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Financial Literacy

Why we should take personal finance in high school.

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• > Journal of Financial Literacy and Wellbeing
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• > The importance of financial literacy and its impact...

Article contents

Introduction, the overarching value of financial literacy, using financial instruments: from mortgages to crypto assets, financial education in school and the workplace, concluding remarks, the importance of financial literacy and its impact on financial wellbeing.

Published online by Cambridge University Press:  12 June 2023

In this editorial, we provided an overview of the papers in the inaugural issue of the Journal of Financial Literacy and Wellbeing. They cover topics that are at the center of academic research, from the effects of financial education in school and the workplace to the importance of financial literacy for the macro-economy. They also cover financial inclusion and how financial literacy can promote the use of basic financial instruments, such as bank accounts. Moreover, they cover financial decision making in the context of complex instruments, such as mortgages, reverse mortgages, and crypto assets. The papers all share similar findings: financial literacy is low and often inadequate for making the types of financial decisions that are required today. Moreover, financial literacy is particularly low among already vulnerable groups. Importantly, financial literacy matters: it helps people make savvy financial decisions, including being less influenced by framing, better understand information that is provided to them, better understand the workings of insurance, and being more comfortable using basic financial instruments. In a nutshell, financial literacy improves financial wellbeing.

Financial literacy is an essential skill for making savvy financial decisions, understanding the world around us, and being a good citizen. Changes in the pension system, the increasing complexity of financial instruments (including new instruments such as crypto assets), inflation, and increased risks (from the war in Ukraine to climate change) are some of the reasons behind the increasingly urgent need for individuals to have the knowledge and skills that will increase their financial resilience and wellbeing. The OECD Recommendation on Financial Literacy, adopted in 2020, recognized financial wellbeing as the ultimate goal of financial literacy. Footnote 1

Despite this urgency, levels of financial literacy are remarkably low, even in countries with well-developed financial markets and in which individuals actively participate in financial markets. According to the latest OECD adult financial literacy survey, financial literacy is low in many of the countries belonging to the G7 and G20 bloc. This aligns with findings from a global survey on financial literacy that showed that only a handful of countries rank high on very basic measures of financial literacy. Footnote 2 , Footnote 3 Not only is financial illiteracy widespread in the population, but it is particularly acute in some demographic sub-groups that are already financially vulnerable, such as women and those with low-income and low-educational attainment. Footnote 4

Financial literacy is also low among high school students, indicating that the next generation of adults is ill equipped to face the challenges and changes that are ahead of them. According to the latest wave of the OECD Programme for International Student Assessment (PISA), in some G7 countries, such as Italy, about 20 percent of students do not have basic proficiency in financial literacy. In other countries, such as Peru or Brazil, that proportion is higher than 40 percent. Footnote 5

Much research has been done so far, from measuring financial literacy to assessing the effectiveness of financial education programs to evaluating the link between financial literacy and behavior and the impact of financial literacy on individuals as well as the macro-economy. The number of papers on financial literacy has increased exponentially over the past decade. Footnote 6 Financial literacy has become an official field of study, with its own Journal of Economic Literature code (G53). For all of these reasons, it was time to have an academic journal dedicated to financial literacy. Its mission is to provide the most rigorous research to advance knowledge and to inform policy and programs.

The inaugural issue of the Journal of Financial Literacy and Wellbeing covers topics that are at the center of academic research, from the effects of financial education in school and the workplace to the importance of financial literacy for the macro-economy. It also covers financial inclusion and how financial literacy can promote the use of basic financial instruments, such as bank accounts. Moreover, it covers financial decision making in the context of complex instruments, such as mortgages, reverse mortgages, and crypto assets.

Because the authors of the papers in this inaugural issue have done a vast amount of work on the topics under consideration, we have asked them, when possible, to provide an overview of their work so to gain a perspective of what we have learned so far and what are the most fruitful directions for future research.

There are three principles that bring all of these papers and topics together. First, financial literacy’s relevance at the global level: it affects all countries and economies, irrespective of levels of economic development. The papers in this issue cover experiences from Peru, the United States, Canada, Australia, India, and Sub-Saharan African countries, among many others. When it comes to financial literacy, we can learn from many countries around the world, and the issues discussed in these papers are strikingly similar. Second, whether we are considering the use of basic financial instruments such as bank accounts, or complex ones such as crypto assets, skills are needed if they are to be used to minimize risk and maximize benefits. Third, improving the effectiveness of financial education requires effort as well as ingenuity, and one of the things we can learn from many of these works is how policy and programs can be improved with the help of research. For example, given that financial education in school can affect parents in addition to children, it might make sense to involve parents more directly in financial education programs in school. And because people require support to use financial instruments, attention should be paid to how the use of technology can be improved or can be better complemented with financial education.

In the following sections, we provide a brief description of the papers that are part of the inaugural issue and what we can learn from them.

The benefits of financial education can be far reaching. For example, there has been a push around the world, and significantly in the G20 countries, for promoting financial inclusion. Footnote 7 A high proportion of people in many emerging economies do not have easy access to even basic assets such as bank accounts, let alone access to financial markets, including the stock market. If finance can be important for growth, so is financial literacy, as it can promote participation in financial markets and savvy use of financial instruments. And as financial markets become more sophisticated, the ability to take advantage of new investment opportunities can help reduce inequality (Lo Prete Reference Lo Prete 2013 ).

But there is another important and under-explored avenue related to the impact of financial literacy, which is whether and how much policy makers can be successful in implementing economic reforms. Like individual financial decisions, many reforms involve a trade-off between a sacrifice today for a benefit in the future. However, if people have low financial literacy, they may fail to appreciate future benefits or may not be fully aware of the workings of government budgets and of institutions such as Social Security and the pension system. Overall, attempts to reform pension systems have been met with sharp opposition, even in the face of increasing longevity, decreasing birth rates, and other changes that put existing systems on potentially unsustainable paths. Can financial literacy help with the implementation of those reforms, thus improving the performance of an economy in the long term? And how important is knowledge of pensions?

These are some of the questions pursued by Fornero and Lo Prete ( Reference Fornero and Lo Prete 2023 ). The authors have not just done pioneering work in this area, but Professor Fornero implemented a sweeping reform of the Italian pension system when she served as the Minister of Labour, Social Policy and Gender Equality in Italy from November 2011 to April 2013. They first make the case that it is very important to improve pension literacy, both because there have been many changes to pension systems and because there are a lot of complexities in those systems. Better pension literacy can, for example, help people plan better for their own retirement. This can be particularly important for women, who live longer than men, have lower labor market attachment due to childbearing and other household responsibilities, and have lower wages. As the authors argue, the level of pension literacy is still very low and is particularly low among women, both of which are factors that can jeopardize retirement security.

Most importantly, the authors investigate whether financial literacy helps in the implementation of pension reforms. They report promising evidence that populations with a higher average level of financial literacy are less likely to punish governments for implementing reforms. And financial literacy can help individuals be better citizens (and more educated voters) and less likely to suffer from fiscal illusion, i.e., voters’ failure to estimate the (net) cost of a tax reduction (in terms of higher debt and/or the lower provision of public goods and services). According to their paper, financial literacy can also impact electoral participation, which is another good outcome for the workings of democracies.

It may be useful to note that the countries that started financial literacy programs or were the first to create national strategies for financial literacy did so because of their focus on the pension system and changes in pensions. The focus has now expanded to other topics, but pensions remain an important area of interest. And more than 80 countries have or are implementing national strategies for financial literacy, i.e., policy makers as well have acknowledged the importance of financial literacy at the national level.

Continuing on the topic of the global economy and pioneering work, if we want to have a good understanding of how finance and the use of financial instruments can be important for the wellbeing of individuals and the economy at large, we need to turn to the World Bank Global Findex. It is the most comprehensive database on financial inclusion; the data, which are collected directly from users of financial services, provide unique information on how adults save, borrow, make payments, and manage financial risks. Findings are sobering. The paper by Ansar et al. ( Reference Ansar, Klapper and Singer 2023 ) reminds us that, as of 2021, as many as 1.4 billion adults – or 24 percent of adults – worldwide are without even the most basic asset, i.e., a financial account, or are unbanked . Interestingly, the characteristics of those without an account are very similar to those with low financial literacy: women, poor adults, less educated adults, young adults, and those living in rural areas.

We can learn a lot from looking at the reasons why people do not have an accounts, which speaks to the importance of collecting these types of data. Specifically, the data show that a sizable number of respondents cite lack of help or being uncomfortable using an account as a reason for being unbanked. In developing countries, 64 percent of unbanked adults said they could not use an account at a financial institution without help, a proportion that becomes higher among women and other vulnerable groups. This finding is further evidence that we cannot underestimate the difficulties in using financial instruments. And even those who have an account do not always make good use of it. For example, in India – where every adult with an Aadhaar biometric ID was de facto given a no-minimum-balance, no-fee accounts account as part of the government’s Jan Dhan Yojana program – it was found that many accounts were dormant or had little or no activity. Inactive account holders in India often cite their discomfort level with financial services among the top barriers to account usage. Specifically, about 30 percent of inactive account holders do not use their account because they do not feel comfortable doing so by themselves. And looking at a subsample of 25 Sub-Saharan African countries, where mobile money accounts are widespread, the paper reports that 31 percent of mobile money account holders cannot use their account without help.

These data point to an opportunity for financial education. Strengthening financial literacy can result in more efficient and effective use of basic financial instruments.

Given that the use and good management of basic financial instruments, such as bank accounts, presents difficulty for many people, more complex financial instruments pose an even greater challenge, especially in the context of accelerated digitalization of financial services, which brings new risks for consumers (OECD 2018 ).

We were particularly interested in behavior related to mortgages because the home is the most important asset for most families. Choosing a suitable mortgage is therefore critical to financial wellbeing and, if the financial crisis of 2007/2008 is any indicator, a poor mortgage choice can be a major source of financial distress.

The paper by Torp et al. ( Reference Torp, Liu, Agnew, Bateman, Eckert and Iskhakov 2023 ) helps us to shed light on decisions related to mortgages. In a series of randomly assigned tasks, the authors assessed participants’ subjective comfort with a range of home loan amounts, framed as lump sum debts or equivalent repayment streams. Does framing matter when it comes to decisions about mortgages and does financial literacy and broker advice help? It is not easy to translate stocks into a flow of payments, but often individuals must do so when making financial decisions. As mentioned earlier, high levels of financial literacy cannot be taken for granted, even among the G20 countries. Like other papers in this issue, the authors measure financial literacy using the Big Three financial literacy questions, which assess knowledge of basic financial concepts related to interest rates, inflation, and risk diversification, which are essential elements of financial decisions, including mortgage choice. Less than half of the participants in their sample, i.e., people age 25–64 who have bought or are interested in buying a house, are able to answer these questions.

Similar to findings in other contexts, for example, pension wealth, the authors found that borrowers are less comfortable when loans are framed as lump sum debts rather than equivalent repayment streams. Borrowers are also less adept at translating repayment streams into equivalent lump sums. Interestingly, financial literacy tends to make borrowers more cautious and less comfortable with debt in general and less sensitive to framing. Also, financially literate borrowers can match liabilities with servicing burdens, a key component of sound mortgage management.

Turning to the people who have consulted mortgage brokers, they report higher levels of comfort with debt in general and less discomfort with lump sums compared to repayment streams. Brokers also seem to help clients better grasp the link between loan amounts and repayments. After accounting for potential endogeneity, the authors’ found that, while brokers increase people’s confidence and probably improve their understanding of home loans, they also appear to influence clients’ comfort with debt.

This paper sheds light on the potential effects of financial education: when it comes to household mortgage decisions, financial education can reduce mortgage stress by inducing caution in borrowers and reducing susceptibility to framing. It may also help in using the services of brokers to the household’s advantage.

And given that the house is such a major asset in a household’s balance sheet, what to do with it (including after retirement) is also an important decision. Specifically, do people understand reverse mortgages and does financial literacy help in dealing with these products, which can be even more complex than standard mortgages?

The paper by Choinière-Crèvecoeur and Michaud ( Reference Choinière-Crèvecoeur and Michaud 2023 ) aims to understand the interplay between financial literacy and the valuation of reverse mortgage products. As explained in the paper, a reverse mortgage is a financial product that allows a homeowner to convert a portion of the current equity of their principal residence into cash. Unlike many other mortgage products, the borrower is not obligated to make payments before moving out, selling, or dying. In addition, the borrower is insured against the risk that the loan will be worth more than the house when it is sold. This is called the no-negative equity guarantee (NNEG) of the reverse mortgage. This feature means that the borrower’s longevity risk, as well as the risk of a decline in house prices, is transferred to the lender.

As the definition of the product makes clear, the valuation of reverse mortgages is complex. Specifically, the insurance value of the NNEG is likely to be quite difficult to grasp and compute. It involves projecting house prices in the future, survival risk, and other considerations, such as when one expects to sell the house. Consumers with limited financial literacy may have a harder time making sense of the price and value of the products offered.

To understand how consumers value reverse mortgages, the authors conducted an experiment in which respondents were offered different reverse mortgage products and had to evaluate them by giving their probability of buying each product within the next year. The authors investigate how financial literacy as well as prior knowledge of reverse mortgages shapes the evaluation of reverse mortgage products, in particular the actuarial value of the NNEG and the interest rate charged.

In their sample of 55- to 75-year-old respondents living in the provinces of Quebec, Ontario, and British Columbia, the authors find that more than half of eligible Canadians (55.5%) lack a basic knowledge of reverse mortgages. Moreover, only a little more than half of the respondents in the sample (54.1%) could correctly answer the Big Three questions, indicating that financial literacy is low even among older respondents, who have presumably made many financial decisions.

The findings from this paper show that the effect of financial literacy goes beyond simply increasing or decreasing the likelihood of purchasing a product. In some instances, such as with reverse mortgages, financial literacy enables respondents to better evaluate and assess the value of financial products. Consistent with many other papers, the empirical work in this paper also makes clear that insurance is a hard concept for households to understand, particularly when it involves complex risk calculations. More research should be devoted to understanding how financial education may help households better grasp concepts related to risk and insurance.

