ED 109 -BUILDING AND ENHANCING NEW LITERACIES ACROSS THE CURRICULUM
MIDTERM COVERAGE
TOPIC 4
FINANCIAL LITERACY
Intended Learning Outcome (ILO)
At the end of the topic, the learners should be able to achieve the following learning outcomes:
1. Develop personal financial literacy;
2. Characterize financial literacy in the Philippines;
3. Assess one’s level of financial literacy using set of standards
FINANCIAL LITERACY
- “the ability to read, analyze, manage and communicate about the personal financial
conditions that affect material well- being”- The National Endowment for Financial
Education
- The Incharge Education Foundations, 2017 defines Financial Literacy as the abilities to:
Discern financial issues without (or despite) discomfort
Plan for the futures
Respond competently to life events that affect every day financial decisions
including events in the general economy.
- It is the ability to use knowledge and skills to manage one’s financial resources effectively
for lifetime financial security. (Mandell, 2009)
- Meanwhile, Hastings et al. (2013) refers financial literacy as:
knowledge of financial products ( e.g, a stock vs bond);
The difference between stocks and bonds is that stocks, you own a small portion
of a company, whereas with bonds, you loan a company or government money.
Another difference is how they make money: stocks must grow in resale value,
while bonds pay fixed interest over time.
knowledge of Financial Concepts (eg., inflation, compounding, diversification,
credit score);
Inflation is the rate of increase in prices over a given period of time. Inflation is
typically a broad measure, such as the overall increase in prices or the increase in
the cost of living in a country.
Compounding is the process whereby interest is credited to an existing principal
amount as well as to interest already paid. Compounding thus can be construed as
interest on interest—the effect of which is to magnify returns to interest over
time, the so-called “miracle of compounding.”
Diversification is a risk management technique that mitigates risk by allocating
investments across different financial instruments, industries, and several other
categories. The purpose of this technique is to maximize returns by investing in
different areas that would yield higher and long term returns.
Example: A company that primarily sells clothing might expand into selling home
goods and accessories. Market diversification: A company that sells only in the
domestic market might expand into international markets.
A credit score is a prediction of your credit behavior, such as how likely you are to
pay a loan back on time, based on information from your credit reports.
Credit score is calculated based on five factors: your payment history, amount
owed, new credit, length of credit history, and credit mix. Your record of on-time
payments and amount of credit you've used are the two top factors. Applying for
new credit can temporarily lower your score.
Habits to consider adopting to help raise your credit score.
Never miss a bill due date
Keep your balances low
Think twice before closing old cards
Be cautious about new loan applications
Consider a well-rounded credit history
Check your credit report regularly
Dispute any errors you find
having the mathematical skills or numeracy necessary for effective financial
decision making; and
being engaged in certain activities such as financial planning.
The Council for Economic Education, is the leading organization in the United States that
focuses on the economic and financial education of students from kindergarten through High School
developed six (6) standards gearing toward deepening students’ understanding of personal finance
through an economic perspective. The standard and key concepts are summarized in the given table.
Standards Key Concepts
Income earned or received by people
Different types of jobs as well as different forms of income earned or
received
Earning Income Benefits and costs of increasing income through the acquisition of education
and skills
Government programs that affect income
Types of income and taxes
Labor market
Scarcity, choice, and opportunity cost
Factors that influence spending such as advertising, peer pressure and
spending choices of others
Comparing the costs and benefits of spending decisions
Buying goods Basics of budgeting and planning
and Services Making a spending decision
Payment methods, costs, and benefits of each
Budgeting and classification of expenses
Satisfaction, determinant of demands, cost of product durability
Concept of saving and Interest
How people save money, where can people save money, and why people
save money
The mathematics of saving
Saving The power of compound interest
Real vs Nominal interest rates
Present vs future value
Financial regulators
Automatic saving plans, “rainy day “ funds
Saving for retirement
Concept of Credit and the cost of Using credit
Why people use credit and the sources of Credit
Why interest rates vary across borrowers
Basic calculations related to borrowing ( principal, interest, compound
Using Credit interest)
Credit reports and Credit scores
Behaviors that contribute to strong credit reports and scores
Impact of credit reports and scores on consumers
Consumer protection laws
Financial Concept of Financial investment
Investing Variety of possible Financial Investment
Calculate Rates of Return
How diversification can reduce risk
How financial markets reacts to changes in market condition and
informatioin
Protecting and Concept of Financial Risk and Loss
Insuring Insurance (transfer of risk through risk pooling)
Managing risk
Identity theft
Life Insurance products
How to protect oneself against identity theft
SPENDING PATTERNS
A spending habit refers to the pattern or behavior of disbursing money in
response to various factors such as actions, environments, or personal needs and
wants. It involves the choices individuals make regarding their expenses, including
how they allocate their income towards necessities and leisure activities.
Habitual Spending occurs when one spends out of habit, when one buys the
same item daily, weekly or monthly. Habitual spending includes buying coffee
every morning on the way into work, always ordering a drink when going out to
dinner, or browsing online shopping sites when bored.
Impulsive spending is the tendency of a customer to buy goods and services
without planning in advance. When a customer takes such buying decisions at
the spur of the moment, it is usually triggered by emotions and feelings.
Compulsive Spending which is also known as oniomania, shopping addiction
and pathological buying - is when a person feels an uncontrollable need to shop
and spend, either for themselves or others.
FIXED VS VARIABLE EXPENSES CATEGORIES
Fixed expenses are costs that largely remain constant, such as your monthly
rent or mortgage.
Variable expenses are costs that may vary or be unpredictable, such as a car
repair or a medical bill.
NEEDS VS WANTS
Needs are things that we must have in order to survive such asFood, water,
clothing, and shelter are all needs. If a human body does not have those things, the
body cannot function and will die.
Wants are things that a person would like to have but are not needed for
survival. Wants are anything people would like to have, or desire.
