FINANCIAL LITERACY

A. THE BENEFITS OF FINANCIAL LITERACY

Financial literacy consists of several financial components and skills that allow an individual to gain knowledge
regarding the effective management of money and debt.
Being financially literate allows an individual to be better prepared for specific financial roadblocks, which, in turn,
decreases the chances of personal economic distress.
Achieving financial literacy is crucial in today’s society due to everyday facets of life, such as student loans,
mortgages, credit cards, investments, and health insurance.
Fundamental Components of Financial Literacy
1. Budgeting
2. Investing
3. Borrowing
4. Taxation
5. Personal Financial Management

BUDGETING
50-30-20 METHOD
50% - NEEDS
~ EX. UTILITY, FOODS, SHELTER, ETC.
30% - WANTS
~ EX. GADGET UPGRADE, NEW UNNECESSARY CLOTHES, ETC.
20% - SAVINGS
~ EX. HEALTH SAVINGS, PERSONAL SAVINGS, ETC.
FORMULAS
WANTS = W = (P)(.50)
NEEDS = N = (P)(.30)
SAVINGS = S = (P)(.20)
EXAMPLE: Suppose you have monthly after-tax income amounting to 25,000 php. Using the 50-30-20 method identify
your budget in your needs, wants, and savings.

INVESTING
FORMULA : I=PRT
I = INTEREST
P = PRINCIPAL
R = RATE
T = TIME

If Principal (P) or Rate (R) or Time (T) is missing.

P = I/RT
R = I/PT
T = I/PR

SIMPLE INTEREST
The formula for the simple interest I earned on the amount of an investment (that is, the "principle") P
with an interest rate of r over a time period t is I = Prt.
In the simple-interest formula I = Prt, the variable I stands for the interest earned on the original
investment, P stands for the amount of the original investment, r is the interest rate (expressed in decimal
form), and t is the time (usually in terms of years).
For annual interest (that is, for interest that is stated in terms of a percentage per year), the time t must
be stated in years. If they give you a time of, say, nine months, you must first convert this to
9/12=3/4=0.75. Otherwise, you'll get the wrong answer.

EXAMPLE:
You put $1000 into an investment yielding 6% annual interest; you left the money for two years.
How much interest do you get at the end of those two years?
The invested amount (that is, the principal) of my investment is P = $1000, the interest rate
(expressed in decimal form) is r = 0.06 per year, and the amount of time is t = 2. Substituting these values
into the simple-interest formula, I get:
I=PRT
I = (1000)(0.06)(2) = 120
I will get $120 in interest.

BORROWING
I = INTEREST
P = PRINCIPAL
R = RATE
N = Number of periods
T = TIME

NUMBER OF PERIODS
DAILY = T(365) MONTHLY = T(12)
QUARTERLY = T(4) SEMI-ANNUALLY = T(2)
ANNUALLY = T(1)

TO FIND THE MONTHLY INTEREST

MI = PRT/N

1. Car Loans
Car loans are amortized monthly, which means that a portion of the loan goes to pay the outstanding loan balance every
month, and the remainder goes toward the interest payment.
As the outstanding loan balance diminishes every month, the interest payable reduces, which means a greater part of the
monthly payment goes toward the principal repayment.
For example, assume you have a car loan for $20,000. Your interest rate is 4%. To find the simple interest, we multiply
20000 × 0.04 × 1 year. So, by using simple interest, $20,000 at 4% for 5 years is ($20,000*0.04) = $800 in interest per
year.
The total payment due would be $800/year * 5 years + $20,000 = $24,000. Then, the monthly interest is $800 / 12 =
$66.67. You take the total monthly payment which is calculated as $24,000 / 60 months = $400 payment/month. Thus, the
principal payment would be $400 - $66.67 = $333.33, each month.

GIVEN:
P = $20,000 R = 4% = 0.04
N = MONTHLY = T(12) = 60 T = 5 YRS

FORMULA:
MI = PRT/N

SOLUTION:
MI = PRT/N
MI = ($20,000)(0.04)(5)/(60)
MI = $4000/60
MI = $66.67

TAXATION
Value Added Tax
Also called VAT, this tax is imposed on the sale of goods and services. It is levied on the value added to a product or
service at each stage in its production or distribution and ultimately passed on to the final consumer.

