THE REDEEMED CHRISTIAN CHURCH OF GOD

COVENANT CHAPEL, BIDA

NIGER PROVINCE 3

FINANCIAL LITERACY SEMINAR

PRESENTED BY

HENRY JONATHAN M.Sc., ACA

DEPARTMENT OF ACCOUNTANCY
THE FEDERAL POLYTECHNIC, BIDA

SUNDAY 14TH OCTOBER, 2019.

ABIODUN PRAISE PASTOR E.A. ADEBOYE

PIC, PARISH GENERAL OVERSEER
INTRODUCTION

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The issue of financial literacy is not popular among individuals and groups in Nigeria
generally because decisions that has to do with matters relating to finance has not been
reflecting adequate choices that reflect sound financial knowledge. The lack of adequate
knowledge or complete ignorance of financial matters has spelt doom for individuals and
families in the time past.

Financial decisions from the experts’ point of view in a corporate environment involves
answering three main questions which are:

i) Where to get funds at the cheapest cost?

ii) What is the best use to put these funds among many uses available?
iii) How are the returns from these funds be utilized? To be paid as dividend or
reinvested into the entity?

These questions are handled by the employment of a competent Financial Manager employed
solely for that purpose.

In the same way, these questions are relevant to individuals in the areas of personal finance.
Personal finance success story depends on the level of financial literacy an individual has.

Kamakia, Mwangi and Mwangi (2017) in their research concluded that the level of financial
literacy is a determinant of financial well being among working class individuals.

DEFINITION OF FINANCIAL LITERACY

Kotzè and Smit (2008) defined financial literacy as the ability to read, analyse, manage and
communicate about personal financial conditions that affect material well-being …. the
ability to discern financial choices, discuss money and financial issues without (or despite)
discomfort, plan for the future, and respond competently to life events that affect everyday
financial decisions, including events in the general economy. Furthermore, the US Financial
Literacy and Education Commission (2005) defined financial literacy as the ability to make
informed judgements and to take effective actions regarding the current and future use and
management of money. Financial literacy should include the ability to understand financial
choices, plan for the future, spend wisely, manage and be ready for life events such as job
loss or saving for retirement.
However, previous studies reveal that, a great number of people worldwide are financially
illiterate. Xu and Zia (2012) in their research found that financial literacy levels are low in

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both high and low-income countries. Lusardi and Mitchell (2011) observed that financial
illiteracy is widespread even where financial markets are well developed.

The subject of financial wellbeing has also become an interesting area of discussion to
researchers, government, employers, and professionals. Given the many challenges facing
individuals such as, personal bankruptcies, health issues, early retirement, job losses, among
others, well financially prepared individuals are able to overcome them with more ease than
poorly financially prepared individuals. The World Bank (2013) observed that policy makers
across the world are concerned with how the households’ financial wellbeing can be
improved to enhance financial sector and increase its stability. InFRE (2014) observed that
many workers are expecting a more active lifestyle but are not adequately planning for
additional income that this lifestyle costs. Lusardi and Mitchell (2011) argued that, the reason
as to why people fail to plan for retirement, or do so unsuccessfully, may be because they are
financially illiterate.

When a person is financially literate, the following merits are obvious:

 Understand basic financial concepts like compound interest
 Feel comfortable discussing money with family members
 Understand financial products like mortgages and life insurance
 Have confidence in their ability to make financial decisions
 Are able to plan for their financial future
 Can respond to unanticipated life events like economic downturns and job loss

What is Income?
Money earned from various sources like salary, wages, earnings from farming or business
etc. is referred to as income.
What is Expenditure?
Money spent by us on various items is our expenditure. It includes spending money on
essential as well as non-essential items.

What is Investment?

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Deployment of money, say out of savings, with the expectation of earning higher returns
overtime is investment. e.g. purchase of assets for income purposes, fixed deposit which
yields interest in banks etc.
What is Savings?
When income is more than expenses, then we have surplus money known as savings.

What is Debt?

When expenses are more than the income and we have no savings with us, then there is
shortage of money which is covered through borrowing, creating debt. If we have expenses
more than income in a particular month, the savings of previous months can be used for
meeting this shortfall. If we do not have savings, we have to borrow and incur a debt at high
cost.

What is interest?
Interest is the amount our money earns when we save our money or it is the amount we have
to pay when we borrow money in addition to the borrowed amount. The money which we
keep with banks is not kept idle. The banks lend this money to other people. Those who
borrow money from banks pay some interest.

What is the difference between essential and non-essential items of expenditure?

Essential item of expenditure is money spent on basic needs. Hence expenses on these items
cannot be avoided e.g. food, shelter, clothes, education of children, health, etc. Non-essential
items of expenditure are our wants. We want these things because we like or enjoy them but
these are not necessary for our survival.

How can we manage our money?

Management of funds is similar to how we manage the use of water in our daily life.
Sometime the municipal water may come for the whole day and sometime it may not come at
all. Do we stop using water? No! We do not stop using water, we store water when it is in
plenty and use when it is scarce. This act is called saving. Our finance is like a pitcher with a
tap for outflow at the bottom of it. The water flowing into the pitcher is our income and the
water flowing out of the pitcher are our expenses. Plug non-essential expenses and increase
your savings.

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We can manage our money efficiently by doing financial planning. As a first step of financial
planning, we should maintain a Financial Diary to keep accounts of our income and expenses
for a given period, say a week or a month.

What is financial planning?

It is an exercise of estimating our financial needs and ways to meet them during the entire life
cycle, e.g., birth of child, education, purchasing house, marriage, purchasing seeds, etc., or to
meet emergency situations like illness, accident, death, natural calamities like flood, drought,
etc.

Why should we do financial planning?

Financial planning enables us to plan in advance our likely expenses keeping in mind our
level of income. Thus it helps in two ways, one- we can save regularly a portion of our
income for meeting future needs and two- we can cut down expenses on non-essential items
with a view to save for future needs. So, we should start financial planning today so that we
are in a better position to pay off our debt and build savings to buy a house or finance higher
education with our own money. Attain your goals with financial planning.

How to do financial planning?

 Assess current financial position (Where are we today?).
 Identify our financial needs - [(What do we want to achieve in short term? (1 Year),
medium term (1-5 years ) and long term (more than 5 years)]
 Estimate the cost of each item and the date we want to achieve it. Calculate how much we
need to save each week/month.
 Maintain a financial diary - Write down weekly/monthly income and expenses.
 Curb expenses- spend sensibly.
 Review savings regularly-Whether it is as per plan? If not take a remedial action by
reducing expenses for opportunity areas to cut back spending and increase savings.
 Determine the amount saved at the end of each week/month.
 Deposit savings in a bank account or invest the amount saved.
Why maintain a Financial Diary?

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A Financial diary helps us to do financial planning. We would know how much money is
being spent on essential and non-essential items during a given month. This helps us to
identify the items on which the expenses can be avoided or reduced. Once we know it, we
can regulate these expenses. We can save this money and break the cycle of poverty. Always
think twice before spending.

Why should we save?

We should save regularly so that it can be used in times when our expenditure is more than
our income and we need more money.
 To meet higher expenses on birth, education, marriage, purchasing farm seeds, purchasing
own house, etc.
 To meet expenses on account of unexpected events like illness, accident, death, natural
calamity. During the emergencies, savings can come to rescue.
 Money is needed for lean periods i.e. when we are not able to earn.
 Money is needed for our old age.
 Money is needed to buy something which we cannot afford from regular income. In short,
when we have to spend more money than we earn, we can meet these expenses from our own
money if we have enough savings.

How to save?
We can save either by cutting expenses or by increasing our income. Presuming income is
same, we spend money for purchasing either essential or non-essential items. Essential items
are those things we really cannot do without, such as food, clothing, house repair, seeds and
farming tools, children’s education and healthcare. We need these things every day for
survival, whereas, non-essential items are ‘extras’ in life which we need because we enjoy
them. Expenses on such items can be either avoided or reduced or postponed, e.g, spending
money on drinks can be avoided whereas excessive expenses on marriage, festivals,
pilgrimage can be reduced and expenses on TV, car, jewellery, etc, can possibly be
postponed. The less we spend on non-essential items, the more we will be able to save for
essential things.