Crypto assets are another complex product, and one that is likely to be at least as hard to understand as insurance. Ownership of crypto assets is increasingly rapidly across countries, particularly among the young, which is why we are particularly interested in learning more about decisions related to new and risky products.

A very interesting hypothesis often mentioned in the general media, and pursued in the paper by Gerrans et al. ( Reference Gerrans, Babu Abisekaraj and Liu 2023 ), is that given the rapid increase in the price of crypto over time, people have fear of missing out, or FoMO, on the earnings that can result from crypto ownership. The field of behavioral finance has documented that emotions, attitudes, and behavioral biases can play an important role in financial decisions and the authors build on that field and the literature examining differences in psychological status and personality between investors and non-investors.

The analysis is carried out on data from a survey of undergraduate students at the University of Western Australia as part of a program examining the financial literacy of young adults, including students who enroll in an elective personal finance unit. The survey was conducted in the last week of July 2021, when crypto and stock prices had risen substantially in the 12 months prior to the survey. The relevance of FoMO is considered in addition to financial literacy and important preference parameters, such as risk tolerance. The authors look at both the direct effect of FoMo and the indirect effect of financial literacy and risk tolerance.

Estimates from a simple investment model identify a significant role for FoMO, along with financial literacy and risk tolerance, in current and future investment intentions related to both stocks and crypto. Interestingly, FoMO effects are largest for crypto and future investment intentions and smallest for current stock investment. While risk tolerance and financial literacy have positive effects for current crypto investment, these effects are small and smaller than the effects of FoMO. Financial literacy retains a significant small effect for future stock investment but not for crypto. Risk tolerance and financial literacy have larger effects than FoMO on current ownership of stocks. Thus, factors beyond those traditionally considered in investment models can play a role when looking at new and complex assets.

In addition to direct effects, financial literacy has an indirect effect on investment via FoMO, suggesting that FoMO has some basis in knowledge, though this is a small effect and only robust for stocks. Financial literacy is a significant predictor of FoMO for stocks but only weakly for crypto. Moreover, FoMO is a significant positive predictor of risk tolerance, though the estimated effect is not economically meaningful. Interestingly, FoMO explains only a small amount of gender difference in current crypto ownership, and it does not significantly explain observed gender difference for stock ownership.

As discussed at the end of the paper, the authors are agnostic on whether FoMO is good or bad. To the extent that non-participation in stock markets is a mistake, FoMO may serve a positive role. Given positive associations (although small) between financial literacy and FoMO for stocks, interventions directly addressing FoMO may be useful. For crypto as well, interventions that tap into FoMO could have some effects.

More than ever, the promotion of financial literacy is important; it is particularly important among the young, as it will help them make savvy decisions about very risky assets, such as crypto.

While financial literacy is an essential skill, particularly among the young, many young people lack knowledge of basic financial concepts. Back in 2000, the OECD started PISA, an ambitious project to assess student performance in critical areas. PISA gauges whether students are prepared for future challenges, whether they can analyze, reason, and communicate effectively, and whether they have the capacity to continue learning throughout their lives. Since its first wave in 2000, PISA has tested 15-year-old students’ skills and knowledge in three key domains: mathematics, reading, and science. In 2012, PISA introduced an optional financial literacy assessment, which became the first large-scale international study to assess youths’ financial literacy. The PISA financial literacy assessment measures the proficiency of 15-year-olds in demonstrating and applying financial knowledge and skills.

This is the definition of financial literacy from the team of experts who worked on this assessment Footnote 8 :

“Financial literacy is knowledge and understanding of financial concepts and risks, as well as the skills and attitudes to apply such knowledge and understanding in order to make effective decisions across a range of financial contexts, to improve the financial wellbeing of individuals and society, and to enable participation in economic life . ” ( OECD 2019b )

As reported in more detail in Lusardi ( Reference Lusardi 2015 ), there are four innovative aspects of this definition that should be highlighted. First, financial literacy does not refer simply to knowledge and understanding but also to its purpose, which is to promote effective decision making. Second, and in line with the objectives of this journal, the aim of financial literacy is to improve financial wellbeing, not to affect a single behavior, such as increasing saving or decreasing debt. Third, financial literacy has effects not just for individuals but for society as well. Fourth, financial literacy, like reading, writing, and knowledge of science, enables young people to participate in economic life. We highlight this definition because it represents many of the principles covered in this inaugural issue.

The PISA financial literacy data have become a critical source of information with which to assess the level of financial literacy among the young. Starting from the original wave in 2012, we have found that several rich countries do not have high levels of youth financial literacy. For example, both the United States and some European countries, such as Italy, France, and Spain, ranked at the OECD average or below the average on the 2012 financial literacy scale. Moreover, and importantly, financial literacy is strongly linked to socio-economic status: the students who are financially literate are disproportionately those from families with higher levels of education and income and from homes with a lot of books. (OECD 2014 ; Lusardi Reference Lusardi 2015 ).

The PISA 2022 financial literacy assessment will provide further insights into young people’s financial literacy across 23 countries and economies, and take into consideration changes in the socio-demographic and financial landscape, such as the use of digital services, that are relevant for students’ financial literacy and decision making.

Countries have started to add financial education in school, in some cases making it mandatory. Notably, Portugal made financial education mandatory in school in 2018, adding it to the civic education curriculum, and many states in the United States have passed legislation to make financial education mandatory in high school curricula. Recent empirical evidence on the effectiveness of financial education in school shows it holds much promise. For example, according to a meta-analysis covering financial education programs from as many as 33 countries on 6 continents, and considering the programs evaluated most rigorously, financial education is found to affect both financial knowledge and downstream behavior. Remarkably, the effects are similar across age groups, i.e., they hold among the young and the old, and they hold across countries. Footnote 9 Other work examining the effect of financial education in high school also shows that young people who were exposed to high school financial education are much less likely to have problems with debt as young adults (Urban et al. Reference Urban, Schmeiser, Collins and Brown 2020 ).

While the focus on financial education has been on whether it improves the knowledge and wellbeing of students, it could also affect others. Frisancho ( Reference Frisancho 2023 ) in this inaugural issue examines whether financial education in high school can also affect parents. This is a very innovative paper and for many reasons. First, the analysis is carried out on a large sample of schools in Peru. As mentioned earlier, Peru is a country with a high percentage of students who perform poorly on financial literacy assessments. Second, it is possible to link the data with information from credit bureau records, which provide data on financial outcomes. This is more rigorous information than can be obtained by relying, for example, on self-reports. Third and importantly, the evaluation is based on a large-scale experiment, where students were randomly assigned to control and treatment groups, which is the most rigorous method with which to assess the impact of financial education. We hope many programs can be evaluated using these methods and that this study can provide guidelines for other countries.

The findings speak of the power of financial education: in addition to affecting students, it helps parents, specifically parents of low-income students. Among parents from poorer households, default probabilities decrease, credit scores increase, and debt levels increase too. And there is an important gender effect: it is mostly the parents of daughters who experience improvement in their financial behaviors. These findings are intrinsically important and have policy implications: Financial education in school can be far reaching and can have important spillover effects, in particular for vulnerable groups.

And if schools can be suitable places to provide financial education to the young, the workplace can be ideal for financial education programs for adults, as also recognized by the OECD in the Policy Handbook on Financial Education in the Workplace (OECD 2022 b). There are many reasons why workplace financial education can be important. First, employers may benefit too. A simple statistic from the work of Hasler et al. ( Reference Hasler, Lusardi, Yagnik and Yakobski 2023 ) is quite informative. In an attempt to provide a crude proxy of the cost of financial illiteracy, the 2021 Personal Finance Index ( P-Fin Index) survey asks respondents to give an estimate of the total number of hours per week they spend worrying about their personal finances, and how many of those hours are spent at work. Findings are startling. In 2021, U.S. adults reported spending about 7 hours per week, on average, thinking about and dealing with issues and problems related to their personal finances, with over three of these hours spent at work. The most financially literate respondents (who answered over 75 percent of the P-Fin Index questions correctly) reported spending much less time dealing with their personal finances: about three total hours per week with 1 hour per week at work. In contrast, the least financially literate respondents (those who answered 25 percent or less of the P-Fin Index questions correctly) reported spending a staggering 11 total hours per week and over 4 hours per week at work thinking about and dealing with issues related to their finances.

Hasler et al. ( Reference Hasler, Lusardi, Yagnik and Yakobski 2023 ) use these data to do a back-of-the-envelope calculation of the return to a workplace financial education program. For a company with 30 minimum-wage employees (earning $15 per hour) who work 50 weeks per year, financial education can recover $22,500 of value per year for an employer, which is conceivably greater than the cost of many workplace financial wellness programs. In other words, scalable, low-cost financial education programs would likely create a positive return on investment, in particular for large employers.

Because of the shift from defined benefit to defined contribution in the United States, a number of large firms have started to offer financial education programs. However, it is difficult to access that data without working directly with an employer. It is also difficult to acquire data that are representative of the population of workers or employers. The research of Clark ( Reference Clark 2023 ), who has worked with many employers in different sectors, is rather unique and helps us to shed light on the workings and promises of workplace financial education. As noted in his paper, providing financial education when workers are first hired is ideal, because it is in the interest of both employers and employees to understand the benefits offered by the firm and how to best use them. Providing education related to retirement and retirement planning is also beneficial to both parties, given that a substantial portion of employer benefits relate to pensions and the promotion of financial security in retirement. However, as the author effectively argues, financial education should not be limited to retirement topics, as other financial decisions made by employees can interact with decisions about whether or not to participate in pension plans and how much to contribute to those plans. Holistic financial education programs offered throughout the life cycle may better fit the needs of a heterogeneous population of workers. And programs provided well before retirement may enable workers to take better advantage of the power of interest compounding, helping them begin to save as early as possible and take advantage of employer matches. It is not always possible to evaluate the effectiveness of programs using randomized controlled trials or controlling for certain factors, such as whether program attendees are those who are inherently interested in financial education, but the evidence provided in this overview of two decades of work shows that workplace financial education holds much promise.

Clark’s work has included personal interactions with employers and employees, providing opportunities for both quantitative and qualitative work, and the evidence from small samples can be illuminating too. For example, the author shows that financial education programs are appreciated and rated with high marks by employees. While self-selection may play a role in program attendance, offering this type of benefit can be a useful retention tool, particularly in the tight post-pandemic labor market. We specifically encourage reading the last part of the paper, which provides useful best practices for increasing the effectiveness of employer-provided financial education programs.

The papers in this inaugural issue all share similar findings: financial literacy is low and often inadequate for making the types of financial decisions that are required today, from opening a bank account, to managing a mortgage, to using reverse mortgages later in life, to investing in new and risky assets such as crypto. Moreover, financial literacy is particularly low among already vulnerable groups, such as women and individuals with low-income or low-educational attainment. Importantly, financial literacy matters: it helps people make savvy financial decisions, including being less influenced by framing, better understand information that is provided to them, better understand the workings of insurance, and being more comfortable using basic financial instruments. In a nutshell, financial literacy improves financial wellbeing! The effects of financial literacy extend beyond individuals: financial literacy can affect the macro-economy as well.

Financial literacy is essential for the promotion of financial inclusion, as people need knowledge and skills to effectively use financial instruments, even the most basic ones, such as bank accounts. Every financial instrument carries potential costs and risks, and some basic knowledge is necessary to use these instruments well. And when financial instruments are complex (as in the case of mortgages, including reverse mortgages) or risky (as in the case of assets such as crypto), financial literacy becomes a must for informed consumer use along with adequate financial protection.

Financial literacy is also expected to help individuals deal with emerging trends and challenges in the financial landscape, from digital financial services to sustainable finance, as recognized in the priorities of the OECD International Network on Financial Education for the next biennium.

Policy makers, practitioners, the private and public sectors, and academics can benefit from the findings reported in the papers in this inaugural issue. Our objective is to publish the most rigorous and relevant work. But most importantly, we hope that this journal will become a source for relevant information and that the research that is published here will have an impact and improve the financial wellbeing of individuals around the world.

1 See OECD ( 2020 a).

2 See OECD ( 2020 b) and Klapper and Lusardi ( Reference Klapper and Lusardi 2020 ).

3 The OECD will release the results of a new data collection in 2023 from developed and developing countries, which will look not only at financial literacy but also at the financial resilience and financial wellbeing of consumers around the world in an internationally comparable way (OECD 2022 a).

4 See Lusardi and Mitchell ( Reference Lusardi and Mitchell 2014 ) for a discussion and review of the empirical evidence on financial literacy.

5 See OECD ( 2020 c). The next PISA financial literacy assessment will be released in 2024.

6 See Kaiser et al. ( Reference Kaiser, Lusardi, Menkhoff and Urban 2022 ).

7 See the G20 High-Level Principles for Digital Financial Inclusion ( 2016 ).

8 Lusardi and Messy both participated in the work leading to this assessment.

9 See Kaiser et al. ( Reference Kaiser, Lusardi, Menkhoff and Urban 2022 ).

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• Volume 1, Issue 1
• Annamaria Lusardi (a1) and Flore-Anne Messy (a2)
• DOI: https://doi.org/10.1017/flw.2023.8

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Empowering Filipinos Through Financial Literacy

• BusinessMirror
• September 12, 2022
• 6 minute read

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What is financial literacy, what is the state of financial literacy in the philippines today, why is financial literacy important in the philippines, how can we promote financial literacy in the philippines, filipinos can achieve more with better financial literacy.

Financial literacy and economic development go hand in hand. This is especially true for emerging countries such as the Philippines. Financial literacy is integral to ensuring the sustainability of an economy in the future. With various market forces affecting global and regional economies, we must prepare ourselves and become knowledgeable on financial issues and information that can empower us and enable us to make the right financial decisions and protect our investments. Unfortunately, financial literacy in the Philippines is an almost foreign concept to the majority of our nation’s citizens, with only 25% of the Filipino population being able to answer financial literacy questions through surveys. This is generally alarming since financial literacy plays an integral part in ensuring the sustainability of the Philippine economy. In this article, we’ll talk about what financial literacy is, why it’s important for today’s workforce, and how organizations, companies, and even educational institutions can promote financial literacy in the Philippines.

