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Empowering Filipinos Through Financial Literacy

Financial literacy and economic development go hand in hand. This is especially true for emerging countries such as the Philippines. Financial literacy is integral to ensuring the sustainability of an economy in the future. With various market forces affecting global and regional economies, we must prepare ourselves and become knowledgeable on financial issues and information that can empower us and enable us to make the right financial decisions and protect our investments. Unfortunately, financial literacy in the Philippines is an almost foreign concept to the majority of our nation’s citizens, with only 25% of the Filipino population being able to answer financial literacy questions through surveys. This is generally alarming since financial literacy plays an integral part in ensuring the sustainability of the Philippine economy. In this article, we’ll talk about what financial literacy is, why it’s important for today’s workforce, and how organizations, companies, and even educational institutions can promote financial literacy in the Philippines.

What Is Financial Literacy?

In a broad sense, financial literacy refers to the ability of individuals to effectively apply financial skills for efficient budgeting, investment, and management of personal finances. While financial literacy is an important factor in every Filipino’s life, this is especially crucial for the middle-class and workforce, with financial literacy heavily dictating how they’re able to have a positive relationship with money in connection to owned businesses, educational support, and retirement.

Without financial literacy, one cannot make important decisions regarding investment, savings, borrowing and, most certainly, about insurance. Indeed, it has been found, for example, that lack of understanding of interest rates has placed creditors at risk.

What Is the State of Financial Literacy in the Philippines Today?

Numerous studies and surveys that tackle financial literacy in the Filipino population yielded almost the same results, with the majority of Filipinos having no concrete grasp on financial management. One of these surveys was conducted S&P, an international credit rating agency that produces financial research. S&P conducted its 2014 S&P Rating Services Global Financial Literacy Survey, touted to be the “most extensive measurement of global financial literacy to date,” and discovered that the Philippines ranked in the bottom 30 of 144 countries surveyed. Only 25 percent of adult Filipinos are literate on the basics of finance.

The survey was conducted by interviewing 150,000 adults throughout 144 countries on four basic financial concepts: numeracy (interest), risk diversification, inflation and compound interest. The study was conducted with the participation of the Gallup World Poll, the World Bank and the Global Financial Literacy Excellence Center (GFLEC) based at George Washington University.

Among the surprising findings is that two-thirds of adults worldwide are financially illiterate. And that only one-third of adults worldwide are financially literate. This means that around 3.5 billion adults worldwide are financially illiterate. It also noted that those most likely to be financially illiterate are women, the poor and the less educated. Men were found to be more literate (35 percent) than women (30 percent).

Interestingly, the study found that those availing themselves of financial services, such as those of banks and credit card companies, would most likely have higher financial literacy, regardless of wealth or educational attainment. Nonetheless, the study concluded that generally, the rich have better financial skills than the poor. Interestingly also, financial literacy increases as income increases and educational attainment goes higher. Another astonishing finding is that financial literacy improves from general proficiency in mathematics.

This is also evident in the prevalence of formal savings in Filipino households. According to the statistics, only a dismal 40% of adult Filipinos save. Of those who save, 68% keep their saved money at home, 33% keep their money in formal financial institutions, 7.5% save through cooperatives, and 2.6% keep their money in group savings, or paluwagan.

However, the blame should not be put entirely on the population since access to banks and formal financial institutions are scarce in some areas in the Philippines. As of 2014, per Bangko Sentral ng Pilipinas (BSP) data, 595 municipalities in the country have no banks. This is out of a total of 1,490 municipalities in the country. This is notwithstanding the fact that domestic banking offices increased from 7,585 in 2001 to 10,315 by the end of December 2014. A significant increase can also be observed in the distribution of automated teller machines, which grew from 3,882 in 2001 to 15,562 by the end of December 2014. So, while financial knowledge may be easily disseminated throughout the Filipino population, a significant percentage of the population will still be unable to effectively use the best practices in financial literacy in the Philippines. This goes to show that financial literacy needs to co-exist with better banking accessibility for it to be practiced in full.

Why Is Financial Literacy Important in the Philippines?

Today, a significant number of Filipinos are still easily swindled from their hard-earned money through various elaborate scams. These include high-yielding pyramid scams that do not hold a solid asset base to generate expected returns. Financial misinformation can create a ripple effect that can destroy individual savings, households, financial institutions, and potentially, economies.

The most obvious solution to this financial problem, however, is to promote financial literacy on different levels, regardless of a person’s social status and income level. Through financial literacy programs in the Philippines, Filipinos can learn how to build effective financial plans, manage savings and expenses, and build both short-term and long-term financial goals, including retirement planning, life insurance and pension funds, which can strongly support the maturing portion of the population.

Through improved financial literacy in the Philippines, Filipinos can also achieve financial independence through smart investments, as well as demand better financial services and conditions for loans and lines of credit. On a larger scale, it can increase domestic savings rates and foster an environment of “financial inclusion,” which can allow us to increase domestic productivity in a more sustainable manner and create a dramatic shift from being consumption-driven to becoming an investment-driven economy.

How Can We Promote Financial Literacy in the Philippines?

Fortunately, both government and private institutions are well on the way to promoting financial literacy. CitisecOnline and BPI Securities provide free seminars on investing in the stock market to educate retail investors. In the same manner, local shows like On the Money in ANC features a wide range of investment topics, financial instruments and guest experts that share their knowledge with viewers on the basics of spending and investing. Likewise, we at Finex also contribute to financial literacy by working hand in hand with the government and other private-sector representatives, hosting a series of seminars that aim to increase financial education of the public to promote financial inclusion and sustainable growth.

For private companies, financial literacy may be a secondary goal to your organization’s vision of providing a thriving culture to your employees. As of the moment, the most common concern of an employee in terms of finances pertains to retirement. Collaborative research made by Bank of America and Merrill Lynch in 2015 showed that workers responded very well when they get empowerment programs like personal financial literacy in the workplace. Offering financial solutions can help improve business with increased employee satisfaction. This helps make employees become loyal, and productivity, as the study found out, could go as high as 91 percent. This contributes to a healthier bottom line.

The study also found out that if employees are not stressed with their finances, they are more engaged at work. This way, productivity can be doubled. No one can deny the fact that employees with high morale at work are more productive.

The autonomy to make decisions based on their financial situation gives workers a boost in self-esteem. Employers will also be happier if they can retain their productive employees by giving them powerful financial literacy programs. Attrition rate will go down when workers enjoy their workplace where they are being given powerful financial- literacy knowledge.

The change that this nation needs could begin in the workplace. Every company not only wants to survive but also to thrive.  This is why good employers must create a sustainable strategy to retain good, productive workers. If you want to have an outstanding organization, invest in your people, and allow them to thrive using crucial knowledge about their finances.

Filipinos Can Achieve More With Better Financial Literacy

The Philippines is one of the fastest-growing economies in the region and at this point, financial literacy is very important. We need to help educate individuals to understand basic money management, financial planning, and investments so that we can empower a larger portion of the population to be able to provide for themselves and their families and invest in the future.

Allow me to end this article by citing a good insight I picked up from the ADBI working paper—“…as economies develop, access to financial products and services will increase, but households and small and medium-sized enterprises need to be able to use the products and services wisely and effectively. More effective management of savings and investment can contribute to overall economic growth.”

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