MODULE 8: FINANCIAL LITERACY

 Financial literacy is a core life skill in an increasingly complex world where people need
to take charge of their own finances, budget, financial choices, managing risks, saving,
credit, and financial transactions.
 Financial literacy is the ability to make informed judgments and make effective decisions
regarding the use and management of money. Hence, teaching financial literacy yields
better financial management skills.
The Importance of starting Financial Literacy while staying young
 National surveys show that young adults have the lowest levels of financial literacy as
reflected in their inability to choose the right financial products and lack of interest in
undertaking sound financial planning. Therefore, financial education should begin as
early as possible and be taught in schools.
 Financial education is a long-term process and incorporating it into the curricula from an
early age allows children to acquire the knowledge and skills while building responsible
financial behavior throughout each stage of their education (OECD, 2005).
Financial Plan
 Kagan (2019) defines a financial plan as a comprehensive statement of an individual's
long-term objectives for security and well- being and detailed savings and investing
strategy for achieving the objectives. It begins with a thorough evaluation of the
individual's current financial state and future expectations.
Steps in Creating a financial plan
1. Calculating net worth – Net worth is the amount by which assets exceed liabilities. In so
doing, consider (1) assets that entail one's cash, property, investments, savings, jewelry,
and wealth; and (2) liabilities that include credit card debt, loans and mortgage. Formula:
total assets minus total liabilities = current net worth.
2. Determining cash flow – A financial plan is knowing where money goes every month.
Documenting it will help to see how much is needed every month for necessities, and the
amount for savings and investment.
3. Considering the priorities – Considering the priorities. The core of a financial plan is
the person's clearly defined goals that may include: (1) Retirement strategy for
accumulating retirement income; (2) Comprehensive risk management plan including a
review of life and disability insurance, personal liability coverage, property and casualty
coverage, and catastrophic coverage; (3) Long-term investment plan based on specific
investment objectives and a personal risk tolerance profile; and (4) Tax reduction strategy
for minimizing taxes on personal income allowed by the tax code.

Five Financial Improvement Strategies

1. Identify your starting point – Calculating the net worth is the best way to determine
both current financial status and progress over time to avoid financial trouble by spending
too much on wants and nothing enough for the needs.
2. Set your priorities – Set your priorities. Making a list of rated needs and wants can help
set financial priorities. Needs are things one must have in order to survive (i.e. food,
shelter, clothing, healthcare and transportation); while wants are things one would like to
have but are not necessary for survival.
3. Document your spending – One of the best ways to figure out cash flow or what comes
in and what goes out is to create a budget or a personal spending plan. A budget lists
down all income and expenses to help meet financial obligations.
4. Lay down your debt – Living with debt is costly not just because of interest and fees,
but it can also prevent people from getting ahead with their financial goals.
5. Secure your financial future – Retirement is an uncontrollable stage in a worker's life,
of which counterpart are losing the job, suffering from an illness or injury, or be forced to
care for a loved one that may lead to an unplanned retirement. Therefore, knowing more
about retirement options is an essential part of securing financial future.
Financial Goal Planning and Setting
 Setting goals is a very important part of life, especially in financial planning. Before
investing the money, consider setting personal financial goals. Financial goals are targets,
usually driven by specific future financial needs, such as saving for a comfortable
retirement, sending children to college, or enabling a home purchase.