In a broad sense, financial literacy refers to the ability of individuals to effectively apply financial skills for efficient budgeting, investment, and management of personal finances. While financial literacy is an important factor in every Filipino’s life, this is especially crucial for the middle-class and workforce, with financial literacy heavily dictating how they’re able to have a positive relationship with money in connection to owned businesses, educational support, and retirement.

Without financial literacy, one cannot make important decisions regarding investment, savings, borrowing and, most certainly, about insurance. Indeed, it has been found, for example, that lack of understanding of interest rates has placed creditors at risk.

Numerous studies and surveys that tackle financial literacy in the Filipino population yielded almost the same results, with the majority of Filipinos having no concrete grasp on financial management. One of these surveys was conducted S&P, an international credit rating agency that produces financial research. S&P conducted its 2014 S&P Rating Services Global Financial Literacy Survey, touted to be the “most extensive measurement of global financial literacy to date,” and discovered that the Philippines ranked in the bottom 30 of 144 countries surveyed. Only 25 percent of adult Filipinos are literate on the basics of finance.

The survey was conducted by interviewing 150,000 adults throughout 144 countries on four basic financial concepts: numeracy (interest), risk diversification, inflation and compound interest. The study was conducted with the participation of the Gallup World Poll, the World Bank and the Global Financial Literacy Excellence Center (GFLEC) based at George Washington University.

Among the surprising findings is that two-thirds of adults worldwide are financially illiterate. And that only one-third of adults worldwide are financially literate. This means that around 3.5 billion adults worldwide are financially illiterate. It also noted that those most likely to be financially illiterate are women, the poor and the less educated. Men were found to be more literate (35 percent) than women (30 percent).

Interestingly, the study found that those availing themselves of financial services, such as those of banks and credit card companies, would most likely have higher financial literacy, regardless of wealth or educational attainment. Nonetheless, the study concluded that generally, the rich have better financial skills than the poor. Interestingly also, financial literacy increases as income increases and educational attainment goes higher. Another astonishing finding is that financial literacy improves from general proficiency in mathematics.

This is also evident in the prevalence of formal savings in Filipino households. According to the statistics, only a dismal 40% of adult Filipinos save. Of those who save, 68% keep their saved money at home, 33% keep their money in formal financial institutions, 7.5% save through cooperatives, and 2.6% keep their money in group savings, or paluwagan.

However, the blame should not be put entirely on the population since access to banks and formal financial institutions are scarce in some areas in the Philippines. As of 2014, per Bangko Sentral ng Pilipinas (BSP) data, 595 municipalities in the country have no banks. This is out of a total of 1,490 municipalities in the country. This is notwithstanding the fact that domestic banking offices increased from 7,585 in 2001 to 10,315 by the end of December 2014. A significant increase can also be observed in the distribution of automated teller machines, which grew from 3,882 in 2001 to 15,562 by the end of December 2014. So, while financial knowledge may be easily disseminated throughout the Filipino population, a significant percentage of the population will still be unable to effectively use the best practices in financial literacy in the Philippines. This goes to show that financial literacy needs to co-exist with better banking accessibility for it to be practiced in full.

Today, a significant number of Filipinos are still easily swindled from their hard-earned money through various elaborate scams. These include high-yielding pyramid scams that do not hold a solid asset base to generate expected returns. Financial misinformation can create a ripple effect that can destroy individual savings, households, financial institutions, and potentially, economies.

The most obvious solution to this financial problem, however, is to promote financial literacy on different levels, regardless of a person’s social status and income level. Through financial literacy programs in the Philippines, Filipinos can learn how to build effective financial plans, manage savings and expenses, and build both short-term and long-term financial goals, including retirement planning, life insurance and pension funds, which can strongly support the maturing portion of the population.

Through improved financial literacy in the Philippines, Filipinos can also achieve financial independence through smart investments, as well as demand better financial services and conditions for loans and lines of credit. On a larger scale, it can increase domestic savings rates and foster an environment of “financial inclusion,” which can allow us to increase domestic productivity in a more sustainable manner and create a dramatic shift from being consumption-driven to becoming an investment-driven economy.

Fortunately, both government and private institutions are well on the way to promoting financial literacy. CitisecOnline and BPI Securities provide free seminars on investing in the stock market to educate retail investors. In the same manner, local shows like On the Money in ANC features a wide range of investment topics, financial instruments and guest experts that share their knowledge with viewers on the basics of spending and investing. Likewise, we at Finex also contribute to financial literacy by working hand in hand with the government and other private-sector representatives, hosting a series of seminars that aim to increase financial education of the public to promote financial inclusion and sustainable growth.

For private companies, financial literacy may be a secondary goal to your organization’s vision of providing a thriving culture to your employees. As of the moment, the most common concern of an employee in terms of finances pertains to retirement. Collaborative research made by Bank of America and Merrill Lynch in 2015 showed that workers responded very well when they get empowerment programs like personal financial literacy in the workplace. Offering financial solutions can help improve business with increased employee satisfaction. This helps make employees become loyal, and productivity, as the study found out, could go as high as 91 percent. This contributes to a healthier bottom line.

The study also found out that if employees are not stressed with their finances, they are more engaged at work. This way, productivity can be doubled. No one can deny the fact that employees with high morale at work are more productive.

The autonomy to make decisions based on their financial situation gives workers a boost in self-esteem. Employers will also be happier if they can retain their productive employees by giving them powerful financial literacy programs. Attrition rate will go down when workers enjoy their workplace where they are being given powerful financial- literacy knowledge.

The change that this nation needs could begin in the workplace. Every company not only wants to survive but also to thrive.  This is why good employers must create a sustainable strategy to retain good, productive workers. If you want to have an outstanding organization, invest in your people, and allow them to thrive using crucial knowledge about their finances.

The Philippines is one of the fastest-growing economies in the region and at this point, financial literacy is very important. We need to help educate individuals to understand basic money management, financial planning, and investments so that we can empower a larger portion of the population to be able to provide for themselves and their families and invest in the future.

Allow me to end this article by citing a good insight I picked up from the ADBI working paper—“…as economies develop, access to financial products and services will increase, but households and small and medium-sized enterprises need to be able to use the products and services wisely and effectively. More effective management of savings and investment can contribute to overall economic growth.”

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The Importance Of Financial Literacy In The Philippines

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Financial Inclusion and the Role of Financial Literacy in the Philippines

International Journal of Economics and Finance 15(6), 2023. https://doi.org/10.5539/ijef.v15n6p27

17 Pages Posted: 15 May 2023

Mary Grace Agner

University of Asia and the Pacific

Jared Martin U. Desello

Japan University of Economics

Date Written: May 10, 2023

Financial inclusion is increasingly seen as a key enabler of various development objectives. While not explicitly one of the UN Sustainable Development Goals (SDGs), financial inclusion is recognized as an important enabler for them. The Philippine central bank—the Bangko Sentral ng Pilipinas (BSP)—has even identified financial inclusion as a “national development agenda” that requires a conscious effort by various sectors to accelerate and enable its societal benefits. This paper studies the relationship between financial literacy and financial inclusion in the Philippines using data gathered from the 2019 Financial Inclusion Survey (FIS). We apply ownership of financial account and use of financial services as indicators of financial inclusion. Based on the results, financial literacy is a positive driver of financial inclusion. We calculated that a one-standard-deviation increase in financial literacy scores increased the likelihood of holding at least one account by 3.7 to 4.2 percentage points. On the other hand, a one-point increase in financial literacy scores improved the likelihood of availing of a financial service by 4.9 to 6.0 percentage points. The other drivers of owning at least one formal account and availing of financial services are age, gender, employment status, awareness of BSP’s programs, income above 40,000 PHP, and being the main household financial decision-maker. This paper aims to promote BSP’s agenda to bridge the financial inclusion gap and raise financial literacy levels in the country. With this study, the authors second BSP’s advocacy that financial inclusion is one of the instruments to attain sustainable and equitable development in the Philippines.

Keywords: financial inclusion, financial literacy, Philippines, probit regression

JEL Classification: D14, G53, O16

Suggested Citation: Suggested Citation

Mary Grace Agner (Contact Author)

University of asia and the pacific ( email ).

Manila Philippines

Japan University of Economics ( email )

3-chōme-10 Gojō Dazaifu, Fukuoka 818-0125 Japan

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Financial Literacy in the Philippines: Scope, Statistics, Tips 2024

By Ameena Rey-Franc

Financial literacy is arguably one of the most vital yet passively recognized concepts in the Philippines. 

Want an experiment? Ask any random Filipino professional regarding financial literacy and they’ll have a sort of intellectual grasp on the subject. Proceed by respectfully investigating how well they manage their finances, and you might find an inconsistency. The real-world application of financial understanding seems amiss among Filipinos.

The statement above, as harsh as it sounds, is not meant to throw flak at our kababayans, but an illustration of the financial reality in the Philippines. Statistics and research studies will tell us that Filipinos are one of the most financially uneducated people across the globe.

And that’s a big problem bound to be massive if left unmanaged. So in this article, we’ll look at financial literacy in the Philippines and provide actionable personal finance tips to help you better manage your finances. Let’s explore the following:

What is Financial Literacy?

Statistics on financial literacy in the philippines, financial literacy of young professionals in the philippines, best financial literacy programs in the philippines, financial literacy month in the philippines, financial literacy law in the philippines.

• Sound personal finance tips that you can easily apply in your life

Before we get down to business, let’s redefine financial literacy.

Investopedia defines financial literacy as the ability to understand and use financial skills effectively . These finance skills include the following: budgeting, saving, investing, and accounting. Financial literacy allows people to make educated decisions regarding financial management.

Looking at the brief definition, we can extract two important prerequisite domains to call oneself financially literate:

• “Understanding” (referring to the knowledge of essential financial skills)
• “Use” (referring to the application of said financial skills)

Both are needed for financial literacy. Unfortunately, many Filipinos tend to have a limited understanding of financial skills, which negatively impacts their financial health. Let’s take a close look at some statistics on financial literacy in the Philippines.

With the current economic state faced by the world, financial literacy is more crucial than ever. And the absence of such understanding may predispose people to potentially irreparable financial disasters. Such is the case for 3 in 4 people in the Philippines.

According to the study of the Global Financial Literacy Excellence Center , the Philippines is one of the countries with the poorest level of financial education. They found that only 25% of the population are financially literate adults . While the Philippines are not the worst performer around the globe, we certainly lag behind other ASEAN countries like Singapore, Malaysia, Indonesia, and Thailand.

Meanwhile, countries in the Scandinavian Peninsula, particularly Denmark, Norway, and Sweden, garnered the top spot with 7 out of 10 adults being financially literate . Yemen was reported with the least financial literacy among adults with only 13%. Moreover… 

Dr. Jose P. Rizal, the country’s national hero, is famous for many things. One of which is his immortalized adage, “ Ang kabataan ang pag-asa ng ating bayan, ” which means the youth will be the pillars that shape the Philippines’ society, including its economic future.

As young professionals step into the workforce, armed with their education and ambitions, they carry the burden of ensuring not only their own financial well-being but also contributing to the overall economic growth of the country.

Financial literacy will play a crucial role in the fulfillment of this vision. The question is: are young professionals in the Philippines financially literate?

A 2020 study , carried out by three researchers from the Polytechnic University of the Philippines, examined the answer to this question. level of financial literacy among young Filipino professionals (both male and female, 20-35 years old, Quezon City residents).

The researchers found a significant correlation (not causation) between financial knowledge and financial behavior. In other words, knowledge of financial skills does not always translate to good financial behavior. Financial attitude, or a person’s long-term financial goals, plays a crucial role in bridging knowledge and behavior.

According to the study, only 35% of the respondents understood financial wellness or effective money habits to achieve financial security and stability. A lack thereof results in poor financial management.

When asked about loans, the participants admitted to facing challenges regarding the subject, with 28% dealing with personal loans, 46% facing credit card borrowings, and 53% facing financial distress due to living beyond their means as a result of a lack of self-discipline.

Based on the study’s results, the researchers emphasized that “ exposure and experience with financial education programs ” is a huge factor in financial education. They concluded the research by leaving their professional recommendations on how to boost financial literacy in the Philippines:

• Financial education begins at home: Youth best learn financial literacy when they acquire this information from parents, not financial experts and institutional advisors. However, not all parental advice on finances may be applicable today . It’s important to verify the applicability of advice through extensive research.
• Financial education must be taught in school: The study placed an interest in the importance of integrating financial education into the curriculum of schools, colleges, and universities.

Fortunately, the Department of Education has implemented DepEd Order No. 022, Series of 2021 to improve financial literacy among young learners. It aimed to integrate financial concepts into learning areas to educate learners and personnel alike on financial literacy.

Good for the students, right? But how about out-of-school adults who struggle with financial management? Financial literacy programs might help them.

Financial Literacy Programs

The abovementioned study emphasized the role of parents in educating their children on financial literacy. Unfortunately, not all parents are equipped with financial literacy skills to pass on. This poses a dilemma that young Filipinos may repeat the cycle of poor financial management without proper guidance at home.

This is where financial literacy programs come in. With adequate financial literacy, Filipinos can be empowered to live financially healthy lives. BSP Deputy Governor Bernadette Romulo-Puyat described being financially healthy as the capacity to:

• Meet the financial obligations
• Resist financial shocks
• Achieve financial goals
• Attain financial control and security

Financial literacy programs work to help adults reach that state.

In the Philippines, several organizations and initiatives aim to promote financial literacy among individuals of all ages. Here are some notable ones:

• Bangko Sentral ng Pilipinas (BSP) Financial Education Advocacy : The BSP, the central bank of the Philippines, actively promotes financial literacy through various programs and initiatives. They offer resources for both educators and consumers, including teaching guides, toolkits, and interactive materials.
• The Thrifty Pinay: Of course, why wouldn’t I include my own programs? TTP started in 2018 and as a BS Accountancy graduate, keynote speaker, author, and writer, I’ve conducted numerous speaking engagements revolving around topics such as budgeting, investing, psychology of money, women empowerment, motivation, goal-setting, and so much more. Have a look at our list of seminars .
• Ateneo de Manila University’s Center for Personal Finance : Ateneo’s Center for Personal Finance offers workshops, seminars, and online courses designed to improve financial literacy among Filipinos. They cover topics such as budgeting, investing, debt management, and retirement planning.
• UP National College of Public Administration and Governance’s Institute of Public Governance : The Institute of Public Governance conducts research and advocacy on financial literacy in the Philippines. They offer training programs and workshops for government agencies, NGOs, and other organizations interested in promoting financial literacy.
• RFP Institute’s Registered Financial Planner Program : The Registered Financial Planner (RFP) program is one course I recommend enrolling at if you want to take financial planning seriously (read my honest review here ). It is offered by the RFP Institute and provides comprehensive training on financial planning and investment management. It aims to produce certified financial planners who can help improve financial literacy and promote sound financial decision-making in the Philippines.
• Philippine Securities and Exchange Commission (SEC) : The SEC provides educational materials and resources on investing, securities regulation, and investor protection. They offer investor education seminars and workshops to help Filipinos understand the basics of investing and make informed investment decisions.

These organizations and initiatives play a crucial role in promoting financial literacy and empowering individuals to make sound financial decisions in the Philippines. Whether through government agencies, financial institutions, or educational institutions, efforts to enhance financial literacy are vital for the economic well-being of us Filipinos.

More Financial Literacy Programs for Filipinos

The Philippines government is taking strides toward helping Filipinos achieve financial literacy, and for good reason!

Republic Act 10922 (a Finanicial Literacy Law in the Philippines), otherwise known as the Economic and Financial Literacy Act, is a Philippine law that aims to promote financial awareness among its citizens. 

Under the law mentioned above, every second week of November is declared as Economic and Financial Literacy Week, wherein the National Economic and Development Authority (NEDA) conducts activities to promote financial literacy among Filipinos.

Just last November 2023, NEDA spearheaded the celebration with the theme, “ Bayanihanomics : Sama-samang Pakikilahok para sa Matibay na Ekonomiya. ” 

Other government agencies and government-owned and controlled corporations are also mandated by RA 10922 to conduct programs that raise awareness and develop national consciousness on financial matters. 

Be on the lookout for financial literacy programs by following the social media pages of NEDA and other government agencies.

Aside from the above, even private institutions and finance influencers join the national initiative to attain financial literacy. 

For instance, the Prudence Foundation has launched its “ Cha-Ching ” Program, which aims to educate young schoolers on how to manage finances. On the other hand, one of Sun Life Foundation’s flagship programs, “ Pera-aralan ,” targets public school teachers to help them develop positive money habits.

The Thrifty Pinay also joins in the campaign to develop financial literacy in the Philippines. For years now, with the grace of God, I have been actively invited by companies like Grab, JPMorgan Chase, VISA, government and private organizations, to talk about financial management. Check out my speaking engagement excerpts here.

To book TTP for a webinar on personal finance, click here .

Personal Finance Tips in the Philippines

If you want to take baby steps toward financial literacy, here are some tips to help you out:

• Embrace the “gulayan” mentality:   Historically, Filipinos were known to grow their vegetables in a “gulayan” or vegetable garden. In the same manner, you may cultivate a financial literacy habit little by little starting with your savings. Start small and set achievable goals. You can use a budgeting method like the 50/30/20 rule (allocate 50% for needs, 30% for wants, and 20% for savings/debt repayment).
• Use your diskarte instincts: Be resourceful! Filipinos are known for their “diskarte” or resourcefulness. Look inward and explore ways to save on everyday expenses. For instance, can you walk instead of taking public transportation from time to time? Can you cook more meals at home instead of eating out? These micro-expenses can be a huge sum when heaped.
• Think long-term: Invest in your Future. Don’t let your hard-earned money just sit idle. Explore investment options like Pag-IBIG or SSS, which offer benefits and long-term growth. Moreover, you can talk to a financial advisor to learn more about investment options that fit your risk tolerance and goals.
• Know the difference between needs and wants: Filipinos value family and celebrations. It’s totally fine to spend on what brings you joy but learn to prioritize basic needs like food, shelter, and utilities first. Budgeting will help you identify areas where you can cut back on unnecessary spending.
• Make financial literacy a family affair: Financial literacy begins in the family. Talking openly about money not only builds financial consciousness but also forges deeper bonds with family members. Try to get your kids involved in budgeting and saving discussions. Also, teach your children the value of money, so they can develop responsible spending habits.

Remember: Financial literacy is not an overnight success. 

It takes discipline and dedication to become financially responsible. But there is a silver lining to keeping your belt tight and curling your legs up when the blanket is short. All those efforts and sacrifices of missing out will pay off once you see the fruits of proper financial management! 

If you’re interested in booking TTP for financial literacy talks during your webinar or event, click here .

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Ameena Rey-Franc is a best-selling author, sought-after keynote speaker, a graduate of the Registered Financial Planners program with a BS Accountancy degree under her belt. Her blog, The Thrifty Pinay, has been recognized as one of the top 10 best finance blogs to follow in the Philippines. With hundreds of speaking engagements nationwide, Ameena has trained Financial Literacy to employees of reputable companies such as GrabFoodPH, Insular Life, Pru Life UK, VISA, JPMorgan Chase & Co., Paypal, Fundline, Moneymax, and many more. She is known to move her audience with her well-thought-out, engaging, and easy-to-understand talks that include actionable plans. Her passion to educate has empowered thousands of Filipinos to build financial confidence, resilience, and achieve the life that they desire.

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Enhancing early childhood financial literacy through finsolekid indonesia: a comparative study of digital platforms, related papers (5), training vs. informal financial services for the promotion of financial literacy and inclusion in uganda, strategy to enhance sharia financial literacy and inclusion in indonesia (case study at financial services authority office in city of malang), financial inclusion, financial regulation, and education in bangladesh, financial inclusion, financial literacy, and financial education in azerbaijan, international funding for financial inclusion : key trends and developments, trending questions (3).

- Financial inclusion is a national development agenda in the Philippines. - Financial literacy positively drives financial inclusion in the country.

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- Financial literacy positively impacts financial inclusion in the Philippines. - Financial literacy increases likelihood of owning accounts and using services.

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Home ⇛ harvest ⇛ vol. 16 no. 1 (2020), the financial literacy of baliuag university college of business administration and accounting students: its impact on financial attitudes and practices.

Sammy Isidro P. Pagaduan

Being financially literate is a big challenge among many Filipinos. The Philippines ranked second lowest among ASEAN countries in a survey on financial literacy (Mendez, 2015). Thus, this study aims to measure the influence of financial literacy in terms of students' attitudes and practices in handling their personal finances. It was conducted among eighty-three (83) respondents from the College of Business Administration and Accountancy (CBAA) of Baliuag University. A self-report questionnaire was administered to measure their knowledge and familiarity with financial concepts, as well as their attitudes and practices in handling personal finances. To test the hypotheses stating that financial literacy does not significantly predict financial attitudes and financial practices, two separate simple linear regressions were run using financial behaviors under two categories financial attitudes and financial practices as criterion variables. Findings of the study indicate moderate levels on measures of financial literacy, financial attitudes, and financial practices. The predictive impact of financial literacy on financial attitudes was found to have a significant result. Financial literacy strongly influences attitudes pertaining to managing one's finances.

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Financial literacy for Filipinos: understanding for better living

Last Updated on May 11, 2018

What is financial literacy?

Financial literacy, financial knowledge and financial education are used interchangeably in formal literature and popular media. Various sources provide various definitions to financial literacy, but have one thing in common— everything revolves around money, knowledge and use.

Mandell (2009) defines financial literacy as “the ability to use knowledge and skills to manage one’s financial resources effectively for lifetime financial security.” Huston (2010) explains that financial literacy is made up of two elements: understanding and use. Understanding financial literacy implies that a person is knowledgeable about personal finance, and applies such knowledge in dealing with one’s finances.

Meanwhile, Hastings, et al (2013) refers to financial literacy as:

• Knowledge of financial products (e.g., what is a stock vs. a bond; the difference between a fixed vs. an adjustable rate mortgage);
• Knowledge of financial concepts (inflation, compounding, diversification, credit scores);
• Having the mathematical skills or numeracy necessary for effective financial decision making; and
• Being engaged in certain activities such as financial planning.

Determinants of financially-literate persons:

• Plans, saves, invests in stocks, accumulate more wealth (Lusardi and Mitchell, 2014)
• Less credit card debt
• When they borrow, they manage their loans better, paying off the full amount each month rather than just the minimum due.
• They refinance their mortgages when it makes sense to do so
• Less likely to use high-cost borrowing methods

More knowledgeable individuals “invest in more sophisticated assets, generating higher expected returns on retirement saving along with lower nonsystematic risks,” according to Mitchell (2014).

Is financial education an antidote to poor financial decision making?

Bernheim, et al (2001) believe that although financial literacy is a somewhat new, policy initiatives in financial literacy is not. In 1950s, the United States began recommending policies to improve the quality of personal financial decision making through financial education thru the “inclusion of personal finance, economics, and other consumer education topics” to children enrolled in the K-12 educational curriculum.

Financial education should be the best tool to effectively come up with better financial outcomes. Previous studies have shown that lower levels of financial literacy is associated with lower rates for planning for retirement, lower rates of asset accumulation, using higher-cost financials services, lower participation in the stock market, and higher levels of debt 4 .

Saving is imperative to improve individual and societal welfare. At the personal level, savings help households achieve smooth consumption patterns. Savings also help finance productive investments in human and business capital. At the macroeconomic level, savings rates are strongly predictive of future economic growth. 6

However, access to financial education does not guarantee that poor financial practices are provided with solutions. In saving, learners should be taught the best way to save and safeguard their money. Although saving is now taught in schools and various conferences, policymakers need to look into teaching people the possibility of saving more by paying down existing debt. In the Philippines, the current administration has been taking small steps to pin down the problem on debts and encourage saving more by offering lower loan rates to micro and small business enterprises.

Financial literacy among Filipinos

The Filipino mindset upon receipt of salaries, as commonly-known, is that upon receipt of salaries, spending comes in before saving. What is left, is saved. If there’s none left, then, there’s nothing saved.

According to a study conducted by Philam Life, 96 percent of Filipinos are concerned about their own and their family’s health, however, only 16 percent of them are prepared to pay for medical costs in case they are diagnosed with a critical illness. 9

There is a rising number of senior-dependents or those retirees who depend on their children for financial help, due to lack of financial education.

Financial planning teaches individuals to be responsible when it comes to their finances, and instills the discipline needed in order to keep track of their financial goals. 9

Financial planning involves educating Filipinos on the different types of goals that they should set: short-term, medium-term, and long-term. Short-term goals involve monthly living expenses that need to be paid, or the person’s basic needs, including the setting-up of an emergency fund.  In contrast, medium term goals are those you want to achieve in one to five years like buying a house or a car, while long term goals are those that take longer than five years to achieve.

To address the growing demand for more investments in the country, the financial industry advises that Filipinos should save first and spend whatever is left after putting their savings aside.

What can the government and financial institutions do to make Filipinos financially-literate?

• Develop financial education policies and set up robust financial products available to the financial intermediaries and their customers. 7
• Develop financial education policies and set up robust financial consumer protection frameworks to ensure that consumers are informed and understand the financial products available to them. 7
• Involve financial service providers and other key stakeholders to build the financial capabilities of the youth and adults through a variety of delivery channels. 8
• Empower teenagers to deliver financial education on issues such as savings to younger children. This peer-to-peer approach is useful because young people tend to listen to their peers more than adults, and the participative approach helps foster youth as agents of change in their own communities. 8

Financial literacy programs can reduce economic inequalities as well as empowering citizens and decreasing information asymmetries between financial intermediaries and their customers. 8

Mandell, Lewis. The Financial Literacy of Young American Adults. Results of the 2008 National Jump$tart Coalition Survey of High School Seniors and College Students. Jumpstart Coalition; Washington D.C.: 2009.

Bernheim BD, Garrett DM, Maki DM. Education and saving: the long-term effect of high school financial curriculum mandates. J. Public Econ. 2001;80:435–465.

Hastings, JS, Madrian, BC, Skimmyhorn, WL. Financial Literacy, financial education and economic outcomes. Annual Review of Economics. Vol 5:347-373. August 2013.

https://www.stlouisfed.org/on-the-economy/2015/march/the-impact-of-financial-education

Mitchell, Olivia. Financial Literacy and Economic Outcomes: Evidence and Policy Implications

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4358152/pdf/roiw0060-0036.pdf

Huston, Sandra. Measuring Financial Literacy. The Journal of Consumer Affairs, Vol.44, No. 2. 2010

Bel, Sarah. Why financial literacy matters for development. UNCDF Better Than Cash Alliance. OECD Development Centre, page 4

www.philstar.com/business-usual/2017/05/29/1704453/financial-literacy-crucial-tapping-millennials

www.stockmarketforpinoys.com/advocacy/

Ms. Melanie A. Maur, NEDA-Caraga

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The Importance of Financial Literacy in the Philippines

• by Amiel Pineda
• December 29, 2023 January 30, 2024

Do you know that only 25% of adult Filipinos are knowledgeable about basic financial concepts? This statistic highlights the pressing need for increased financial literacy in the Philippines.

As you navigate through the complexities of personal finance, understanding the importance of financial literacy is crucial for making informed decisions and securing your financial future.

Let's explore how enhancing financial education can empower individuals and contribute to the overall economic well-being of the Philippines.

Key Takeaways

• Only 25% of adult Filipinos possess knowledge on basic financial concepts.
• Improved financial literacy empowers individuals to make informed financial decisions.
• Financial literacy fosters economic inclusion and empowerment.
• Access to investment opportunities drives economic growth.

Current State of Financial Literacy

With only 25% of adult Filipinos possessing knowledge on basic financial concepts, the current state of financial literacy in the Philippines reveals a significant gap in understanding and managing personal finances.

This lack of financial literacy is more prevalent among lower income and education levels, leading to challenges in financial management. Majority of Filipinos struggle with saving, and most keep their savings at home, missing out on the benefits of formal financial institutions.

In response, the Sentral ng Pilipinas (BSP) is actively promoting financial literacy, particularly among college students, through collaborative initiatives with industry partners and the development of personal finance course modules.