How can we save when we do not have enough money even to meet our regular
expenses?

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The common refrain is that we do not earn enough so we cannot save. The truth is that
everyone needs saving and can save. We should keep aside a portion of our earnings as
saving from day one of our earning life. The important thing is that we should start saving
early and regularly in our life, even if it is a small amount. And if we get some unexpected
profit/earning, we should save all or most of it. This will reduce our worries of future
financial needs and help us in dealing with unexpected expenses.
For how long should we save?
The longer we save, the more our savings will grow. The more we save, the more we will be
prepared for emergencies and non-working old age and not dependent on others for meeting
our needs. As our savings grow, we will not have to borrow to meet our needs. When we save
for longer periods, our savings will multiply many times as it earns interest.

What is Overdraft, how is it different from other loans?

Small Overdraft is inbuilt in the current bank account to take care of our emergent
miscellaneous needs. We can withdraw the amount up to the limit of overdraft without going
through separate documentation for availing small amount. Thus, it facilitates timely
availability of money in cases of emergencies. We are required to pay the interest on the
amount of overdraft as it is a loan given by the bank.

What is the difference between income and credit?

Every credit or a loan needs to be paid back. It is not to be treated as money earned or
income. When we earn the money from salary or wages, etc. it is our income whereas credit
or loan is not our income. On the other hand, repayment of the instalments of credit is an
expense.

When do we borrow?
We borrow money when our expenditure is more than our income or when there are
emergencies. We also borrow when we need money for undertaking some business activities.

Should we always borrow whenever short of money?

Do not borrow for meeting consumption expenses like celebrating festivals, lavish wedding,
buying jewellery or costly consumer durables. If we have to spend money on these items,
spend it from our income or accumulated savings. Use our current income or savings for

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consumption expenses. If we are forced by circumstances to borrow for consumption, first
assess how much we can repay out of our current income. Consumption expenses do not give
any income, then how will we repay the loan? On the other hand, we would be borrowing
again and again from different sources for repaying earlier loans and would fall into the debt
trap. Learn to manage your debt, otherwise debt will damage you.

Why it is advisable to borrow only for income generating activities?

It has to be kept in mind that when we take a loan, it has to be repaid back with the interest.
So, while borrowing, we should always assess our repaying capacity. When we borrow for
undertaking some business activities it will enhance our income, then we can repay the loan
out of income generated. Borrow for undertaking an activity which enhances your
income. they: Financial literacy is a family affair
GOOD DEBT
Debt incurred as a result of an investment that will grow in value or generate long-term
income.
BAD DEBT
Debt incurred to purchase things that:
• Quickly lose their value

• Do not generate long-term income and

• Have a high interest rate, like credit card debt.

Why borrow within limits?

Any loan taken by us has to be repaid back with the interest. Make sure we are earning
enough to pay back the loan. A simple way to check is look at our income, expenses and
savings every month. The savings should be more than our monthly instalment of repayment
of loan.

Financial literacy is a family affair.

Help your kids develop positive lifelong financial habits by talking to them regularly about
money and encouraging them to save for things they want.
Regardless of your current age and circumstances, decide when you would like to retire, how
much income you will need to continue your lifestyle and what steps you should take today to
make it happen.

