The Case for Financial Literacy
I consider myself lucky because at a very young age I learned about entrepreneurship, financial management, and basic skills of running a business from my mother. Those times when I helped her sell shrimps and fish were my first lessons in financial literacy. That tiny stall we occupied in Divisoria market was my first classroom and Nanay Curing, my first teacher.
I wish all Filipinos have the privilege of being educated on business and finance at an early age. Unfortunately, we have an education system that produces employees — graduates who prefer to work for a company, in a cubicle, rather than starting their own business. I think part of the problem is the weak financial literacy program in our schools.
This is the reason why the formal account penetration among the low-income population in the Philippines has been traditionally very low according to studies by the World Bank and the Bangko Sentral ng Pilipinas (BSP). Filipinos also perform poorly in financial literacy surveys.
A BSP study found that when asked about the most basic financial literacy questions, only 20 percent of Filipinos scored a hundred percent, while 7 in 10 correctly answered at least half of the questions.
Only 42 percent of adults correctly identified inflation’s effect on purchasing power while just 30 percent were able to answer the question on simple and compound interest. More problematically, a World Bank study found that only 25 percent of adult Filipinos are knowledgeable on basic financial concepts. Then, in a global study by Standard & Poor’s, the Philippines scored in the bottom 30 of 144 countries surveyed on financial literacy.
The BSP defined financial literacy as the “ability of a person to make better and informed financial decisions to manage their wealth properly.” It is a skill that is often developed at a young age as financially well-informed children tend to grow as a financially responsible adult. When I was still young I already knew how to look at, and make a budget. I knew whether our small business was profitable or not.
We need to craft our basic education to address this critical gap. I know that many people regret not learning these basic business skills in school. To be fair, there are some schools that have strong financial literacy program. What needs to be done is to strengthen the teaching of the most basic financial literacy knowledge and skills such as savings, budgeting, expenses, credit, loans and debt. Many young professionals, for instance, realize rather late in life the importance of managing credit card debts with fiscal responsibility.
Investing is another important financial literacy program that would is the cornerstone of financial success, individually and at a societal level. It equips young individuals with the knowledge and skills necessary to navigate the complex world of investments and personal finances. When young people are well-versed in investment principles and financial concepts, they are better prepared to secure their financial future and make informed choices about their money.
Individuals who are financially literate are equipped to evaluate the risks and potential returns associated with different investments. If someone decides to save money or borrow money, they should be able to make an informed investment decision that enables them to select investments that align with their financial goals and risk tolerance. Start them young, I say. Remember, Warren Buffett started investing at a young age, buying his first stock at age 11 and his first real estate investment at age 14.
We need to build a nation of entrepreneurs and not a nation of employees. If our goal is the prosperity of the country, then the first step is to make sure that young Filipinos understand what it means to be prosperous and more importantly, how to achieve prosperity. Going to your office in Makati or BGC in a coat and tie, sitting inside that cubicle, and buying the latest iPhone in the market is not a sign of prosperity. Creating wealth, building a business enterprise from the ground up, an enterprise that employs Filipinos and allows you to be your own boss is the surefire sign of success.
Source:
