meet basic necessities, and their goals for savings are simple.

The government is aware of these challenges. Republic Act (RA) 10679, or the “Act Promoting Entrepreneurship and Financial Education” (authored by Sen. Juan Edgardo M. Angara) had been enacted in August 2015. The aim of RA 10679 was to include entrepreneurship and financial education to be integrated in the educational system. It is also to be included in the K to 12 curriculum to ensure broader impact to the population. The recent approval of the implementing guidelines of the Personal Equity and Retirement Act is a contributory step for investments. Likewise, private sector has been doing its part with the different efforts of seminars on financial literacy and investments. Advocacies have mostly focused on OFWs and the middle class.

This is where the challenge lies: Our data has shown that the majority of the population needs financial education. The inclusion of financial education in the school curriculum will not impact immediately to the population that presently needs financial knowledge the most. Meanwhile, the available channels and mechanisms today are focused mostly on those who have financial capacities only. An overwhelming majority needs to be taught simple personal financial discipline—of just recording income and expenses—and not the intricacies of the stock market or mutual funds (which others think can come later). Ordinary wage earners, such as janitors, security guards, clerks, teachers and even government employees, are severely affected by debts. The government and the private sector should combine their efforts in helping these people. These are the people really needing financial freedom. We will not be surprised why the Family Income and Expenditure Survey showed that there are more poor employed people. We hope that we could all join hands in designing a financial-literacy program to change our money behaviors—from borrowers to savers, and from day-to-day living to focusing on the future.