For years now, the rate of financial literacy in the Philippines has been substantially low. A survey conducted by the Bangko Sentral ng Pilipinas (BSP) before the COVID-19 pandemic revealed that only 1 of 3 questions on financial literacy could be answered correctly by Filipino adults. Only 8% of those surveyed were surveyed to answer all three correctly, and about one-fourth scored a zero.
During the pandemic, the financial illiteracy problem in the Philippines grew more apparent, as it did in many countries worldwide, with millions of individuals and families struggling to sustain themselves through quarantines.
The question begging everyone now is, just how bad has financial literacy gotten, and how do we improve from here?
What Is Financial Literacy, and Why Is It Important?
Financial literacy is the foundation of all economies. A current issue observed in the Philippines and worldwide is the lack of financial literacy in many young people. An absent understanding of the importance of financial literacy is causing huge rifts in the financial stability of millions and posing threats for the future of younger generations.
Financial Literacy Meaning
Financial literacy is knowing various financial topics and skills that make for factually-based, effective financial decisions. To develop a strong foundation for your finances, a clear understanding of personal money management, budgeting, and investing is crucial.
Being financially literate can help a person avoid downfalls such as financial fraud, unsustainable debt, poor credit, and bankruptcy. The younger a person is when they become familiar with financial literacy, the more likely they will be financially well off in the long run.
Importance of Financial Literacy
The importance of financial literacy lies vastly in the unknown circumstances of the future. The financial landscape of any given person or society is in constant change. Being prepared for inevitable negative economic shifts is crucial and nearly impossible for the financially illiterate.
Financial literacy comes down to proper money management skills and preparing for anything the market throws at you. Without understanding financial literacy importance, people will often fall victim to these economic downfalls:
- Overspending and undersaving
- Substantial debt
- Bankruptcy and foreclosure
- Lack of retirement funds
Financial Literacy in the Philippines: What’s Happening?
While the battle against financial illiteracy has been ongoing for ages, recent events have uncovered the true severity of the problem. With the last year of the COVID-19 pandemic having caused millions to lose their income, it is more apparent now just how low financial literacy rates have sunk.
In the Philippines, financial unpreparedness in low-income individuals and families has been devastatingly prevalent in 2020 and continues in 2021. This state of financial ruin reveals the shocking truth behind the most common financially illiterate practices in the Philippines and their destructive costs.
Here are some of the most commonly shared practices:
Spend Now Save Later Mindset
A commonly shared mindset amongst Filipinos is the spend now save later concept. Money is first spent on needs and desires in this idea, and then any leftover money is saved. One issue with this approach is that zero or very little money is left over after spending. This leads to little preparation for economic crises such as what the world has seen with the COIVD-19 pandemic.
Lack of Proper Family Financial Planning
Many Filipino individuals and families agree that they spend a lot of time worrying over future health and wellness problems with themselves or family members. The disconnect here is that a very small number of these people have any money saved away in actual medical emergencies.
As the number of retirees grows in the Philippines, more of the elderly population is forced to move in with relatives due to a lack of retirement funds. Both of these scenarios are largely related to financial illiteracy when planning for future family finances.
Lack of Adults with Bank Accounts and Forms of Electronic Payment
Data from the BSP shows that only 23% of Filipino adults currently have bank accounts. This leaves the most vulnerable populations who don’t have accounts at a disadvantage when acquiring social assistance.
About half of adults have savings, but nearly 70% keep this money at home. Without clear and consistently updated materials for managing balances, many cannot keep up with regular spending needs. When it comes to forms of electronic payments, only 4% of adults have access to them.
Little to No Financial Education
When the BSP was administering the latest financial literacy surveys, very few adults answered all three questions correctly. Filipino adults demonstrate forward-looking attitudes but lack in the department of proper daily money management.
The repercussions of this are visible in the state of many individuals and families since the economic hardship of the pandemic. Without adequate financial education, the cycle of financial illiteracy will continue to thrive in the Philippines.
Where Do We Go From Here?
One way to look at the outcomes of the pandemic is as a teachable moment. A major shift in financial education efforts is necessary. Implementing better sourced and more accessible financial education resources and programs will hopefully create a more financially healthy ecosystem for Filipinos.
What Financial Education Will Look Like
The BSP has collaborated with partners to create educational programs aiming to teach financial literacy to 58 million Filipinos.
Under a 2018 agreement, the BSP is implementing financial education programs in agencies including the following: Armed Forces of the Philippines, Bureau of Fisheries and Aquatic Resources, Civil Service Commission, Department of Education, Department of Trade and Industry, and the Department of Social Welfare, and Development. These efforts alone will cover more than 32 million Filipinos.
Combining the resources of these agencies and others with supporting bank foundations, including the BDO Foundation and BPI Foundation, the BSP is confident the proposed financial literacy education programs are sustainable.
Ways to Improve Your Financial Literacy Skills
Create a Budget
Creating a budget is one of the easiest steps towards financial literacy. A key factor is not to set a budget too high or too low—keep it sustainable.
Build a Savings Account
Easier said than done for some, building a savings account is a great step towards financial literacy. One way to start is by remembering to pay your future self before spending on extra items. Here’s an article by PESOLAB for more guidance.
Take Care of Debt
Rising debt is one of the leading reasons people go bankrupt. An easy way to start keeping up with debt is to cut back on spending and put the saved money into repaying existing balances.
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