Impact on Economic Growth

Improving financial literacy can directly impact economic growth by empowering individuals to make informed financial decisions and access investment opportunities.

With better financial decision-making skills, people are more likely to contribute to higher domestic savings rates and increased investment in the economy.

A financially literate workforce also drives productivity and innovation, leading to overall economic growth and development.

Economic Empowerment Through Literacy

Empowering individuals through financial literacy has a profound impact on the economic growth of the Philippines. By promoting financial literacy, the country is fostering economic inclusion and empowerment. Financially literate individuals are better equipped to make informed decisions, leading to increased savings and investments, which ultimately contribute to economic growth.

Financial education initiatives, like Sun Life Foundation's Sun Pera-Aralan program, play a pivotal role in uplifting marginalized communities, thereby boosting overall economic empowerment. Partnerships between organizations, such as Sun Life Foundation and Rare, are successfully bringing financial literacy to underserved groups, like fisherfolks, thus positively impacting economic growth.

These efforts, combined with those led by the BSP and industry partners, are crucial in bridging the financial literacy gap and driving economic empowerment in the Philippines.

Financial Decision-Making Skills

Financial decision-making skills play a pivotal role in shaping the economic landscape of a country, influencing its stability and long-term development. Individuals with strong financial decision-making skills contribute to the stability and development of the economy, while poor financial decisions can lead to setbacks and instability.

In the Philippines, improving financial decision-making skills is crucial for sustainable economic growth and prosperity. Enhancing financial literacy and promoting informed financial decisions are essential. The Bangko Sentral ng Pilipinas recognizes the significance of financial management and is actively involved in initiatives to improve financial decision-making skills among Filipinos.

Sound financial decision-making skills are fundamental for the effective utilization of financial services and for fostering a robust and resilient economy. Strengthening financial decision-making skills is vital for the overall economic empowerment of individuals and the nation as a whole.

Access to Investment Opportunities

Access to investment opportunities is a crucial catalyst for driving economic growth in the Philippines . This accessibility plays a pivotal role in fostering inclusive financial development and empowering individuals to participate in the country's economic progress.

Consider the following:

• Investment opportunities provide a means to channel personal financial resources into ventures that can contribute to the overall economic expansion of the Philippines.
• Enhanced financial literacy can empower individuals to make informed decisions and capitalize on available investment opportunities.
• Inclusive access to investment opportunities can stimulate entrepreneurship, leading to the creation of job opportunities and fostering sustainable economic development.

Barriers to Financial Literacy

Limited access to banks and formal financial institutions in certain areas creates barriers to financial education and inclusion in the Philippines. The Filipino population faces challenges in attaining financial literacy due to the lack of availability of formal financial services.

Educational attainment also plays a significant role as low-income and low education levels hinder the effective use of financial literacy practices and services.

Additionally, the prevalence of financial scams and misinformation poses risks to individual savings, contributing to financial illiteracy.

Moreover, cultural challenges, such as the difficulty in differentiating between insurance and investments, further hinder effective money management and financial literacy.

Addressing these barriers is crucial in promoting financial inclusion and ensuring that all members of the Filipino society have access to the knowledge and tools necessary for sound financial decision-making.

Importance of Financial Education

Understanding the significance of acquiring financial education is essential for fostering economic stability and empowering individuals to make informed financial decisions. Financial literacy holds immense importance in today's world, and here's why it matters:

• Empowering Individuals: Financial education enables individuals to manage their finances better, meet their financial needs, and achieve financial control and security.
• Government and Private Initiatives: Both government and private sectors play a crucial role in promoting financial literacy through inclusive programs and concrete solutions.
• Meeting Financial Goals: Being financially literate equips individuals with the knowledge to make wiser financial decisions, thus helping them reach their financial goals and absorb financial shocks.

Embracing financial education is imperative for the economic well-being of both individuals and the nation as a whole.

Strategies for Promoting Literacy

To effectively promote financial literacy, it is crucial to implement a variety of strategies that cater to diverse communities and educational settings. These strategies include inclusive financial education programs, community-based financial literacy projects, distribution of financial literacy materials in communities and schools, seminars and training sessions for teachers to enhance their financial knowledge, and collaboration with industry partners to develop personal finance course modules. Here's a visualization of these strategies:

These strategies aim to enhance financial literacy management for both adult Filipinos and teaching and non-teaching staff, ultimately promoting literacy in the Philippines.

Empowering Individuals and Families

Empower yourself and your family through financial literacy, enabling informed and responsible financial decision-making and promoting a secure and stable future. By becoming financially literate, you can make better money management decisions and secure your family's financial well-being.

Here are three ways financial literacy empowers individuals and families:

• Financial Stability : Understanding financial concepts helps you create a stable financial future for your family. Set financial goals and create a budget to achieve them. Build an emergency fund to protect against unexpected expenses. Learn about investing to grow your wealth and secure your family's future.

Empowering individuals and families through financial literacy is crucial in ensuring that everyone is equipped to make sound financial decisions, leading to a more secure and prosperous future.

Financial Literacy in Education

Now let's talk about how financial literacy is integrated into education in the Philippines, specifically through school curriculum integration and student engagement strategies.

This is crucial because it ensures that young individuals are equipped with the necessary knowledge and skills to make informed financial decisions in the future.

School Curriculum Integration

Integrating financial education into the school curriculum equips students with essential money management skills from a young age. This integration is crucial as it helps to lay a strong foundation for financial literacy.

Here's how school curriculum integration can benefit you:

• It ensures that adults correctly understand a wide range of financial products and services.
• It helps educate individuals on making informed decisions regarding saving, investing, and borrowing.
• It empowers you to navigate the increasingly complex financial landscape by providing practical knowledge and skills.

Student Engagement Strategies

Enhancing financial literacy in education involves implementing engaging student strategies to foster practical money management skills and real-world financial understanding.

In the Philippines, interactive financial literacy workshops are being introduced to immerse students in practical money management scenarios. Real-life financial case studies are integrated into the curriculum, enhancing student understanding of financial concepts.

Encouraging student participation in financial literacy clubs and competitions fosters a competitive and engaging learning environment. Additionally, technology and gamified learning platforms are utilized to make financial education interactive and enjoyable.

Collaborations with financial institutions provide mentorship programs and internship opportunities for students to gain practical financial experience.

These student engagement strategies not only improve financial literacy but also have a significant social impact, aligning with the World Bank's goal of promoting financial inclusion and economic development.

Frequently Asked Questions

What is the current status of financial literacy in the philippines.

You're inquiring about the current status of financial literacy in the Philippines. Only 25% of adults have basic financial knowledge, and the country ranks low globally. Efforts are underway to improve this, as financial literacy is crucial for personal finance management.

What Are the Factors Affecting Financial Literacy in the Philippines?

Limited access to banks and formal financial institutions affects financial literacy. Low penetration of formal accounts among low-income populations hinders efforts. Lack of banking accessibility and financial scams pose risks, impacting financial literacy in the Philippines.

Why Is Financial Literacy so Important?

Understanding financial literacy is crucial because it empowers you to make informed decisions about money. It helps you manage finances wisely, plan for the future, and avoid common pitfalls. Ultimately, it leads to financial stability and security.

What Is the Literacy Gap in the Philippines?

You lack basic financial knowledge. Only 25% of adults in the Philippines understand financial concepts. A survey found that just 2 in 10 Filipinos scored well in financial literacy. The urgent need for comprehensive financial education is evident.

How Does Financial Literacy Help Address the Barriers Faced by Unbanked Filipinos?

Financial literacy plays a crucial role in addressing the financial inclusion challenges for unbanked Filipinos . By educating individuals on basic financial concepts and money management skills, they can make informed decisions, access financial services, and break free from the barriers that limit their participation in the formal financial system.

In conclusion, it's clear that financial literacy is crucial for the economic development of the Philippines. With efforts from organizations and initiatives in place, there's hope for bridging the financial literacy gap and empowering individuals to make wiser financial decisions.

It's important for Filipinos to have access to inclusive financial education programs in order to achieve financial control and security. By promoting financial literacy, we can work towards a financially healthier and more prosperous future for all.

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Financial Literacy Challenges: The Case of Filipino Public-School Teachers

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• Published: 24 January 2019

Financial literacy and the need for financial education: evidence and implications

• Annamaria Lusardi 1  

Swiss Journal of Economics and Statistics volume  155 , Article number:  1 ( 2019 ) Cite this article

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1 Introduction

Throughout their lifetime, individuals today are more responsible for their personal finances than ever before. With life expectancies rising, pension and social welfare systems are being strained. In many countries, employer-sponsored defined benefit (DB) pension plans are swiftly giving way to private defined contribution (DC) plans, shifting the responsibility for retirement saving and investing from employers to employees. Individuals have also experienced changes in labor markets. Skills are becoming more critical, leading to divergence in wages between those with a college education, or higher, and those with lower levels of education. Simultaneously, financial markets are rapidly changing, with developments in technology and new and more complex financial products. From student loans to mortgages, credit cards, mutual funds, and annuities, the range of financial products people have to choose from is very different from what it was in the past, and decisions relating to these financial products have implications for individual well-being. Moreover, the exponential growth in financial technology (fintech) is revolutionizing the way people make payments, decide about their financial investments, and seek financial advice. In this context, it is important to understand how financially knowledgeable people are and to what extent their knowledge of finance affects their financial decision-making.

An essential indicator of people’s ability to make financial decisions is their level of financial literacy. The Organisation for Economic Co-operation and Development (OECD) aptly defines financial literacy as not only the knowledge and understanding of financial concepts and risks but also the skills, motivation, and confidence to apply such knowledge and understanding in order to make effective decisions across a range of financial contexts, to improve the financial well-being of individuals and society, and to enable participation in economic life. Thus, financial literacy refers to both knowledge and financial behavior, and this paper will analyze research on both topics.

As I describe in more detail below, findings around the world are sobering. Financial literacy is low even in advanced economies with well-developed financial markets. On average, about one third of the global population has familiarity with the basic concepts that underlie everyday financial decisions (Lusardi and Mitchell, 2011c ). The average hides gaping vulnerabilities of certain population subgroups and even lower knowledge of specific financial topics. Furthermore, there is evidence of a lack of confidence, particularly among women, and this has implications for how people approach and make financial decisions. In the following sections, I describe how we measure financial literacy, the levels of literacy we find around the world, the implications of those findings for financial decision-making, and how we can improve financial literacy.

2 How financially literate are people?

2.1 measuring financial literacy: the big three.

In the context of rapid changes and constant developments in the financial sector and the broader economy, it is important to understand whether people are equipped to effectively navigate the maze of financial decisions that they face every day. To provide the tools for better financial decision-making, one must assess not only what people know but also what they need to know, and then evaluate the gap between those things. There are a few fundamental concepts at the basis of most financial decision-making. These concepts are universal, applying to every context and economic environment. Three such concepts are (1) numeracy as it relates to the capacity to do interest rate calculations and understand interest compounding; (2) understanding of inflation; and (3) understanding of risk diversification. Translating these concepts into easily measured financial literacy metrics is difficult, but Lusardi and Mitchell ( 2008 , 2011b , 2011c ) have designed a standard set of questions around these concepts and implemented them in numerous surveys in the USA and around the world.

Four principles informed the design of these questions, as described in detail by Lusardi and Mitchell ( 2014 ). The first is simplicity : the questions should measure knowledge of the building blocks fundamental to decision-making in an intertemporal setting. The second is relevance : the questions should relate to concepts pertinent to peoples’ day-to-day financial decisions over the life cycle; moreover, they must capture general rather than context-specific ideas. Third is brevity : the number of questions must be few enough to secure widespread adoption; and fourth is capacity to differentiate , meaning that questions should differentiate financial knowledge in such a way as to permit comparisons across people. Each of these principles is important in the context of face-to-face, telephone, and online surveys.

Three basic questions (since dubbed the “Big Three”) to measure financial literacy have been fielded in many surveys in the USA, including the National Financial Capability Study (NFCS) and, more recently, the Survey of Consumer Finances (SCF), and in many national surveys around the world. They have also become the standard way to measure financial literacy in surveys used by the private sector. For example, the Aegon Center for Longevity and Retirement included the Big Three questions in the 2018 Aegon Retirement Readiness Survey, covering around 16,000 people in 15 countries. Both ING and Allianz, but also investment funds, and pension funds have used the Big Three to measure financial literacy. The exact wording of the questions is provided in Table  1 .

2.2 Cross-country comparison

The first examination of financial literacy using the Big Three was possible due to a special module on financial literacy and retirement planning that Lusardi and Mitchell designed for the 2004 Health and Retirement Study (HRS), which is a survey of Americans over age 50. Astonishingly, the data showed that only half of older Americans—who presumably had made many financial decisions in their lives—could answer the two basic questions measuring understanding of interest rates and inflation (Lusardi and Mitchell, 2011b ). And just one third demonstrated understanding of these two concepts and answered the third question, measuring understanding of risk diversification, correctly. It is sobering that recent US surveys, such as the 2015 NFCS, the 2016 SCF, and the 2017 Survey of Household Economics and Financial Decisionmaking (SHED), show that financial knowledge has remained stubbornly low over time.

Over time, the Big Three have been added to other national surveys across countries and Lusardi and Mitchell have coordinated a project called Financial Literacy around the World (FLat World), which is an international comparison of financial literacy (Lusardi and Mitchell, 2011c ).

Findings from the FLat World project, which so far includes data from 15 countries, including Switzerland, highlight the urgent need to improve financial literacy (see Table  2 ). Across countries, financial literacy is at a crisis level, with the average rate of financial literacy, as measured by those answering correctly all three questions, at around 30%. Moreover, only around 50% of respondents in most countries are able to correctly answer the two financial literacy questions on interest rates and inflation correctly. A noteworthy point is that most countries included in the FLat World project have well-developed financial markets, which further highlights the cause for alarm over the demonstrated lack of the financial literacy. The fact that levels of financial literacy are so similar across countries with varying levels of economic development—indicating that in terms of financial knowledge, the world is indeed flat —shows that income levels or ubiquity of complex financial products do not by themselves equate to a more financially literate population.