Key areas in setting investment goals for consideration

A. Time Horizon. It indicates the time when the money will be needed. To note, the longer
the time horizon, the more risky (and potentially more lucrative) investments can be
made.
B. Risk Tolerance. Investors may let go of the possibility of a large gain if they knew there
was also a possibility of a large loss (they are called risk averse); while others are more
willing to take the chance of a large loss if there were also a possibility of a large gain
(they are called risk seekers). The time horizon can affect risk tolerance.
C. Liquidity Needs. Liquidity refers to how quickly an investment can be converted into
cash (or the equivalent of cash). The liquidity needs usually affect the type of chosen
investment to meet the goals.
D. Investment Goals; Growth, income and stability. Once determined the financial goals
and how time horizon, risk tolerance, and liquidity needs affect them, it is time to think
about how investments may help achieve those goals. When considering any investment,
think about what it offers in terms of three key investment goals: (1) Growth (also known
as capital appreciation) is an increase in the value of an investment; (2) Income, of which
some investments make periodic payments of interest or dividends that represent
investment income and can be spent or reinvested; and (3) Stability, or known as capital
preservation or protection of principal.
Budget and Budgeting
BUDGET – A budget is an estimation of revenue and expenses over a specified future period of
time and is usually compiled and re- evaluated on a periodic basis.
BUDGETING – Budgeting, on the other hand, is the process of creating a plan to spend money.
SEVEN STEPS TO GOOD BUDGETING
Step 1: Set realistic goals. Goals for the money will help make smart spending choices upon
deciding on what is important.
Step 2: Identify income and expenses. Upon knowing how much is earned each month and
where it all goes, start tracking the expenses by recording every single cent.
Step 3: Separate needs from wants. Set clear priorities and the decisions become easier to
make by identifying wisely those that are really needed or just wanted.
Step 4: Design your budget. Make sure to avoid spending more than what is earned. Balance
budget to accommodate everything needed to be paid for.
Step 5: Put your plan into action. Match spending with income time. Decide ahead of time
what you will use each payday. Non-reliance to credit for the living expenses will protect one
from debt.
Step 6: Plan for seasonal expenses. Set money aside to pay for unplanned expenses so to avoid
going into debt.
Step 7: Look ahead. Having a stable budget can take a month or two so, ask for help if things
are not getting well.
SPENDING
 If budget goals serve as a financial wish list, a spending plan is a way to make those
wishes a reality. Turn them into an action plan.
The following are practical strategies in setting and prioritizing budget goals and spending plan:
1. Start by listing your goals. Setting budget goals requires forecasting and discussing future
needs and dreams with the family.
2. Divide your goals according to how long it will take to meet each goal.
Classify your budget goals into three categories: short-term goals (less than a year), medium-
term goals (one to five years), and long-term goals (more than five years). Short-term goals are
usually the immediate needs and wants; medium- term goals are things that you and your family
want to achieve during the next five years; and long-term goals extend well into the future, such
as planning for retirement.
3. Estimate the cost of each goal and find out how much it costs. Before assigning priority to
goals, it is important to determine the cost of each goal. The greater the cost of a goal, the more
alternative goals must be sacrificed in order to achieve it.
4. Project future cost. For short-term goals, inflation is not a big factor, but for medium and
long-term goals, it is a big factor. To calculate the future cost of the goals, there is a need to
determine the rate of inflation applied to each particular goal.
5. Calculate how much you need to set aside each period. Upon knowing the future cost of the
goals, next is to determine how much to put aside each period to meet all the goals.
6. Prioritize your goals. Upon listing down all the goals and the estimated amount needed for
each goal, prioritize them. This serves as guide in decision-making.
7. Create a schedule for meeting your goals. It is important to lay down all the goals according
to priority with the corresponding amount of money needed, the time it will be needed, and the
installments needed to meet the goals.
INVESTMENT AND INVESTING
As teachers, when you have saved more money than what you expect at a time of need, consider
investing this money to earn more interest than what your savings account is paying you. There
are many ways you can invest your money but consider four aspects:
1. How long will you invest the money? (Time Horizon)
2. How much money do you expect your investment to earn each year? (Expectation of Return)
3. How much of your investment are you willing to lose in the short-term in order to earn more
in the long-term? (Risk Tolerance)
4. What types of investment interest you? (Investment Type)
SAVINGS
In order to get out of debt, it is important to set some money aside and put it into a savings
account on a regular basis. Savings will also help in buying things that are needed or wanted
without borrowing.
Emergency Savings Fund. Start as early, setting aside a little money for emergency savings
fund. If you receive a bonus from work, an income tax refund or earnings from additional or side
jobs, use them as an emergency fund.
10 Reasons Why Save Money
1. To become financially independent. Financial independence is not having to depend on
receiving a certain pay but setting aside an amount to have savings that can be relied on.
2. To save on everything you buy. With savings, you can buy things when they are on sale and
can make better spending choices without being compromised on credit card interest charges.
3. To buy a home or a car. Savings can be used in buying a home in full or down payment,
especially in times of promo deals, bids and inevitable sale and at a reasonable interest rate.
4. To prepare for the future. Through savings, you can be confident to face the future without
worrying on how you will survive.
5. To get out of debt. If you want to get out of debt, you have to save money.
6. To augment annual expenses. In order to attain a good, stress-free financial life, there is a
need to save for annual expenses in advance.
7. To settle unforeseen expenses. Savings can respond to unforeseen expenses in times of need.
8. To respond to emergencies. Emergencies may happen anytime, and these can be expensive
so, there is a need to get prepared rather than potentially become another victim of an emergency.
9. To mitigate losing your job or getting hurt. Bad things can happen to anyone, such as losing
a job, business bankruptcy or crisis, being injured or becoming too sick to work. Therefore,
having savings is the key to resolve such a dilemma.
10. To have a good life. Putting aside some money to spend when needed can bring about
quality and worry-free life at all times.

COMMON FINANCIAL SCAMS TO AVOID

A. Phishing. Using this common tactic, scammers send an email that appears to come from a
financial institution, such as a bank and asks you to click on a link to update your account
information.
B. Social Media Scams. Scammers are adept at using social media to gather information about
the traveling habits of potential victims. They also have phishing tactics, including posts seeking
charity donations with bogus links that allow them to keep your money.
C. Phone Scams. Another prevalent tactic is scamming phone calls. The scammers pose as a
government agency, such as the Bureau of Internal Revenue or local law enforcement agencies
and use scare tactics to acquire your personal information and account numbers. Never provide
your account information over the phone
D. Stolen Credit Card Numbers. There are numerous ways that scammers can obtain your
credit card information, including hacking, phishing, and the 'use of skimming devices, such as
small card readers attached to unmanned credit card readers (i.e. ATMs, gas pumps, and more).
These small devices pull data from your card when you swipe it.
E. Identity Theft. Depending on the amount of information a scammer is able to obtain, identity
theft may extend beyond unauthorized charges on a debit or credit card. If scammers are able to
obtain your Social Security number, date of birth, and other personal information, they may be
able to open new accounts in your name without your knowledge.
10 TIPS TO AVOID COMMON FINANCIAL SCAMS
1. Never wire money to a stranger. Although it is one of the oldest Internet scams, there are still
consumers who fall for this rip-off or some variations of it.
2. Don't give out financial information. Never reveal sensitive personal financial information
to a person or business you don't know, thru phone, text or email.
3. Never click on hyperlinks in emails. If you receive an email from a stranger or company
asking you to click on a hyperlink or open an attachment and then, enter your financial
information, delete the email immediately.
4. Use difficult passwords. Hackers can easily find passwords that are simple number
combinations. Create passwords that are at least eight characters long and that include some
lower and upper case letters, numbers and special characters. You should also use a different
password for every website you visit.
5. Never give your social security number. If you receive an email or visit a website that asks
for your Social Security number, ignore it.
6. Install Antivirus and Spyware protection. Protect the sensitive information stored on your
computer by installing antivirus, firewall and spyware protection. Once you install the program,
turn on the auto-updating feature to make sure the software is always up-to-date.
7. Don't shop with unfamiliar online retailers. When it comes to online shopping, only do
business with familiar companies. When purchasing a product from an unfamiliar retailer, do
some research to ensure the business is legit and reputable.
8. Don't download software from pop-up windows. When you are online, do not trust pop-up
windows that appear and claim your computer is unsafe. If you click on the link from the pop-up
to start the “system scan” or some other programs, malicious software known as “malware”
could damage your operating system.
9. Make sure the websites you visit are safe. Before you enter your financial information on
any website, double-check the website's privacy rules. Also, make sure the website uses
encryption, which is usually symbolized by a lock to the left of the web address which means it
is safe and protected against hackers.
10. Donate to known charities only. If you receive a call or an email for solicitation of charity
donations, critically examine it. Some scammers create bogus charities to steal credit card
information.