Handout in Unit 4D AND 4E

4D. Financial Literacy

Financial literacy is the ability to understand how money works: how someone makes,
manages, and invests it, and also expends it (especially when one donates to charity) to
help others.
In-depth knowledge of financial literacy is required to understand how money works
and how it can work for you – even when you’re sleeping – by investing in profitable
areas like the stock or money market. To understand money and how it works, it’s
important to understand common financial literacy principles such as; financial goals,
budgeting, investments, superannuation, contracts and employment models.
Research studies across countries on financial literacy have shown that most individuals
(including entrepreneurs) don’t understand the concept of compound interest and some
consumers don’t actively seek out financial information before making financial
decisions. Most financial consumers lack the ability to choose and manage a credit card
efficiently, and lack of financial literacy education is responsible for lack of money
management skills and financial planning for business and retirement.
Most potential retirees lack information about saving and investing for retirement. Many
people fail to plan ahead and they take on financial risks without realizing it. Problems
of debt are severe for a large proportion of the population because of financial illiteracy.
Youth on average are less financially capable than their elders.
Financial education can benefit consumers of all ages and income levels. For young
adults just beginning their working lives, it can provide basic tools for budgeting and
saving so that expenses and debt can be kept controlled. Financial education can help
families acquire the discipline to save for their own home and/or for their children’s
education. It can help older workers ensure that they have enough savings for a
comfortable retirement by providing them with the information and skills to make wise
investment choices with their individual pension and savings plans. Financial education
can help low-income people make the most of what they are able to save and help
them avoid the high cost charged for financial transactions by non-financial institutions.
Your level of financial literacy affects your quality of life significantly. It affects your
ability to provide for yourself and family, your attitude to money and investment, as
well as your contribution to your community. Financial literacy enables people to
understand what is needed to achieve a lifestyle that is financially balanced,
sustainable, ethical and responsible. It also helps entrepreneurs leverage other people’s
money for business to generate sales and profits.
It is the ability to understand how money works: how someone makes, manages and
invests it, and also expends it (especially when one donates to charity) to help others.
In-depth knowledge of financial literacy is required to understand how money works
and how it can work for you – even when you’re sleeping – by investing in profitable
areas like the stock or money market. To understand money and how it works, it’s
important to understand common financial literacy principles such as; financial goals,
budgeting, investments, superannuation, contracts and employment models.
Research studies across countries on financial literacy have shown that most individuals
(including entrepreneurs) don’t understand the concept of compound interest and some
consumers don’t actively seek out financial information before making financial
decisions. Most financial consumers lack the ability to choose and manage a credit card
efficiently, and lack of financial literacy education is responsible for lack of money
management skills and financial planning for business and retirement.
Most potential retirees lack information about saving and investing for retirement. Many
people fail to plan ahead and they take on financial risks without realizing it. Problems
of debt are severe for a large proportion of the population because of financial illiteracy.
Youth on average are less financially capable than their elders.

5 Key Components of Financial Literacy

Earn: Understanding your paycheck
Before you can start spending, saving, and investing, you need to know how much
money you make. If you make the same amount each month, this part is pretty easy.
Take a good look at your paycheck to identify your gross and net income, and note any
other deductions, such as employer-sponsored health insurance or a retirement plan. 
If you’re one of the 32% of Americans whose income varies from month to month,
calculating your income can be a little more difficult, but it’s still important. Learn how
to calculate gross and net income based on your historical earnings here. Once you’ve
determined your monthly net income, you’re ready to spend (responsibly!) with a
personal budget.
Spend: Creating a personal budget
A personal budget is just a plan for how you want to spend your money, but it’s also
the most useful tool for achieving your financial goals. To create a monthly personal
budget, you’ll need to track your spending over the course of one month, and then
break everything down into categories. These can be broad, as in the popular 50 30 20
budgeting rule, or specific, for those of us who want to get into the nitty gritty of our
spending habits. 
Save: Determining your financial goals
Everyone knows it’s important to save money, but it’s hard to spend less than you earn
without specific financial goals to work towards. Your financial goals will depend on
your unique situation, but should include:
Saving for an emergency fund. Setting aside some money in a designated emergency
fund will give you peace of mind, and also prevent a financial setback from overtaking
your life. Financial experts recommend having at least three months’ worth of basic
living expenses in an emergency fund.
Planning for retirement. The experts agree: The earlier you start saving for retirement,
the better. Most financial planners suggest setting aside at least 10% of your take-
home pay each month for retirement savings in a 401(k), IRA, or both.
Saving for a big purchase. Whether you’re hoping to buy a car, a home, or pay for
graduate school, the sooner you start saving, the less you’ll have to put aside each
month. 
Paying off personal debts. Most people have some kind of debt, whether that’s student
loans, credit card debt, or both. Check the interest rates on your loans: Paying off loans
on time (or ahead of schedule) can save you thousands of dollars in interest.