Other noteworthy findings emerge in Table  2 . For instance, as expected, understanding of the effects of inflation (i.e., of real versus nominal values) among survey respondents is low in countries that have experienced deflation rather than inflation: in Japan, understanding of inflation is at 59%; in other countries, such as Germany, it is at 78% and, in the Netherlands, it is at 77%. Across countries, individuals have the lowest level of knowledge around the concept of risk, and the percentage of correct answers is particularly low when looking at knowledge of risk diversification. Here, we note the prevalence of “do not know” answers. While “do not know” responses hover around 15% on the topic of interest rates and 18% for inflation, about 30% of respondents—in some countries even more—are likely to respond “do not know” to the risk diversification question. In Switzerland, 74% answered the risk diversification question correctly and 13% reported not knowing the answer (compared to 3% and 4% responding “do not know” for the interest rates and inflation questions, respectively).

These findings are supported by many other surveys. For example, the 2014 Standard & Poor’s Global Financial Literacy Survey shows that, around the world, people know the least about risk and risk diversification (Klapper, Lusardi, and Van Oudheusden, 2015 ). Similarly, results from the 2016 Allianz survey, which collected evidence from ten European countries on money, financial literacy, and risk in the digital age, show very low-risk literacy in all countries covered by the survey. In Austria, Germany, and Switzerland, which are the three top-performing nations in term of financial knowledge, less than 20% of respondents can answer three questions related to knowledge of risk and risk diversification (Allianz, 2017 ).

Other surveys show that the findings about financial literacy correlate in an expected way with other data. For example, performance on the mathematics and science sections of the OECD Program for International Student Assessment (PISA) correlates with performance on the Big Three and, specifically, on the question relating to interest rates. Similarly, respondents in Sweden, which has experienced pension privatization, performed better on the risk diversification question (at 68%), than did respondents in Russia and East Germany, where people have had less exposure to the stock market. For researchers studying financial knowledge and its effects, these findings hint to the fact that financial literacy could be the result of choice and not an exogenous variable.

To summarize, financial literacy is low across the world and higher national income levels do not equate to a more financially literate population. The design of the Big Three questions enables a global comparison and allows for a deeper understanding of financial literacy. This enhances the measure’s utility because it helps to identify general and specific vulnerabilities across countries and within population subgroups, as will be explained in the next section.

2.3 Who knows the least?

Low financial literacy on average is exacerbated by patterns of vulnerability among specific population subgroups. For instance, as reported in Lusardi and Mitchell ( 2014 ), even though educational attainment is positively correlated with financial literacy, it is not sufficient. Even well-educated people are not necessarily savvy about money. Financial literacy is also low among the young. In the USA, less than 30% of respondents can correctly answer the Big Three by age 40, even though many consequential financial decisions are made well before that age (see Fig.  1 ). Similarly, in Switzerland, only 45% of those aged 35 or younger are able to correctly answer the Big Three questions. Footnote 1 And if people may learn from making financial decisions, that learning seems limited. As shown in Fig.  1 , many older individuals, who have already made decisions, cannot answer three basic financial literacy questions.

Financial literacy across age in the USA. This figure shows the percentage of respondents who answered correctly all Big Three questions by age group (year 2015). Source: 2015 US National Financial Capability Study

A gender gap in financial literacy is also present across countries. Women are less likely than men to answer questions correctly. The gap is present not only on the overall scale but also within each topic, across countries of different income levels, and at different ages. Women are also disproportionately more likely to indicate that they do not know the answer to specific questions (Fig.  2 ), highlighting overconfidence among men and awareness of lack of knowledge among women. Even in Finland, which is a relatively equal society in terms of gender, 44% of men compared to 27% of women answer all three questions correctly and 18% of women give at least one “do not know” response versus less than 10% of men (Kalmi and Ruuskanen, 2017 ). These figures further reflect the universality of the Big Three questions. As reported in Fig.  2 , “do not know” responses among women are prevalent not only in European countries, for example, Switzerland, but also in North America (represented in the figure by the USA, though similar findings are reported in Canada) and in Asia (represented in the figure by Japan). Those interested in learning more about the differences in financial literacy across demographics and other characteristics can consult Lusardi and Mitchell ( 2011c , 2014 ).

Gender differences in the responses to the Big Three questions. Sources: USA—Lusardi and Mitchell, 2011c ; Japan—Sekita, 2011 ; Switzerland—Brown and Graf, 2013

3 Does financial literacy matter?

A growing number of financial instruments have gained importance, including alternative financial services such as payday loans, pawnshops, and rent to own stores that charge very high interest rates. Simultaneously, in the changing economic landscape, people are increasingly responsible for personal financial planning and for investing and spending their resources throughout their lifetime. We have witnessed changes not only in the asset side of household balance sheets but also in the liability side. For example, in the USA, many people arrive close to retirement carrying a lot more debt than previous generations did (Lusardi, Mitchell, and Oggero, 2018 ). Overall, individuals are making substantially more financial decisions over their lifetime, living longer, and gaining access to a range of new financial products. These trends, combined with low financial literacy levels around the world and, particularly, among vulnerable population groups, indicate that elevating financial literacy must become a priority for policy makers.

There is ample evidence of the impact of financial literacy on people’s decisions and financial behavior. For example, financial literacy has been proven to affect both saving and investment behavior and debt management and borrowing practices. Empirically, financially savvy people are more likely to accumulate wealth (Lusardi and Mitchell, 2014 ). There are several explanations for why higher financial literacy translates into greater wealth. Several studies have documented that those who have higher financial literacy are more likely to plan for retirement, probably because they are more likely to appreciate the power of interest compounding and are better able to do calculations. According to the findings of the FLat World project, answering one additional financial question correctly is associated with a 3–4 percentage point greater probability of planning for retirement; this finding is seen in Germany, the USA, Japan, and Sweden. Financial literacy is found to have the strongest impact in the Netherlands, where knowing the right answer to one additional financial literacy question is associated with a 10 percentage point higher probability of planning (Mitchell and Lusardi, 2015 ). Empirically, planning is a very strong predictor of wealth; those who plan arrive close to retirement with two to three times the amount of wealth as those who do not plan (Lusardi and Mitchell, 2011b ).

Financial literacy is also associated with higher returns on investments and investment in more complex assets, such as stocks, which normally offer higher rates of return. This finding has important consequences for wealth; according to the simulation by Lusardi, Michaud, and Mitchell ( 2017 ), in the context of a life-cycle model of saving with many sources of uncertainty, from 30 to 40% of US retirement wealth inequality can be accounted for by differences in financial knowledge. These results show that financial literacy is not a sideshow, but it plays a critical role in saving and wealth accumulation.

Financial literacy is also strongly correlated with a greater ability to cope with emergency expenses and weather income shocks. Those who are financially literate are more likely to report that they can come up with $2000 in 30 days or that they are able to cover an emergency expense of $400 with cash or savings (Hasler, Lusardi, and Oggero, 2018 ).

With regard to debt behavior, those who are more financially literate are less likely to have credit card debt and more likely to pay the full balance of their credit card each month rather than just paying the minimum due (Lusardi and Tufano, 2009 , 2015 ). Individuals with higher financial literacy levels also are more likely to refinance their mortgages when it makes sense to do so, tend not to borrow against their 401(k) plans, and are less likely to use high-cost borrowing methods, e.g., payday loans, pawn shops, auto title loans, and refund anticipation loans (Lusardi and de Bassa Scheresberg, 2013 ).

Several studies have documented poor debt behavior and its link to financial literacy. Moore ( 2003 ) reported that the least financially literate are also more likely to have costly mortgages. Lusardi and Tufano ( 2015 ) showed that the least financially savvy incurred high transaction costs, paying higher fees and using high-cost borrowing methods. In their study, the less knowledgeable also reported excessive debt loads and an inability to judge their debt positions. Similarly, Mottola ( 2013 ) found that those with low financial literacy were more likely to engage in costly credit card behavior, and Utkus and Young ( 2011 ) concluded that the least literate were more likely to borrow against their 401(k) and pension accounts.

Young people also struggle with debt, in particular with student loans. According to Lusardi, de Bassa Scheresberg, and Oggero ( 2016 ), Millennials know little about their student loans and many do not attempt to calculate the payment amounts that will later be associated with the loans they take. When asked what they would do, if given the chance to revisit their student loan borrowing decisions, about half of Millennials indicate that they would make a different decision.

Finally, a recent report on Millennials in the USA (18- to 34-year-olds) noted the impact of financial technology (fintech) on the financial behavior of young individuals. New and rapidly expanding mobile payment options have made transactions easier, quicker, and more convenient. The average user of mobile payments apps and technology in the USA is a high-income, well-educated male who works full time and is likely to belong to an ethnic minority group. Overall, users of mobile payments are busy individuals who are financially active (holding more assets and incurring more debt). However, mobile payment users display expensive financial behaviors, such as spending more than they earn, using alternative financial services, and occasionally overdrawing their checking accounts. Additionally, mobile payment users display lower levels of financial literacy (Lusardi, de Bassa Scheresberg, and Avery, 2018 ). The rapid growth in fintech around the world juxtaposed with expensive financial behavior means that more attention must be paid to the impact of mobile payment use on financial behavior. Fintech is not a substitute for financial literacy.

4 The way forward for financial literacy and what works

Overall, financial literacy affects everything from day-to-day to long-term financial decisions, and this has implications for both individuals and society. Low levels of financial literacy across countries are correlated with ineffective spending and financial planning, and expensive borrowing and debt management. These low levels of financial literacy worldwide and their widespread implications necessitate urgent efforts. Results from various surveys and research show that the Big Three questions are useful not only in assessing aggregate financial literacy but also in identifying vulnerable population subgroups and areas of financial decision-making that need improvement. Thus, these findings are relevant for policy makers and practitioners. Financial illiteracy has implications not only for the decisions that people make for themselves but also for society. The rapid spread of mobile payment technology and alternative financial services combined with lack of financial literacy can exacerbate wealth inequality.

To be effective, financial literacy initiatives need to be large and scalable. Schools, workplaces, and community platforms provide unique opportunities to deliver financial education to large and often diverse segments of the population. Furthermore, stark vulnerabilities across countries make it clear that specific subgroups, such as women and young people, are ideal targets for financial literacy programs. Given women’s awareness of their lack of financial knowledge, as indicated via their “do not know” responses to the Big Three questions, they are likely to be more receptive to financial education.

The near-crisis levels of financial illiteracy, the adverse impact that it has on financial behavior, and the vulnerabilities of certain groups speak of the need for and importance of financial education. Financial education is a crucial foundation for raising financial literacy and informing the next generations of consumers, workers, and citizens. Many countries have seen efforts in recent years to implement and provide financial education in schools, colleges, and workplaces. However, the continuously low levels of financial literacy across the world indicate that a piece of the puzzle is missing. A key lesson is that when it comes to providing financial education, one size does not fit all. In addition to the potential for large-scale implementation, the main components of any financial literacy program should be tailored content, targeted at specific audiences. An effective financial education program efficiently identifies the needs of its audience, accurately targets vulnerable groups, has clear objectives, and relies on rigorous evaluation metrics.

Using measures like the Big Three questions, it is imperative to recognize vulnerable groups and their specific needs in program designs. Upon identification, the next step is to incorporate this knowledge into financial education programs and solutions.

School-based education can be transformational by preparing young people for important financial decisions. The OECD’s Programme for International Student Assessment (PISA), in both 2012 and 2015, found that, on average, only 10% of 15-year-olds achieved maximum proficiency on a five-point financial literacy scale. As of 2015, about one in five of students did not have even basic financial skills (see OECD, 2017 ). Rigorous financial education programs, coupled with teacher training and high school financial education requirements, are found to be correlated with fewer defaults and higher credit scores among young adults in the USA (Urban, Schmeiser, Collins, and Brown, 2018 ). It is important to target students and young adults in schools and colleges to provide them with the necessary tools to make sound financial decisions as they graduate and take on responsibilities, such as buying cars and houses, or starting retirement accounts. Given the rising cost of education and student loan debt and the need of young people to start contributing as early as possible to retirement accounts, the importance of financial education in school cannot be overstated.

There are three compelling reasons for having financial education in school. First, it is important to expose young people to the basic concepts underlying financial decision-making before they make important and consequential financial decisions. As noted in Fig.  1 , financial literacy is very low among the young and it does not seem to increase a lot with age/generations. Second, school provides access to financial literacy to groups who may not be exposed to it (or may not be equally exposed to it), for example, women. Third, it is important to reduce the costs of acquiring financial literacy, if we want to promote higher financial literacy both among individuals and among society.

There are compelling reasons to have personal finance courses in college as well. In the same way in which colleges and university offer courses in corporate finance to teach how to manage the finances of firms, so today individuals need the knowledge to manage their own finances over the lifetime, which in present discounted value often amount to large values and are made larger by private pension accounts.

Financial education can also be efficiently provided in workplaces. An effective financial education program targeted to adults recognizes the socioeconomic context of employees and offers interventions tailored to their specific needs. A case study conducted in 2013 with employees of the US Federal Reserve System showed that completing a financial literacy learning module led to significant changes in retirement planning behavior and better-performing investment portfolios (Clark, Lusardi, and Mitchell, 2017 ). It is also important to note the delivery method of these programs, especially when targeted to adults. For instance, video formats have a significantly higher impact on financial behavior than simple narratives, and instruction is most effective when it is kept brief and relevant (Heinberg et al., 2014 ).

The Big Three also show that it is particularly important to make people familiar with the concepts of risk and risk diversification. Programs devoted to teaching risk via, for example, visual tools have shown great promise (Lusardi et al., 2017 ). The complexity of some of these concepts and the costs of providing education in the workplace, coupled with the fact that many older individuals may not work or work in firms that do not offer such education, provide other reasons why financial education in school is so important.

Finally, it is important to provide financial education in the community, in places where people go to learn. A recent example is the International Federation of Finance Museums, an innovative global collaboration that promotes financial knowledge through museum exhibits and the exchange of resources. Museums can be places where to provide financial literacy both among the young and the old.

There are a variety of other ways in which financial education can be offered and also targeted to specific groups. However, there are few evaluations of the effectiveness of such initiatives and this is an area where more research is urgently needed, given the statistics reported in the first part of this paper.