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PERSONAL BALANCE SHEET SHOWING HOW TO CALCULATE NETWORTH

ASSETS  =N=
CASH (CONTINGENCY FUNDS)
SAVINGS BANK ACCOUNT 500,000
FIXED DEPOSIT 1,000,000
LIQUID MUTUAL FUNDS 1,500,000
TOTAL CASH 3,000,000
 
INVESTMENTS
GOVERNMENT BONDS 5,000,000
CORPORATE BONDS 3,000,000
GOLD 3,000,000
EQUITY SHARES 10,000,000
REAL ESTATE 40,000,000
TOTAL INVESTMENTS 61,000,000
 
OTHER ASSETS
CAR 4,000,000
JEWELRIES 2,000,000
LOAN TO FRIENDS AND FAMILY 0
OTHER DEBTORS 0
TOTAL OTHER ASSETS 6,000,000
 
TOTAL ASSETS 70,000,000
 
LIABILITIES
SECURED LOANS
HOME LOAN 19,000,000

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 CAR LOAN 1,000,000
TOTAL SECURED LOANS 20,000,000
 
UNSECURED LOANS
EDUCATIONAL LOAN 0
PERSONAL LOAN 0
CREDIT CARD LOAN 0
TOTAL UNSECURED LOANS 0
 
OTHER CREDITORS
LOAN FROM FRIENDS AND FAMILY 0
OTHER LOANS 0
TOTAL OTHER CREDITORS 0
 
**NET WORTH 50,000,000
 
LIABILITIES + NET WORTH 70,000,000
** Net worth is the difference between Total assets and Total Liabilities

FINANCIAL FREEDOM BASICS

In the quest for financial freedom which everyone is eager to have, there are so many
questions which ought to be answered. Some important questions to be answered are listed
below:

i) Do you know your financial net worth or condition?

ii) Are you satisfied with your current financial condition?
iii) Are you aware of the simple ways to increase your financial condition or net
worth?
iv) Do you have enough savings to see you through three months of normal living
expenses?
v) Have you formed the habit of saving a part of your income every month?
vi) Do you have well defined personal financial goals?
vii) Do you spend less than you earn?
viii) Do you have a personal/household budget?
ix) Are you successful in the budget management?
x) Do you have any asset/investment that generates extra income for you?

Attitudes of The Rich and The Poor

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Scenario 1

Poor: “I cannot afford it”

Rich: “How can I afford it?”

The statement I cannot afford it shuts down one’s thinking. By asking the right questions,

one’s mind opens up and looks for answers.

Scenario 2

Poor: “Pay myself last”

Rich: “Pay myself first”

The rich always take a percentage off the top of any income they earn. They put this money
into an investment account that goes to the purchase of their assets. The poor spend all their
money first and never had any remaining for investment.

Scenario 3

Poor: Believe that the company you work for or the government should take care of your
financial needs.

Rich: Believe in financial self-reliance and financial responsibility.

Scenario 4

Poor: Focus only on academic literacy.

Rich: Focus on financial literacy and academic literacy.

Scenario 5

Poor: “I work for my money”

Rich: “My money works for me”

Scenario 6

Poor: Thought that making more money would solve his financial problems.

Rich: Knows that financial literacy is the answer to his financial problems. It is not how
much money one makes that is important, but how well the money is invested.

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  Understanding these differences in attitude is essential in taking the first step to
financial freedom.

THE RAT RACE

The rat race is simply the race that the poor and the middle class are trapped in, trying to
make ends meet. In order to get out of the rat race, one needs to think like the rich.

The Poor thinks “how can I work harder so that I can buy and have more of the good
things of life?”

The Rich thinks “how can I acquire more assets that will pay for the good things of life
that I want to buy and have?”

NOTE: The Poor acquire LIABILITIES, the Rich acquire ASSETS.

LIABILITIES are items acquired that take money away from your pockets.

ASSETS are items acquired that put money into your pocket.

INCOME STATEMENT

S/NO INCOME =N=

1 Salary 33,000
2 Business  
3 Passive Income  
4 Donation/Gifts  
5 Bonuses  
  TOTAL INCOME 33,000
     
  EXPENSES  
1 Feeding 5,000
2 Accommodation 3,000
3 Transportation 1,900
4 Loan Repayment 4,000
5 School fees 4,000
6 Home Expenses 2,000
7 Gifts/Donations 1,000
8 Other Expenses 1,000
  TOTAL EXPENSES 21,900
  *CASH FLOW 11,100
*Cash flow is the difference between Total Income and Total Expenses.

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This is the money one has worked hard to earn and save. To get out of the rat race, your
money has to work for you.