Borrow: Credit cards, loans, and your credit score

Even if you’re a diligent saver, at some point you may have to borrow money to cover a
large expense like a home or car. Maybe you borrowed money as a college student and
are currently dealing with student loans or credit card debt. Borrowing isn’t necessarily
a bad thing—as long as you know how to compare loans and maintain a healthy credit
score
APR (Annual Percentage Rate) is the key to comparing loans and credit cards. APR
takes into account both the interest rate and fees to give you a more accurate idea of
how much interest you’ll pay each year. A low APR means you’ll pay less interest over
time, but how do you get one? 
In general, the higher your credit score, the less interest you’ll be charged. That means
that if you’ve had financial difficulties in the past, you can get stuck in a vicious cycle
where all of your money goes to paying off interest. That’s why building healthy credit
is one of the most important steps to becoming financially literate. 
Keeping a balance on your credit card is one of the easiest ways to rack up debt, but
choosing the right credit card and using it responsibly can actually help you improve
your credit score. Learn more about how credit cards work in our complete guide.
Protect: Preventing fraud and buying insurance
Once you’ve set yourself up with a solid budget and investment strategy, it’s important
to protect the money that you’ve made. This means regularly reviewing your bank
accounts and credit card statements for mistakes or suspicious activity; keeping
documents and passwords secure to prevent scams and identity theft; and buying the
right kind of insurance to protect yourself in the event of an emergency. 
This may sound like a dream, but financial stability is something you can achieve. It will
take some time and you will need to put in the work. If you follow these 10 steps
though, you can reach your financial dreams.
1.  Make Your Finances Personal
It’s very important to say this right off the bat: your personal finances are personal.
That doesn’t mean personal in the sense that you can’t talk to anyone about your
money. Making your finances personal means focusing on your situation and not
worrying about anyone else’s situation.
This is one of the most important things for helping you to reach financial stability. We
live in a culture where we constantly compare ourselves to others. We are told that we
need to live a certain lifestyle because that’s how successful people live.
Block out all that noise! Forget about keeping up with the Joneses. It doesn’t matter if
your friends earn more money than you. The only thing that matters is how much you
have and how you can use what you have to reach your goals.
Another important part of this rule is forgetting about the “right way” to do things. Yes,
some financial decisions are generally better than others. However, many things in
personal finance depend on the person. There isn’t one specific method or timetable
that’s best for everyone.
If you create a savings goal and you miss it, don’t beat yourself up for doing the wrong
thing. Just look at what happened. What went well and what didn’t go well? Use that
information to improve for next time.
2. Understand That Your Most Important Investment is Yourself
Before you ever think about investing money in the stock market, you should look to
invest in yourself. Invest the time, energy and money to teach yourself the skills you
need. This includes college degrees. It also includes other knowledge and skills.
Learning things that don’t directly relate to your job can sometimes help you just as
much as work-related skills. Employers typically want well-rounded employees who can
contribute to a company in multiple ways. They also want someone who shows the
drive and ambition to improve themselves.
Did your interviewing skills hold you back from getting that dream job? There are
classes, books and online resources that you can use to improve for next time.
Improving your skills is always a good investment. It opens you up to more
opportunities and increases your career-earning potential.
At the same time, your health is vital for your success. One thing that drains a savings
account very quickly is medical bills. While you can’t prevent all illnesses, a healthy diet
with regular sleep and exercise can go a long way. That also means limiting your stress.
Find ways to relax and unwind.
3. Earn Income by Doing Something You Enjoy
The primary way for most people to earn money is through a job. So if you’re thinking
about financial stability, the best place to start is with a job that pays you a steady
income. Even better is to find a job that you enjoy.
Doing work that you enjoy will make things that much easier. For some people this
means changing careers. It could mean changing companies because you don’t like the
people or structure at your current company. Maybe the key for you is to get a part-
time job and to start freelancing. That may not sound like the conventional way to do
things, but your happiness (and sanity) is more important that following convention.
4. Start a Budget
That’s right, budgeting. You’ve most likely heard this advice before. Budgets aren’t as
bad as they may sound though. A budget is just a tool to help you spend money on the
things you want to spend money on.
First of all, why is a budget important? When you keep a budget, you can track where
your money is going. It’s easy to spend more than you should if you don’t actually know
how much you’re spending. So more than anything else, a budget helps you keep track
of your money.
Once you know how you spend your money, you can make a plan. There are always
essential things that you have to spend money on. That could include your rent or
mortgage, utility bills, food, car payments or transportation to and from work. These
essential things should make up about half of your spending. (Experts generally
recommend that your rent/mortgage not make up more than 30% of your monthly
spending.)
Then you should try to put 10% to 20% of the remaining money toward your future.
That means your retirement account, emergency fund and other savings accounts.
Once you do all that, you can live off the remaining money. To make sure you don’t
overspend, you might want to figure out how much you should spend each month on
common things like eating out or buying clothes. Regardless of exactly what you spend
money on, try to spend purposefully. Put your money toward the things that are
important to you. Then cut back on the rest.
5. Live Below Your Means

