BRUSHING UP ON FINANCE
THE PAST three to five years have seen companies engaged in investment securities and asset management strengthening their efforts to improve financial know-how among Filipinos, but the country remains among the least financially literate economies in the region.
The Philippines’ score and ranking in the Financial Literacy Index released by Mastercard in 2016 showed a decline from the survey’s results the year prior, after a significant drop in basic money management. The country was among the “most disappointing performances” in Asia after falling to 62 from 66 and dropping three notches in rank to 11 from being 8th in 2015.
Findings from a similar study conducted by credit rating agency Standard& Poor’s (S& P) in 2014 also reflected that only 25% of Filipino adults are financially literate, putting the country in the bottom 30 of 148 countries.
The survey results come from interviews conducted with more than 150,000 adults across 148 countries who were tested on their knowledge of four financial concepts: numeracy, risk diversification, inflation, and compound interest (saving and debt).
“Without an understanding of basic financial concepts, people are not well equipped to make decisions related to financial management,” stated a report about the insights formed from the S&P FinLit Survey findings, authored by analysts from the World Bank Development Research Group and the George Washington University School of Business. “People who are financially literate have the ability to make informed financial choices regarding saving, investing, borrowing, and more.”
The authors said financial ignorance carries a certain cost, quite literally, because for instance, consumers who do not or have difficulty understanding the concept of compound interest spend more on transaction fees, run up bigger debts, and incur higher interest rates on loans. At times, these people also wind up borrowing more and saving less money.
In a statement about the firm’s findings, S& P Executive Vice- President of Public Affairs Courtney Geduldig echoed the same sentiment.
“We believe there are correlations between financial literacy, financial access, and the strength of markets. Addressing financial literacy is a key strategy in building stronger, more accessible and sustainable markets around the globe,” Ms. Geduldig said.
For his part, S&P Global executive managing director and global head of developing markets Matthew Bosrock explained in the same statement that understanding concepts like interest, inflation and the importance of savings are “at the core of economic development.”
“A lack of basic financial understanding is one of the factors obstructing faster growth in Asia. This survey gives policy makers the tools to identify the gaps in education and also a chance to improve access to financial products,” said Mr. Bosrock.
Moreover, people with strong financial knowledge, according to the authors of World Bank report, do a better job planning and saving for retirement, and as investors, they tend to spread their funds across several ventures to diversify risk.