5 Concluding remarks

The lack of financial literacy, even in some of the world’s most well-developed financial markets, is of acute concern and needs immediate attention. The Big Three questions that were designed to measure financial literacy go a long way in identifying aggregate differences in financial knowledge and highlighting vulnerabilities within populations and across topics of interest, thereby facilitating the development of tailored programs. Many such programs to provide financial education in schools and colleges, workplaces, and the larger community have taken existing evidence into account to create rigorous solutions. It is important to continue making strides in promoting financial literacy, by achieving scale and efficiency in future programs as well.

In August 2017, I was appointed Director of the Italian Financial Education Committee, tasked with designing and implementing the national strategy for financial literacy. I will be able to apply my research to policy and program initiatives in Italy to promote financial literacy: it is an essential skill in the twenty-first century, one that individuals need if they are to thrive economically in today’s society. As the research discussed in this paper well documents, financial literacy is like a global passport that allows individuals to make the most of the plethora of financial products available in the market and to make sound financial decisions. Financial literacy should be seen as a fundamental right and universal need, rather than the privilege of the relatively few consumers who have special access to financial knowledge or financial advice. In today’s world, financial literacy should be considered as important as basic literacy, i.e., the ability to read and write. Without it, individuals and societies cannot reach their full potential.

See Brown and Graf ( 2013 ).

Abbreviations

Defined benefit (refers to pension plan)

Defined contribution (refers to pension plan)

Financial Literacy around the World

National Financial Capability Study

Organisation for Economic Co-operation and Development

Programme for International Student Assessment

Survey of Consumer Finances

Survey of Household Economics and Financial Decisionmaking

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Acknowledgements

This paper represents a summary of the keynote address I gave to the 2018 Annual Meeting of the Swiss Society of Economics and Statistics. I would like to thank Monika Butler, Rafael Lalive, anonymous reviewers, and participants of the Annual Meeting for useful discussions and comments, and Raveesha Gupta for editorial support. All errors are my responsibility.

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Lusardi, A. Financial literacy and the need for financial education: evidence and implications. Swiss J Economics Statistics 155 , 1 (2019). https://doi.org/10.1186/s41937-019-0027-5

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The Term Paper on For Successful Development of a Country, Government Should Spend More Money on Education of Very Young Children Than University Education

Education has now become the nation’s concern. Some people argue that government should focus its budgets on young children’s education rather than universities. I concede that young children’s education largely relies on government’s budget. However, university education needs more financial aid to maintain high-standard education and build school facilities. To begin with, universities have to ...

No one really taught me the words ‘investing’, or ‘insurance’ or ‘the stock market’ in school. Well maybe in definition, but I never came across how-to’s and guide to how to use these terms in the practical world. I think I would be scolded that I’m asking to be spoon-fed but, to be frank, this country never really made me grow up with concerns about financial literacy. And I am even one of those people with a good education… how about our co-citizens with even less? Another reason is probably how our traditions and culture never really had a chance to understand these legal matters formally.

Unlike other countries, we are generally the most traditional ones. We held our religions close, believing that everything happens in God’s time, if it’s safe to say, I think we are relying in Him too much. They didn’t talk about life insurances in the bible. We tend to believe that whatever happens, it happens on God’s will. Religion has been our security for ages. And I think that is why my own parents doesn’t have too much of a clue in investments issues. And as their child, how am I supposed to have a grasp in this area.

No matter how I am accused of having enough resources because of the internet, it’s still not enough to carry a curiosity on finance matters. Because as tradition was, in this country, if you have a bank account, you’re saved. My family isn’t really one of those homes where everyone’s so money-savvy. I think it’s also because we’re a young family, with me as the eldest child. So I think I should be the one starting, learning about financial literacy. And this goes, with my last reason: Families with low financial status tend to not to be exposed in these opportunities.

We’re not exactly in the higher middle class which many people may think because I’m studying in Mapua. We’re extremely in the middle middle class and as I have observed in television and the internet, those who already have the money are the ones only given the chance to be literate financially. It isn’t a theory that you need money for education, though there are other ways to stay informed but this is the truth. Most people in this country are lower middle class and could you even imagine the opportunities given to their level? It’s just concerning.

The Business plan on Financial Literacy

India is among the world’s most efficient financial markets in terms of technology, regulation and systems. It also has one of the highest savings rate in the world – our gross household savings rate, which averaged 19% of gross domestic product (GDP) between 1996-97 and 1999-2000, increased to about 23% in 2003-04 and has been growing ever since. While savings are more in India, where the ...

Money-education for only those who already have money, or the promise of it. And I think that should be the one of the main concerns of this country. In conclusion, the main reason is our own country’s lack of financial literacy education. Resources: https://en. wikipedia. org/wiki/Financial_literacy , http://www. investopedia. com/terms/f/financial-literacy. asp ,http://www. randelltiongson. com/? s=financial+literacy+in+the+philippines , http://www. getsmarteraboutmoney. ca/en/managing-your-money/planning/investing-basics/Pages/what-is-financial-literacy. aspx.

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Why financial literacy should be taught in schools

There’s more to financial literacy than just knowing how to make wise financial decisions. It’s more about being able to use this knowledge and apply it to everyday scenarios. Financial literacy affects every aspect of our lives: from creating budgets, to saving, to taking out a loan, and investing. However, many students do not know or have less exposure to financial literacy.

What is finance?

Before you can begin to understand financial literacy, you first need to know what finance is.

Finance is the management of money. There are several concepts that make up finance including saving, investing, budgeting, and borrowing.

Finance can be divided into three main categories:

• Personal finance which is how an individual deals with their money and includes banking, the purchase and use of financial products such as credit cards and investing.
• Corporate finance is any financial decision that is made to run a business such as the issue of stocks.
• Public finance is used to care for the welfare of the public and includes budgeting, taxing, and the drafting of fiscal policies.

What is financial literacy?

In a nutshell, financial literacy is being able to manage your money wisely. Financial literacy involves knowing and using the basic concepts of financial literacy. As mentioned above, these include saving, investing, budgeting, and borrowing.

A good grasp on the different financial skills partnered with the ability to use them is key in achieving your financial goals. With financial literacy, you can save up for retirement, purchase a new home, or build a sizable estate for your children.

Why are more and more people financially illiterate?

According to the 2019 Financial Inclusion (FI) survey conducted by the Bangko Sentral ng Pilipinas, only 55% of Filipino adults know how and why inflation directly affects the prices of goods and services, while only 33% knew the correct answers on interest rates.

While some schools have begun incorporating financial literacy into their curriculums, the process has been slow. This is why AAMBIS-OWA Party-list Rep. Sharon Garin has been pushing for it to be included in all schools and educational institutions. According to Rep. Garin, House of Representatives Bill 9058, otherwise known as the Savings and Investments Act of 2021 , aims to provide young Filipinos with the knowledge they need to begin long-term savings and long-term investments before they even enter senior high school.

There are other reasons why financial illiteracy is on the rise. This stems from the lack of exposure to financial literacy early on in life, which then trickles on to the next generations. Children who have not been exposed to financial literacy topics in school grow up into adults who do not have a strong grasp on financial literacy. They then become parents, bosses, or teachers to the next generation of children, continuing the cycle.

What are the benefits of financial literacy?

Everything in our lives is affected by money. From our daily expenses to our children’s tuition fees, building a retirement fund to saving up for a much-needed vacation, it is virtually impossible to live life without money.

Having a strong foundation of financial literacy is important because it gives you the knowledge you need to manage your money wisely. Without financial literacy, you may be making the wrong decisions regarding how you save or invest your money. You’ll need to understand how finances work so you can avoid incurring debt when using your credit card, take out a loan on your first car, and grow your savings through investments.

Financial literacy also enables you to achieve your financial goals, whatever these may be. In fact, financial literacy helps you determine what these goals are in the first place. Financial literacy helps you manage your money wisely, make sound financial decisions, and achieve financial stability in life.

On top of this, financial literacy also helps you get through the unexpected moments in life – like a medical emergency or a sudden loss of employment. Knowing how to build an emergency fund can provide you with a financial cushion in case the unexpected happens, while knowing how to utilize the money you currently have is key to making it last as long as possible.

How you can improve your financial literacy skills

You can start building a good financial literacy foundation by reading up on the many articles online that discuss the basic pillars of financial literacy (budgeting, debt, saving, and investing). Metrobank has a collection of financial literacy articles that tackle various issues and concepts you will need to know in order to make wise financial decisions.

After learning about them, you need to practice it by applying it in your life. This can start as small as creating a budget or setting aside a percentage of your salary each month to build an emergency fund. The more you apply financial literacy in your life, the better and more confident you will be in your skills.

Financial literacy needs to start as early as possible, and schools should speed up the move to incorporating it into their curriculums. With financial literacy taught comprehensively in schools, students can acquire the skills necessary to achieve financial independence. As large numbers of young adults are already deep in debt due to impulsive spending and lack of money management skills, teaching them about budgeting, saving, and investing early on is not only imperative but also urgent.

You, too, can help guide your child financially by teaching them how to save and budget their money from a young age. Apply for a Metrobank Fun Savers Club account for your child today to get started.

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The Financial Life of Filipinos: Insights into Wealth Distribution and Financial Literacy in the Philippines

Evaluating the present landscape and perspectives on financial literacy in the philippines..

Understand how the socio-demographics, growth resilience, and evolving financial literacy in the Philippines are shaping its diverse and resilient economic landscape.

This research article aims to provide insights into the financial situation and financial literacy of Filipinos on a meta level, targeting two key audiences: individuals seeking a comprehensive understanding of the broader financial landscape in the Philippines and experts, government representatives, and professionals from organizations focused on financial inclusion, education and literacy.

An Overview of Wealth Distribution in the Philippines

Population and age.

The population of the Philippines demonstrated continued growth over the years, estimated at  117,337,368 by 2023 1 . The country comprised of more than 7,000 islands is geographically divided into 17 administrative regions of which the most populous are situated in the north, i.e. the regions of Calabarzon, the National Capital Region (NCR), and Central Luzon, collectively accounting for about 38.6% of the total population 2 . 

The nation’s rich heritage includes over 182 ethnolinguistic groups, and the Filipino people’s cultural, genetic makeup, social dynamics, and historical migrations have shaped the current demographic landscape 3 .

Overseas Filipino Workers (OFWs) significantly contribute to the economy through remittances. The most popular professions among Overseas Filipino Workers (OFWs) are in healthcare, hospitality, and shipping, which are all in high demand abroad. These opportunities are spread worldwide, with notable concentrations in the Middle East, neighboring countries in the Asia-Pacific, and Western countries 1,2,4 .

In 2023, the Philippines reported a median age of 25.0 years and a total fertility rate (TFR) of 1.9 (2022), indicating below replacement-level fertility 5 . This contrasts sharply with most OECD countries, which typically have a median age exceeding 40 years due to lower fertility rates 6 . The Philippines possesses the youngest working force in Asia, with an average age of 25.4 years, notably lower than Singapore, Thailand, Australia, and the United States, where median ages range from 37.5 to 38.2 years 7 .

Economy, Income Development and Poverty

The Philippine economy has demonstrated resilience and growth potential despite global economic challenges, becoming the fastest-growing economy in Southeast Asia expanding by 5.6% in 2023, even amidst the Corona crisis. The GDP per capita of the Philippines in 2022 was USD 3,623, an increase of 1.3% from the 2021 GDP per capita of USD 3,576 8 . The country’s economic shift from agriculture to a focus on services and infrastructure build-out, but less so on manufacturing, has been a key driver of this growth. Additionally, remittances from Filipino workers abroad, which account for roughly 10% of the country’s GDP, have further supported economic development. The Philippine economy is expected to expand by 6.2% in 2024, fueled by rising domestic demand, a recovery in services, and sustained remittances from OFWs 9 . 

The income development of Filipinos shows a mixed trend, with the poverty rate decreasing from 23.3% in 2015 to 21.1% in 2021 but then increasing to 22.4% (approximately 25 million people) in the first semester of 2023 10 . 

Biggest headache, inflation. Our hard-earned money’s worth is decreasing, and wages remain the same. I feel the pressure to get a higher-paying job, and to top it off, the government’s hiking the contributions for the social security system (SSS), Pag-IBIG, and PhilHealth. Seriously, our government is beyond useless. ‒ Anonymous from Reddit

The government is pursuing larger investments in both human and physical capital to boost medium- and long-term development. With continued recovery and reform efforts, the country aims to becoming an upper middle-income country 11,12,13 . Despite all the efforts, the poverty situation in the country remains a significant challenge, with 25 million Filipinos living below the poverty line. Financial literacy is often inaccessible to many due to limited education and resources. For those struggling to meet basic needs like food, the idea of saving for future emergencies can seem like a distant luxury. It is important to note that the discussion about financial literacy primarily centers on individuals above the poverty line, constituting the majority of the population. By highlighting these disparities and underscoring the importance of inclusive financial education and support systems, efforts can be directed towards addressing poverty more comprehensively in the Philippines.

Wealth Distribution and Savings Rate

Despite the high economic growth and job expansion, the Philippines continues to struggle with deeply rooted inequality 14 . The wealth distribution in the country is highly uneven, with the top 1% of earners capturing 17% of the national income, while the bottom 50% share only 14% of the income 15 . The Philippines’ Gini coefficient, a measure of income inequality, stood at 41.6% in 2021, the highest Gini coefficient among ASEAN’s six largest economies, highlighting significant income inequality in the country. This disparity is a social timebomb, with implications for wealth distribution and economic stability 16 .

Foreign influences, particularly Spanish, American, and Chinese heritage, have shaped the wealthy class in the Philippines, stemming from over three centuries of Spanish colonial rule, subsequent American colonization, and ongoing interactions with Chinese traders and immigrants. These historical ties are still evident in cultural norms, inheritance practices, and existing power structures.

The World Bank has emphasized the need for policies that promote greater equality of opportunity, such as improving access to quality education, healthcare, and housing 17 . The report also highlighted that inequality starts before birth and is perpetuated over the life cycle, impacting employment opportunities and income. The Philippines aims to become a middle-class society free of poverty by 2040, but addressing high levels of inequality is crucial for achieving this goal 18 .