Like creating a budget, this is advice that many people have heard. The trouble is that
many of us have a hard time following it. As mentioned in step one (Make Your
Finances Personal), we live in a world where we constantly hear about the things that
we “should” buy. It’s very easy to spend money on extra things that we don’t need.
However, living below your means is key for your long-term financial success. If you
regularly spend all of your money, or more money than you make, you can’t expect to
grow any savings.
Living below your means works in tandem with budgeting. Your budget tells you how
much money you have and can spend each month. Then you can work with that
number to make sure you don’t overspend.
6. Create an Emergency Fund
Before you think too much about putting money into retirement or toward your debt,
you should work to build an emergency fund.
An emergency fund is a way to protect yourself from the unexpected. There’s always a
chance that you lose your job and have to get by for a bit with no regular salary. Maybe
you need to make a big car repair or take a trip you hadn’t planned for. An emergency
fund will cover some or all of the costs and help you through a tough time. An
emergency fund will also ease your mind by giving you a backup plan.
Sometimes people skip an emergency fund in favor of saving for retirement. Then a big
expense comes up and they have to pull money from their retirement account in order
to cover it. Removing money early from your retirement account should always be a
last resort. It detracts from your retirement savings and you’ll probably have to pay
penalties. For example, you have to pay a 10% penalty if you make early withdrawals
from a 401(k).
7. Pay off Your Debt
Debt will always make it difficult to reach financial stability. Once you know how much
you can comfortably spend (through budgeting) and once you have an emergency
fund, focus on getting rid of debt. Pay off any credit card debt you may have and avoid
future debt on your cards. Have student loans? Make extra payments to get rid of them
as quickly as possible. Just because you signed a 10-, 20- or 30-year payment plan
doesn’t mean you can’t pay off your loans sooner. Paying your loans sooner will actually
save you money in the long run because you’ll pay less in interest.
The only caveat here is a mortgage. If you have a mortgage, you have some time to
pay it off. Prioritize all other debts before your mortgage. You should still make all
your mortgage payments, but put extra money toward your other debts first. Once you
have your other debt paid off and once you have savings for retirement (step eight),
then you can focus on paying off your mortgage early (if you want to).
8. Invest for Retirement
When you’re young, it’s hard to think about retirement. Why should you save money for
something that’s decades away? Unfortunately, this thinking is why the average
American has no retirement savings. If you want to reach financial stability, you also
need to plan for the days when you won’t have a salary. This is especially true if you
have any plans for retirement. Want to travel after you retire? Want to volunteer or
take some local classes? Those are all great things, but you can’t do them without
money.
Prioritize your retirement now and you will thank yourself in the future. Even if you
don’t have a lot to save for retirement, start now. Someone who starts early will earn
more in the long run thanks to the magic of compound interest.
9. Make Sure to Have Some Fun
When you focus on saving money or paying off debt, it’s easy to forget about fun. After
all, fun like things usually cost money. But don’t get so focused on your money that you
forget to live. Enjoying your life will help to keep you happy and healthy.
When you look at how much you can afford to spend each month, try to budget in a
certain amount just for fun. Maybe you can get a massage every couple of months or
go to a show. Keep on the lookout for cheap and free events too. Go for a hike or invite
friends over for a game night. Another great way to have fun is celebrating your
financial successes. Did you just pay off one of your credit cards? Try one of these
five frugal ways to celebrate your debt successes.
10. Stick With It!
In an ideal world, you would stay within your budget every month. Your car would
never need repairs and you would never lose your job. Unfortunately, we don’t live in
an ideal world. Unexpected things come up and sometimes you just spend more money
than you anticipate. It’s OK. It happens to the best of us. Try not to get discouraged
when things don’t go as planned.
Even when things aren’t going well, follow through. Stick with it even if you fall off for
weeks, months or years. Don’t worry about doing things perfectly. Do your best and try
to get just a little better every day.
E. Cyber/Digital Literacy
The 21st century has redefined digital literacy. It has broadened it perspective to
include other aspects of the 21st context. These literacies include: Cyber Literacy or
Digital Literacy, Media Literacy, Arts, and Creativity Literacy, Financial Literacy,
Multicultural Literacy or Global Understanding.
The students nowadays are generally tech-savvy or digital natives. They practically
know how to go about a tablet and iPad smartphones or laptops better than anyone
else. This suggests their digital skills. However, are all student’s digital literate? Using
the digital tools, accessing information, and exhibit in ways of working in a globally
competitive context together with skills in living in the 21st century, refer to the digital
literacies.
Do you feel confident when you search for information on the internet? Do you easily
locate relevant resources? Do you think you are capable of optimizing the use of the
online tools such as Facebook or google when studying or doing schoolwork? How do
you manage your digital identity?
The skills you need to be able to perform well in these situations are known as digital
literacy. In the 21st century you need to be equipped with ICT skills to be abreast with
the demands in the workplace.