BALANCE SHEET

ASSETS =N=
SAVINGS 264,200
SHARES/STOCKS 125,800
REAL ESTATE 800,000
TOTAL ASSETS 1,190,000
 
LIABILITIES
MORTGAGE LOAN 600,000
OTHER LOANS 25,000
OTHER EXPENSES OWING 15,000
TOTAL LIABILITES 640,000
*NET WORTH 550,000
TOTAL LIABILITES + NETWORTH 1,190,000
*Networth is the difference between Total Assets and Total Liabilities

To know if your money is working for you, check your assets column. If your assets column
is empty, that means none of your money is working for you.

ASSETS VS LIABILITIES

Assets are things that put money into one’s pockets.

Liabilities are things that take money out of one’s pockets.

Types of Assets

Three types of asset classes can be identified:

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 i) Paper Assets: These include shares, stocks, bonds, mutual funds etc. These create
Portfolio income.
ii) Real Estate: Residential properties you do not live in and commercial properties
e.g. Shopping Mall. These create Passive Income.
iii) Businesses: These also create Passive Income.

The Cashflow Quadrant

E B
S I
Active Income Earners (They work for money)

E = Employee: They exchange their time and efforts for an income. When they did not
work, they will not get paid.

S = Self Employed: They work for themselves but cannot take holidays because their
business cannot keep going without them.

Passive Income Earners (Money works for them)

B = Business Owner: These people have people working hard for them to generate
income.

I = Investor: They are the people who have money working hard for them. They
determine how they spend their time and their money without let or
hindrance.

Everyone resides in at least one quadrant and the quadrant where one resides determines the
what type of efforts generates income for the individual.

Types of Income

i) Earned income: This is income from job/employment or from rendering of

services.
ii) Passive Income: This is income derived from assets which yield rental income.

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 iii) Portfolio Income: This is income from Paper assets such as shares, stocks, bonds,
mutual funds etc.

The Cashflow Pattern

Income

Expenses

Assets Liabilities

The Cashflow Pattern of the Poor

Expenses

The Poor spend every money they make and have no assets but only liabilities. The cashflow
pattern of the poor reflects income from a job that is used to pay expenses like food, rent,
clothes, transportation etc.

The Cashflow Pattern of the Middle Class

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 Expenses

Liabilities

Individuals in the middle class accumulate more debts as they become successful. Extra
income qualifies them to borrow more so that they can acquire their dream vacation holiday,
big cars etc. They use their income in paying for current expenses and repayment of debt.
This is rat race.

The Cashflow Pattern of the Rich

Income

Assets

The Rich have their assets working for them. They have gained control over their expenses
and focus on acquiring assets.

THE GROWTH OF MONEY

The principle of growing money is a principle that only the Rich understood and practice it
consistently with discipline. The principle is simply the Principle of Compounding Value.
A good example of this is Treasury Bills.

The formula is s

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FV = Principal x (Rate)n

Where FV = Future value of Investment

Principal = Amount of money you invested

Rate = Rate of Return

n= Number of times the interest rate is applied

Note that rate of return is expressed in decimal format. For example

5% 1.05
10% 1.1
25% 1.25
50% 1.5
100% 2
If for example, someone invests the sum N10,000 with 10% compound interest annually for
five years, what will be the value at the end of five years?

FV = 10,000 x (1.1)5

FV = 10,000 x (1.1 x 1.1 x 1.1 x1.1 x 1.1)

FV = 10,000 x 1.61051

FV = 16,105.10

Contrasted with a situation where simple interest is applied, FV will simply give you

10,000 x 0.1 = 1,000 interest annually

1,000 interest for 5 years = 5,000

10,000 + 5,000 = 15,000

Compounding value gives 16,105.10 while simple interest value gives 15,000.

Parkinson’s Law: Expenses Rise to Meet Income

The law was developed by a C. Northcote Parkinson, an English writer many years ago and
explains why people retire poor. The law says that no matter the level of income, people tend
to spend the entire amount and a little bit more. Their expenses rise in lockstep with their

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income. Many people are earning today several times what they were earning at their first
jobs. Somehow, they need every penny to maintain their lifestyles.

