Financial Literacy: Central Bicol State University of Agriculture

Republic of the Philippines
CENTRAL BICOL STATE UNIVERSITY OF AGRICULTURE

San Jose, Pili, Camarines Sur 4418
Website: www.cbsua.edu.ph
Email Address: [email protected]
Trunkline: (054) 871-5531-33 Local 101
FINANCIAL LITERACY
I. Definition
 Financial literacy is the education and understanding of various financial areas
including topics related to managing personal finance, money and investing.
This topic focuses on the ability to manage personal finance matters in an
efficient manner, and it includes the knowledge of making appropriate decisions
about personal finance such as investing, insurance, real estate, paying for
college, budgeting, retirement and tax planning.
 Financial literacy is the confluence of financial, credit and debt management
and the knowledge that is necessary to make financially responsible decisions
– decisions that are integral to our everyday lives. Financial literacy includes
understanding how a checking account works, what using a credit card really
means, and how to avoid debt. In sum, financial literacy impacts the daily
issues an average family makes when trying to balance a budget, buy a home,
fund the children’s education and ensure an income at retirement.
II. Importance
7 Reasons Why Financial Literacy is Important
 First, it helps us understand the value of money so we can handle our

finances better.
Being financially literate will teach us the importance of budgeting and
saving. We won’t just waste our money for very expensive gadgets, clothes, cars,
bags, shoes and other things which we don’t really need. We can better
understand between our wants and needs and can prioritize things according to
their essence in our daily lives.
 Second, it saves us from acquiring too much debt.

Acquiring too much debt can put us in deep trouble. If we are financially
literate, we can determine how much loan we can afford to pay, especially if we
have bills for mortgages and insurances. This will also train us to prepare for our
children’s education and their future needs, as well as for medical and hospital
bills, without having to lend money.
 Third, it allows us to impart our knowledge on financial literacy to the

young generation.
To be financially literate will help us secure the future of the next generation.
We can teach them how to budget and save to prepare for years ahead. They can
also realize even at their young age how their parents work hard to provide for all
their needs. Helping them become aware of the importance of financial literacy will
Trunkline: (054) 871-5531-33 Local 101
likewise teach them discipline and respect for their parents. This will also train them
to understand that eventually, they should be financially independent. They will be
more responsible and street-smart.
 Fourth, financial literacy helps us prepare better during times of

emergency.
We encounter moments of emergency wherein we need cash or a huge

amount of money to survive or overcome our monetary and emotional crises. In
times like this, being financially literate will save us the trouble of borrowing money
that will just bring us more problems.
 Fifth, it enlightens us to invest and create income streams.

Investing in stocks and creating income streams besides our salaries are
results of financial literacy. Relying on just one source of income will keep us in a
situation where we always make both ends meet. Creating multiple income
streams will give us the confidence that we can survive financial crises.
 Sixth, it gives us the opportunity to help boost our country’s economy.

When we invest a percentage of our money, say, in stocks, we help the
company we invest in to create more jobs. This means better employment rate and
better contribution to help build a more progressive nation.
 Seventh, financial literacy gives us the privilege to help the less fortunate.
It provides us the opportunity to share our blessings to the needy. This is
because we are able to spend our money more wisely and we get to save a
percentage of it for investment, business, retirement, to name a few. We can then
provide a certain amount too of our savings to those who are in dire need of
help. Helping others give us a sense of fulfillment that is definitely priceless.
III. Benefits
5 Benefits of Financial Literacy
IV. Principles
Twelve Principles of Personal Financial Literacy
1. Know Your Take-Home (Net) Pay - Before committing to significant expenditures,

estimate how much income is likely to be available to you after all mandatory
deductions.
Trunkline: (054) 871-5531-33 Local 101
2. Pay Yourself First - Before paying bills and other financial obligations, set aside
an affordable amount each month in accounts designated for long-range goals and
unexpected emergencies.
3. Start Saving Young - Recognize that your total savings are determined both by
the interest you earn on savings and the time period over which you save.
4. Compare Interest Rates - Obtain rate information from multiple financial services
firms to get the best value for your money.
5. Don't Borrow What You Can't Repay - Be a responsible borrower who repays
as promised, showing that you are worthy of getting credit in the future. Before you
borrow, compare your total payment obligations with income that you will have
available to make these payments.
6. Budget Your Money - Create an annual budget to identify expected income and
expenses. Including savings. This will serve as a guide to help you live within your
income.
7. Money Doubles By “The Rule of 72" - To determine how long it will take your
money to double, divide the interest rate into 72. For example, an account earning
6% interest will double in twelve years (72 divided by 6 equals 12).
8. High Returns Equal High Risks - Recognize that no one will pay you high interest
rates on a sure thing. In most cases, the higher the interest rate offered, the higher
the risk of losing some, or all, of the money you invest. Diversification is the best
hedge against investment risk.
9. Don't Expect Something for Nothing - Be leery of advertisements, sales people,