VAT RATE
Sales of good and properties 12%
Sales of services 12%
Importation of goods 12%

How value-added tax (VAT) works

Value-added tax is typically a percentage of the sale price. For example, if you purchase a pair of shoes for $100, and the
value-added tax rate is 20%, you will pay $20 in VAT at the register when you pay for the shoes.
~ The value-added tax rate varies by country.
~ Some countries exclude certain goods or services from the tax.

Tax rates in the Philippines

The following tax rates apply to individuals and companies in the Philippines:
– the personal income tax, which is levied at rates between 5% and 32%;
– the corporate tax which is levied at a 30% rate;
– the VAT which has a standard rate of 12%.
EXAMPLE:
"If taxable income for the year for example resulted to 1,000,000, tax due will be 152,500."
1,000,000 falls under the 800,000 lower limit bracket. Basic amount will be 102,500. The excess 200,000 should be
multiplied by 25%. You’ll get 50,000. Therefore,
102,500 + 50,000 = 152,500 tax due
Individuals Earning Purely Compensation Income shall be taxed on the income tax rates prescribed above.

BENEFITS OF FINANCIAL LITERACY

1. You gain control
2. Eliminating and avoiding debt
3. Value financial goals
4. Being able to identify fraud

B. FINANCIAL LITERACY IN THE PHILIPPINES

MANILA – The Bangko Sentral ng Pilipinas (BSP) has vowed to bridge financial literacy gap among Filipinos by
educating them on the importance of being “financially healthy”.

45th anniversary of BPI (Bank of the Philippine Islands) Foundation

  BSP Deputy Governor Bernadette Romulo-Puyat underscored the crucial role of financial education in
building a sustainable and equitable financial system.
 Romulo-Puyat said that through financial education, Filipinos will be empowered to be financially
healthy —one who can meet the financial needs and obligations, absorb financial shocks, reach financial
goals, and achieve financial control and security.
 However, the Philippines is in the bottom 30 out of 144 countries in terms of financial literacy according
to a global study, while a BSP survey showed that only 1 percent of surveyed Filipino adults correctly
answered questions on financial literacy.
 Considering these gaps, how can we further promote financial health?
- The answer lies in financial education.

Romulo-Puyat cited BSP’s initiatives to bridge financial literacy gap among Filipinos.
 First, by collaborating with industry partners like BPI Foundation in equipping Filipinos with
a strong foundation in personal finance.
 Second, the BSP partners with the public and private sector in producing and distributing
learning modules.
 Third, it conducts seminars for teachers to provide them essential financial knowledge in
teaching education financial literacy among students.
 Lastly, the BSP has developed a future-oriented approach by launching Personal Finance 101

C. DEVELOPING PERSONAL FINANCIAL LITERACY

Financial literacy is the ability to understand and effectively use various financial skills, including personal
financial management, budgeting, investing, and understanding various financial products.
Here are some examples to help illustrate the concept:
- Budgeting: Creating and following a budget to manage income and expenses effectively.
- Investing: Understanding different investment options such as stocks, bonds, and mutual funds, and making
informed investment decisions.
- Credit management: Knowing how to use credit responsibly, understanding credit scores, and managing debt
effectively.
- Financial goal setting: Setting specific, measurable financial goals and creating a plan to achieve them.
- Understanding financial products: Being knowledgeable about different financial products such as savings
accounts, retirement accounts, and insurance options.
Financial literacy is important for making informed financial decisions and achieving long-term financial
stability. It empowers individuals to manage their money effectively and build a secure financial future.

Group 3:
Financial Literacy Reporters
Jovelyn Toledo (THE BENEFITS OF FINANCIAL LITERACY)
Zel Joy Magdamit (FINANCIAL LITERACY IN THE PHILIPPINES)
Alyssa Navarro (DEVELOPING PERSONAL FINANCIAL LITERACY
Beverly Jane Macasieb (DEVELOPING PERSONAL FINANCIAL LITERACY