I’ve been investing a hefty chunk of my money, so I can retire early. I don’t really dream of retiring as a rich person because that’s just unrealistic, but I have plans to live off my dividends when I get old. ‒ Anonymous from Reddit

The total personal savings in the Philippines averaged PHP 2,777,379.82 million (approx. USD 49.6 billion) from 2001 until 2022, reaching an all-time high of PHP 6,272,231.91 million (approx. USD 112.1 billion) in January 2022, up from PHP 5,274,123.59 million (approx. USD 94.3 billion) in July 2020 19 . According to a survey on consumer expectations in the fourth quarter of 2023, about 44% of households in the Philippines had savings . The Gross Savings Rate in the Philippines was 10.8% in December 2022. This quarterly updated rate with data from March 1981 to December 2022, showing an average rate of 10.8% 21 .

The Financial Outlook of Filipinos

Current trend indicates a growing awareness and changing attitudes towards financial literacy, savings, and investment among Filipinos, influenced by various economic challenges and the digitalization of financial services.

Financial Literacy, Debt and Savings Behaviour

Many Filipinos spend before they save, which can lead to a lack of savings if nothing is left after expenses. While 96% of Filipinos are concerned about health costs, only 16% are prepared for medical expenses in case of critical illness due to lack of insurance or savings for emergency cases 22 . There is also a rising number of senior-dependents who rely on their children for financial support due to a lack of financial education, which poses a cycle of financial burden from generation to generation until corrective measures are implemented 23 .

The financial industry’s goal is to educate Filipinos to prioritize savings then manage spending with what’s left. The government has also taken steps to encourage saving by offering lower loan rates to micro and small business enterprises 24 . 

I think managing unexpected expenses is a challenge. Dealing with unforeseen costs like emergency repairs, medical bills, or job loss can be stressful and disrupt financial plans. ‒ Derrick David

The debt culture in the Philippines is deeply ingrained, with borrowing money being a common practice, often viewed as a norm rather than an exception. This normalization of debt, known as “utang,” poses a significant obstacle to financial growth for many Filipinos . Instead of prioritizing saving for unforeseen circumstances, borrowing for emergencies is more prevalent. However, a lack of understanding about the implications of compounding interest and the distinction between good and bad loans further exacerbates financial challenges. This culture of indebtedness is reflected in statistics showing that close to 50% of Filipinos have debts or loans, with various forms of indebtedness such as money owed to individuals, Buy Now Pay Later (BNPL) services, and credit cards being prevalent . eWallets and digital platforms actively incentivize consumer debt, often at high rates, leading to potential debt traps. Addressing this debt culture requires promoting financial literacy and fostering a shift towards more sustainable financial practices to enhance economic resilience among Filipinos.

New Financial Attitudes, Education and Digitalization for Financial Wellbeing

Recent global uncertainties and the rising cost of living have led to new financial attitudes and behaviors among Filipinos 27 . Finance influencers (finfluencers) on social media have become popular for their ability to simplify complex financial concepts, which helps to improve financial literacy. The Corona crisis, for example, has particularly sparked interest in insurance products among the Filipino Gen Z population 28 .

Over 40% of Filipinos are now seeking digitally enabled insurance and investment products, to which insurance and financial services companies have positively responded to meet this demand 29 . Some have also launched financial literacy programs targeted at different demographics, including female heads of households, to empower them with knowledge on saving, budgeting, and investing 30 .

To promote financial inclusion and recognize that the digitalization of payments are mutually reinforcing, the Bangko Sentral ng Pilipinas (BSP) has outlined a Digital Payments Transformation Roadmap. The goal is to shift 50% of total retail transactions to electronic channels and increase the percentage of Filipino adults with bank accounts to 70% by the end of this year 31 . Key drivers propelling this transformation include QR PH, high-interest digital banks, and reduced or zero cross-bank transaction fees for certain banks 32 .

There’s a crucial need for financial literacy in the Philippines. Discussing money is not common in Filipino families, and there’s a cultural expectation for children to support their aging parents financially. Many believe government pensions are enough for retirement, leading to a high demand for government jobs. Changing this mindset requires recognizing that the issue is deeply rooted in Filipino household culture. ‒ Lancelot Dilig

The Bangko Sentral ng Pilipinas (BSP) launched the National Strategy for Financial Inclusion (NSFI) 2022-2028 to enhance consumer welfare through financial inclusion and resilience. It aims to bring more Filipinos into the formal financial system, addressing disparities and emphasizing meaningful access to services. Despite progress, a significant portion of the population remains unbanked. The NSFI sets targets and indicators, highlighting governance for stakeholder involvement. The strategy reflects a commitment to a more financially included and empowered society, fostering sustainable growth and shared prosperity. The central bank’s governor acknowledges stakeholders’ contributions to advancing the NSFI agenda 33 .

The BSP partnered with various organizations to develop financial education modules for OFWs, and plans to engage with the police force and firefighters for similar initiatives 34 .

I wish that my kids would handle money better than I do. I hope they won’t feel entitled to inheritance when the time comes. As parents, we tell them they can do anything they want, but we also provide an honest perspective on income generation. ‒ Margaux C.

The Philippines is a country with a young median age, experiencing steady population growth and an economic shift towards the service industry. Despite positive strides with lower poverty rate and economic growth, challenges such as income inequality persist in the Philippine economic spectrum.

Many questions remain as we analyze the Filipino financial landscape. Why do Filipinos tend to spend more than save, particularly during the corona crisis? Despite a long-standing culture of saving, why does financial literacy progress slowly? Moreover, what prompts the transition to the service industry, widely regarded as a catalyst for growth, and what factors contribute to the persistence of inequality? Unraveling these queries is essential for a comprehensive understanding of the dynamics shaping the financial realities of the Filipino population.

I’ve come to realize that money should always be openly discussed and communicated. Currently, I’m dealing with a lot of issues because I made poor decisions and kept them from my husband. I’m reeling from distrust, and of course, paying off debts slowly ‒ Margaux C.

Targeted actions are essential to accelerate financial development in the country, encompassing policies addressing the wealth gap and improving access to quality education and healthcare. Empowering Filipinos through financial literacy programs and harnessing digital financial services could contribute to a more resilient economy. With collaborative efforts from both the government and financial institutions, a path can be forged towards a more equitable and prosperous financial landscape for all. The outlook for the Philippine economy remains optimistic, with forecasts indicating sustained growth and private consumption supported by remittances from overseas Filipino workers. 

The real challenge lies in executing strategies and translating them into tangible impact. Studies alone won’t suffice; it’s the hands-on work and activities that can truly reach the 25 million below the poverty line. Meaningful education becomes transformative when coupled with creating pathways out of their current situations, fostering hope and positive change for the future.

Tip : Read more on the Future of Wealth Management in Philippines .

Endnotes with references:

1) Macrotrends: https://www.macrotrends.net/countries/PHL/philippines/population  

2) Philippine Statistics Authority, 2021: https://psa.gov.ph/content/2020-census-population-and-housing-2020-cph-population-counts-declared-official-president  

3) Wikipedia: https://en.wikipedia.org/wiki/Ethnic_groups_in_the_Philippines  

4) Worldometers: https://www.worldometers.info/demographics/philippines-demographics/  

5) Philippine Statistics Authority, 2022: https://psa.gov.ph/content/total-fertility-rate-declined-27-2017-19-2022  

6) OECD: https://www.oecd-ilibrary.org/sites/d56a2fbc-en/index.html?itemId=/content/component/d56a2fbc-en  

7) CIA Factbook: https://www.cia.gov/the-world-factbook/field/median-age/country-comparison/  

8) CEIC Data: https://www.ceicdata.com/en/indicator/philippines/gdp-per-capita  

9) Asian Development Bank (ADB), 2023: https://www.adb.org/where-we-work/philippines/economy   

10) Philippine Statistics Authority, 2023: https://psa.gov.ph/statistics/poverty/node/1684061846  

11) World Bank: https://www.worldbank.org/en/country/philippines/overview  

12) Investopedia: https://www.investopedia.com/articles/investing/091815/emerging-markets-analyzing-philippines-gdp.asp  

13) Asian Development Bank, 2023:  https://www.adb.org/news/philippine-economy-post-robust-growth-2023-2024-despite-inflation-pressures-adb  

14) Wikipedia: https://en.wikipedia.org/wiki/Income_inequality_in_the_Philippines  

15) IMF, 2016: https://www.imf.org/en/Publications/WP/Issues/2016/12/30/Poverty-Income-Distribution-and-Economic-Policy-in-the-Philippines-2515  

16) Philippine Institute for Development Studies (PIDS), 2022: https://www.pids.gov.ph/details/income-inequality-a-social-timebomb  

17) World Bank, 2022: https://www.worldbank.org/en/news/press-release/2022/11/24/ph-reducing-inequality-key-to-becoming-a-middle-class-society-free-of-poverty  

18) Rappler, 2023: https://www.rappler.com/voices/analysis-incovenient-truth-philippine-income-inequality-economy/  

19) Trading Economics: https://tradingeconomics.com/philippines/personal-savings  

20) Statista: https://www.statista.com/statistics/1266057/philippines-households-with-savings-by-income-groups/  

21) CEIC Data: https://www.ceicdata.com/en/indicator/philippines/gross-savings-rate  

22) Philam Life, 2018: https://www.aia.com.ph/content/dam/ph/en/docs/corporate-governance/philam-life/2018/part-d/d.6.4-2018-annual-report.pdf  

23) The National Economic and Development Authority (NEDA) of the Philippines, 2018: https://nro13.neda.gov.ph/financial-literacy-for-filipinos-understanding-for-better-living/  

24) NEDA, 2018: https://nro13.neda.gov.ph/financial-literacy-for-filipinos-understanding-for-better-living/  

25) Leonardo D. de Castro, Boston University, 1988: https://www.bu.edu/wcp/Papers/Asia/AsiaDeCa.htm  

26) PhilStar, 2023: https://www.philstar.com/business/2023/08/18/2289378/more-pinoys-saddled-debt-says-survey  

27) MDRT, 2023: https://www.mdrt.org/learn/2023/html/new-financial-attitudes-and-behaviors-emerging-among-filipinos/  

28) MDRT, 2023: https://www.mdrt.org/learn/2023/html/new-financial-attitudes-and-behaviors-emerging-among-filipinos/  

29) Manulife Philippines, 2022: https://www.manulife.com.ph/content/dam/insurance/ph/about-us/our-story/corporate-governance/2022-ar—mp/2022%20Manulife%20Philippines%20Annual%20Report.pdf  

30) Manulife Philippines, 2022: https://www.manulife.com.ph/content/dam/insurance/ph/about-us/our-story/corporate-governance/2022-ar—mp/2022%20Manulife%20Philippines%20Annual%20Report.pdf  

31) The Philippine Star, 2023: https://www.philstar.com/business/2023/12/01/2315445/bsp-deploy-more-digital-payment-tools  

32) Bangko Sentral ng Pilipinas (BSP), 2020: https://www.bsp.gov.ph/Media_And_Research/Primers%20Faqs/Digital%20Payments%20Transformation%20Roadmap%20Report.pdf  

33) National Strategy for Financial Inclusion (NSFI) 2022-2028, Bangko Sentral ng Pilipinas, 2022: https://www.bsp.gov.ph/Pages/InclusiveFinance/NSFI-2022-2028.pdf  

34) Bangko Sentral ng Pilipinas, 2023: https://www.bsp.gov.ph/Pages/InclusiveFinance/Partnerships1.aspx  

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Essay on Financial Literacy

Students are often asked to write an essay on Financial Literacy in their schools and colleges. And if you’re also looking for the same, we have created 100-word, 250-word, and 500-word essays on the topic.

Let’s take a look…

100 Words Essay on Financial Literacy

What is financial literacy.

Financial literacy means knowing how to manage money. This includes understanding how to save, spend, and invest your cash. It’s like learning a new language but for money. It helps you make smart choices with your pocket money or savings from a part-time job.

Why Save Money?

Spending wisely.

Spending wisely means thinking before buying. Ask yourself, “Do I really need this?” or “Can I find it cheaper somewhere else?” This helps you avoid wasting money on things you don’t need or paying too much.

Investing is like planting your saved seeds to grow a tree. You put your money in a place where it can grow over time, like a bank account or stocks. But be careful, investing can be risky, so you should learn about it first.

Also check:

250 Words Essay on Financial Literacy

Financial literacy means knowing how to manage your money smartly. It’s like learning a new language, but instead of words, you learn about savings, budgeting, and how to make your money grow. Just as you need to know math to solve problems, you need financial literacy to make good choices with money.

Saving Money

Think of saving money as a game where the goal is to keep as many coins as you can in a piggy bank. You do this by spending less on things you don’t need. Saving is important because it’s like having a safety net on a trampoline; it’s there to catch you if you fall or if something unexpected happens.

Making a Budget

A budget is a plan for your money. It’s like a map that shows you how to spend your allowance or earnings from chores. When you make a budget, you decide what you’ll spend on snacks, games, or saving for something big like a new bike. Sticking to your budget means you’re in charge of your money, not the other way around.

Smart Spending

Growing your money.

Understanding financial literacy helps you make smart choices now and prepares you for the future. It’s a tool that helps you build the life you want, just like learning to read and write.

500 Words Essay on Financial Literacy

Financial literacy is knowing how to manage money. This means understanding how to earn, save, spend, and invest your money wisely. It’s just like learning how to read or write, but instead of letters and words, you’re learning about numbers and dollars. When you’re financially literate, you can make smart choices with your money that will help you in the future.

Earning and Saving Money

Spending money wisely.

Spending money is something everyone has to do, but spending it wisely is a key part of financial literacy. This means thinking about whether you really need what you’re buying and if you’re getting it at a good price. It’s okay to spend money on fun things, but you should make sure you have enough for the things you need first, like food and clothes.

Why Financial Literacy is Important

Being good with money is important because it helps you feel secure and ready for the future. If you know how to manage your money, you won’t have to worry as much about not having enough for things you need or want. It also means you can help your family and even give back to your community by donating to people who need help.

That’s it! I hope the essay helped you.

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