or other sources of financial offers promising anything free or guaranteed
investment returns. Like non financial opportunities, “if it sounds too good to be
true, it probably is.”
10. Map Your Financial Future - Take time to list your financial goals, with a specific
time deadline and dollar cost, and develop a realistic plan for achieving them.
11. Your Credit Past Is Your Credit Future - Be aware that credit bureaus maintain
credit reports, which record borrowers' histories of repaying loans. Negative
information in credit reports can affect your ability to borrow at a later point.
12. Stay Insured - Purchase insurance to avoid being wiped out by a financial loss,
such as an illness or accident. An insurance plan should be part of every personal
financial plan.
V. Elements/Components
5 Key Components of Financial Literacy
1. Budgeting Basics
Trunkline: (054) 871-5531-33 Local 101
Creating and maintaining a budget is one of the most basic aspects of

staying on top of your finances. In this modern day, it’s easier than ever to create
a budget with the help of websites and apps, such as Mint.com. It doesn’t matter
if math isn’t your strong suit - thanks to these user-friendly tools, everyone can get
help with keeping their finances on track. And, when utilized properly, they'll keep
you in the know about where your money is actually going.
Without following a budget, it’s difficult to hold yourself accountable on

where your money is coming from and what it’s going toward, so mastering the
basics of budgeting is where any financial novice should begin.
2. The Impact of Interest

While you may touch upon the concepts within a mathematics course, it’s
important to understand different aspects, like compound interest. Why? Not only
can it help you save even more, but it can make the difference between borrowing
a small amount and paying back much more than you need to for years to come.
Understanding the ins and outs of interest can impact your finances more than you
likely realize, so it’s an important concept to gain a better understand of early on
in life.
3. Staying Savvy by Saving

Obviously, saving is an important aspects of maintaining a healthy financial
situation. But, the majority of students don’t prioritize this aspect as much as they
should. It’s easy to ignore things like retirement since it seems so far off in the
future. Learning to save early on can help you gain the knowledge, practice and
set of skills you’ll utilize throughout your entire life. Beginners can start working on
this concept in the simplest sense, like saving money for a higher-ticket item they
desire. Working toward a goal is key here and students need to understand that
there’s a lot of value in paying yourself first – because the bills will always be there.
Having peace of mind? Well, that comes with practice, diligence and patience, all
qualities you’ll develop when mastering your savings skill set.
4. The Credit-Debt Roller-coaster

Maybe roller-coaster isn’t the right term – perhaps, downward spiral is more
accurate. Meaning: it’s much easier to lose credit than gain it and many students
don’t realize how easy it is to ruin their credit – and how difficult it can be to regain
credit – before it’s too late. That’s why it’s crucial to provide knowledge on debt
earlier than later. Credit can be an extremely useful tool – if it’s managed correctly.
Making rash decisions when you’re young can end up costing you throughout
adulthood so it’s important to grasp the concepts and tools behind responsible
credit practices as early on as possible.
Trunkline: (054) 871-5531-33 Local 101
5. Identity Theft Issues & Safety

In this modern day and age, identity theft is more prevalent than ever. Since
everything is digital and just about everyone has shopped online at one point or
another, your financial information is more vulnerable to fraud. Understanding this
concept, along with preventative measures, like password protection and limiting
the amount of information shared online can be the key to maintaining safe
accounts or, inversely, can lead to financial ruin.
VI. Advantages and Disadvantages

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Republic of the Philippines

CENTRAL BICOL STATE UNIVERSITY OF AGRICULTURE

7 Reasons Why Financial Literacy is Important

 First, it helps us understand the value of money so we can handle our

 Second, it saves us from acquiring too much debt.

 Third, it allows us to impart our knowledge on financial literacy to the

 Fourth, financial literacy helps us prepare better during times of

We encounter moments of emergency wherein we need cash or a huge

 Fifth, it enlightens us to invest and create income streams.

 Sixth, it gives us the opportunity to help boost our country’s economy.

Twelve Principles of Personal Financial Literacy

1. Know Your Take-Home (Net) Pay - Before committing to significant expenditures,

9. Don't Expect Something for Nothing - Be leery of advertisements, sales people,

5 Key Components of Financial Literacy

Creating and maintaining a budget is one of the most basic aspects of

Without following a budget, it’s difficult to hold yourself accountable on

2. The Impact of Interest

3. Staying Savvy by Saving

4. The Credit-Debt Roller-coaster

5. Identity Theft Issues & Safety

VI. Advantages and Disadvantages

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