The first corollary of Parkinson’s Law says financial freedom comes from violating
Parkinson’s Law. It is only when you develop sufficient will power to resist the powerful
urge to spend everything you make that you begin to accumulate money and move ahead of
the crowd.

The second corollary of Parkinson’s Law is if you allow your expenses to increase at a
slower rate than your income and you save or invest the difference, you will become
financially free in your working lifetime.

CREATING A FINANCIAL PLAN

A financial plan is simply a budget which shows the total plan of income receivable and
expenses to be incurred. Budget preparation has some merits which include:

i) Budget allows you control your money instead of money controlling you.
ii) Budget helps you meet your savings goal. It has a mechanism for setting aside
money for savings and investment.
iii) Budget helps the family focus on common goals.
iv) Budget helps you prepare for emergencies or unanticipated expenses.
v) Budget can help you stay out of debt and come out of debt.
vi) Budget can be used to drive your goals and dreams towards financial freedom.

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PERSONAL/FAMILY BUDGET FORMAT

Monthly Budget Monthly Actual

Category Amount Amount Difference
Income:      
Salary      
Bonuses      
Interest Income      
Dividend Income      
Others      
Total Income      
       
Expenses:      
Mortgage/Rent      
Utilities      
Cable TV      
Telephone      
Home Repairs      
Car Repairs      
Car Fuelling      
Car Maintenance      
Car Insurance      
Children
Expenses      
Computer
Expenses      

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 Entertainment      
Household Items      
Clothing      
Healthcare      
Loan Interest      
Tax      
others      
Total Expenses      
Net Income      

INSIGHTS INTO ENTREPRENEURSHIP

An entrepreneur is a person who sets up business or businesses, taking on risks with the aim
of making profit.
Entrepreneurship is therefore the process of designing, launching and running a new business,
which is often a small business. People who create these businesses are called entrepreneurs.
 An entrepreneur is an initiator, a challenger and a driver. He is someone that creates
something new and transforms a new idea into reality.
 An entrepreneur is the person in charge. He pushes forward and inspires a team to
follow. He sits in the driver’s seat and has the ability to change direction of a venture.
 An entrepreneur is driven by unquenchable passion for business success.
Necessity for Entrepreneurship
Having a single source of income in today’s Nigeria especially paid employment has become
almost insufficient to meet the ever-increasing financial commitments of daily living.
Therefore, there is an urgent need to diversify the single source of income to multiple sources
of income.
Entrepreneurship therefore is the KEY or GATEWAY to diversifying the sources of income.
How to go about entrepreneurship?
 The major consideration before going into entrepreneurship is the conceptualization
of products or services that are problem solving which people are ready to pay for. In
order words, there is a market demand for the products or services. (This is done
through market survey or from market research).
 There may be need to get well trained or acquired a new skill in the market niche
which we may be targeting.

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  Have a good plan for marketing and market penetration.
 Good pricing mechanism for competitive advantage
 Outlets of making products/services available to customers
 Customer loyalty reward programme.
Business Model
The best business model for any start up is to start the business on a small scale and then
build it up to a large scale through continuous learning and experience. Furthermore, research
into new and efficient means of product/service delivery to meet customers’ satisfaction is
essential for success.
Other important things to consider may include
 Mentoring for start ups
 Avoid unrealistic targets e.g. targeting a sales of N10,000,000 in the first month of
operation or a profit of N6,000,000 in the first month of operations.
 Monitoring and control of business processes and procedures is essential.
 Accessing funding opportunities through Bank of Industries (BOI) or other funding
agencies.
 Registration with relevant statutory agents of government is important.
 Sound management of finances in such a way as to avoid financial mismatch.
CONCLUSION
Anthony Robbins said “there is a powerful driving force inside every human being that once
unleashed can make any vision, dream or desire a reality.”
Go and unleash the powerful driving force that is inherent inside of you and make the
difference you have long waited to see in your life.

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