Put yourself at ease by protecting those you love
05 October 2020
Money is an essential part of daily living--with it, a person’s needs and wants can be secured. However, having money is not enough. In the face of the ever-changing economy, people’s ability to properly manage their finances and make smart and effective decisions with their money offers more benefits than simply increasing their cash for spending. This is what makes financial literacy important.
What is financial literacy?
Financial literacy is defined as the ability to understand and apply various financial skills and concepts effectively. This includes understanding how money is made, how it is managed and budgeted, and how it is invested. Having a high level of financial literacy allows you to make sound financial decisions that affect your life, both in the short and long term.
Aside from getting a better grasp of basic financial concepts, financial literacy enables you to make better judgments as a consumer, such as deciding which purchases are valuable and what you can cut back on to save money. Financial literacy also helps you recognize and avoid abusive financial practices such as predatory lenders and other fraudulent practices.
In developing economies, the level of one’s financial literacy can make all the difference in uplifting their economic status and empowering their financial decisions.
The State of Financial Literacy
Standard & Poor’s Global Financial Literacy Survey identifies four key terms in their assessment of financial literacy levels among respondents: interest rates, interest compounding, inflation, and risk diversification.
The paper revealed some interesting insights: only 1 in 3 adults worldwide are considered financially literate. According to the study, the factors that have the most impact on financial literacy levels are:
For advanced economies, higher GDP per capita is tied to higher financial literacy rates. Developing economies, meanwhile, do not share the same association. Instead, Standard & Poor found that national policies related to education and consumer protection have more say in affecting levels of financial literacy.
A separate study conducted by the World Bank revealed that in developing countries, having a bank account is linked to higher levels of financial literacy. With the World Bank reporting that 1.7 billion adults remain unbanked, figures from the Standard & Poor study show that only a percentage of account holders are financially literate despite nearly half of them opting to save through their accounts.
How Financial Literacy Can Affect People’s Lives
The effects of financial literacy—whether in higher or lower levels—can easily influence an individual’s life. The US National Financial Educators Council surveyed adults aged 35 to 54, with 5.2% of respondents being denied a job due to their financial profile and 26.3% having employers looking up their financial background as a requirement for being hired or given a promotion.
The organization also found that HR professionals cited “financial worries” as a contributing factor to on-the-job employee stress.
While this outlook may seem grim, there are still silver linings. The National Financial Educators Council cites a study that parents educating their children on financial matters has a weak but clear impact on their future financial behaviors.
In developing economies, the World Bank reported widespread interest in learning finance-related topics such as interest rates, insurance, budgeting, and the like. Finally, Standard & Poor found that aside from promoting financial inclusion, having access to an account or line of credit can help deepen one’s financial literacy.
The Cycle of Financial Literacy
As the studies have shown, having access to financial tools and institutions can make an impact on financial inclusivity as a whole, as well as the financial literacy of individuals. Tools like life insurance, investments, and hybrid products can empower individuals on their journey in several ways:
In improving your own financial literacy, the opportunity to further empower and raise the following generations becomes easier, allowing for a positive cycle of financial literacy.
Financial Literacy in the Philippines
Financial literacy in the Philippines is still low, with Bangko Sentral ng Pilipinas (BSP) claiming that only 2% of adult Filipinos can answer all questions on financial literacy correctly. On an optimistic note, BSP and many other organizations are pushing efforts to improve the country’s levels of financial literacy.
Projects like the Economic and Financial Learning Program, Financial Education Expo, and Financial Learning Campaign for Overseas Filipinos and their Beneficiaries aim to reach various sectors of society—from students to OFWs and other underserved sectors—and bring awareness and education to elevate their financial literacy.
The Importance of Financial Literacy
The level of one’s financial literacy can influence a person’s daily living on both personal and societal levels. Being able to understand and apply essential and complex financial concepts is tied to many factors like socio-economic status, income, educational attainment, and even gender.
It is crucial to not only overcome obstacles to financial literacy but also to foster the habits, perspectives, and environments to ensure a more positive cycle of financial literacy.
To get a head start on your financial journey, check out our blog for more resources on personal finance, or browse our range of life insurance plans that can fit a variety of needs.
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