A review of the existing development vision (AmBisyon Natin 2040) and strategies (Updated Philippine Development Plan 2017-2022 and National Strategy for Financial Inclusion) shows that the government plans to use financial education as the primary pathway to achieve financial literacy and financial inclusion, which are expected to lead to financial security, which would, in turn, contribute to economic resilience. Nevertheless, is financial education—the way it is being conducted right now—really the solution to Filipinos’ financial problems?
Despite the presence of surveys suggesting that with higher financial literacy comes higher financial status, these are found to be correlation rather than causation.There is no empirical evidence that financial education works as expected.
Any government policy or program to improve the financial condition of the population should be properly guided by what drives financial behavior. Financial education, the way it is currently carried out, teaches students lessons on interest rates, inflation, investment options, and more; however, the method merely targets the rational side of the brain (i.e., a narrow emphasis on head knowledge). Actual behavior, however, is driven more by human emotions, which are not given enough emphasis, if not totally overlooked, in the current curriculum. As a result, there are smart, industrious middle-aged and senior citizens who are not prepared for retirement despite having been well-educated and gainfully employed during their younger years.
Moreover, teachers, who are expected to carry out the mission of improving the financial condition of the population through financial education, are, themselves, experiencing the worst financial problems. The ballooning debt problem experienced by public school teachers provides a good case in point. As reported by the Department of Education (DepEd), in 2019, public school teachers owed a combined debt of at least P319 billion, an increase of P18 billion in just over two years. The figures provided by the DepEd included P157.4 billion owed by teachers to the Government Service Insurance System (as of May 29, 2019) and P162 billion in outstanding loans to accredited private lenders (as of June 6, 2019). Teachers who retired without paying off their loans used their pension to settle the balance. In 2016, the DepEd reported that 26,000 teachers did not receive retirement benefits because they needed to repay their loans.
A closer look at public school teachers’ conditions in their environment helps to explain how they got in this debt situation. One, it is too easy to get a salary loan. There is no need for the usual credit process. All they have to do is to show their salary slip. Two, the DepEd acts as the efficient collecting agent. Financial institutions need not bother with credit processes because they are assured of repayment, since the DepEd already acts as the collecting agent where the repayment is deducted at source. Three, the prescribed
minimum take-home pay boomeranged. The amount of P5,000, which was originally intended to limit borrowing, has, unfortunately, become an “anchor” that makes teachers borrow to that extent. (Can a teacher really live on a take-home pay of P5,000?) Four, the usual delays of the first salary of new teachers started the habit of borrowing. This regular occurrence of new teachers receiving their first salaries late by a few months started them off with their borrowing habit, which usually continues even when they start to receive their salaries on time.
Further research is required in order to meaningfully help teachers who, at some point, resisted financial education for them as the solution to their problem and, instead, demanded a salary increase.
In lieu of just focusing on financial literacy, which only targets the rational brain, there needs to be a stronger advocacy for Financial Intelligence Quotient (FQ) among Filipinos. FQ is the ability to make sound decisions and actions in handling one’s personal finances. It is not just the IQ (Intelligence Quotient) but also the EQ (Emotional Quotient) of handling money. Perhaps, incorporating FQ into existing plans and strategies will yield much better results in trying to modify Filipinos’ financial behavior for the better. There is a need to carry out FQ studies more actively in order to determine appropriate behavioral modification interventions.
It may serve the nation well if “nudge units” are established, similar to what developed countries have done to implement government policies using behavioral economics principles. Such policies have proven to be low- to no-cost tweaks with significant favorable outcomes.
Thus, achieving financial security and economic resiliency should be approached with a combination of FQ (the IQ and EQ of handling money) plus a conducive environment for healthy financial behavior.
This opinion article was co-written by Dr. Ser Percival K. Peña-Reyes and Ms. Rose Fres Fausto, who are faculty members of the Department of Economics at Ateneo de Manila University.