What are digital literacies?

Digital literacies are the individual's capabilities to be able to effectively and responsibly
function and perform in a digital society. the term digital literacy was coined by Paul
Gilster in 1997 and it came from the discussion of the concepts on (a)visual literacy
when images and nonverbal symbols try to capture the knowledge;(b) technological
literacy requiring one to be able to use technology in addressing a need;(c) computer
literacy which in the 1980s is started to become a household item manipulated to
achieve once target; and (d) information literacy which refers to the finding evaluating
using and sharing of information.
In the teaching and learning context, digital literacy is an important competence in
schools and has been a buzzword which refers to the ability to access process
understand utilize create media content using information technologies and internet.

The Digital Literacies

Media literacy – is one’s ability to critically read information or content and utilize
multimedia in creatively producing communications.
Information Literacy – is locating information from the web and interpreting while
evaluating its validity in order that it can be shared.
ICT Literacy – is knowing how to select and use digital devices, applications, or
services to accomplish tasks requiring the use of the internet.
Communications and Collaboration – are one’s capabilities in being able to
participate in the digital networks in the teaching and learning context.
Identity Management – is being able to understand how to ensure safety and
security in managing online identity and foster a positive digital reputation.
Learning Skills – are ways of knowing how to study and learn in a technology –
enriched environment; this is knowing how to utilize technology in addressing the need
to learn efficiently.
Digital Scholarship – is being able to link and participate in professional and research
practices.

Digital Literacy Skills vs. Digital Literacy

Coding – is a universal language. Basic understanding of HTML, CSS and the like will
create a shared understanding of what can be done with the web pages.
Collaboration – the use of Google docs among others allows student to begin
experimenting with effective online collaboration
Cloud Software – This is essential part of document management. The cloud is used
to store everything from photos to research projects, to term papers and even music.
Word Processing Software – Google, Microsoft Online Drop Box are available for
storage and management solutions.
Screen casting – A screencast is a video recording using the computer screen, and
usually includes an audio. On the other hand, when you take a picture on the screen of
your computer, it is called a Print screen.
Personal Archiving – Students should be taught the concepts of meta-data, tagging,
keywords and categories to make them aware how they are represented online.
Information evaluation – Critical thinking to weed out fake news is a crucial 21st
century skill.
Use of social media – Social media serves different purposes depending on the user,
the technology, and the need.
Digital literacy has been defined in many ways that is understandable by both
digital natives and digital immigrants. Teachers and students should not only be
proficient in how to use (digital skills) but they need to see the information and media
technology to find, evaluate, create, and communicate information requiring both
cognitive and technical skills. Digital literacy also creates new ways to teach and learn
within the classroom.