Chapter 1

THE PROBLEM AND REVIEW OF LITERATURE

BACKGROUND OF THE STUDY

The idea of personal finance has been described in the

literature as the awareness and use of financial knowledge

in our day to day economic activities. It is therefore the

application of financial knowledge and terminologies by

individuals in order to make a rational decision. Many

academic researchers in the field of personal finance have

chosen to define the concept as “the ability to make

informed and efficient judgment regarding the use and

management of money (Schagen and lines, 1996). Personal

finance literacy is however conceptualized on certain

critical areas in finance such as savings and borrowing,

interest rate, budgeting and financial knowledge (Chen and

volpe, 1998; Remund, 2010).

“Financial literacy is a necessary life skill. The

simplest human activity requires financing and life brings

with it various risks. At the individual level, financial

literacy, and its eventual translation into financial

capability, enables us to save, prepare for the future, and

manage economic/financial shocks,” said Pia Bernadette

Roman-Tayag, managing director of the Inclusive Finance

Advocacy Office and the Financial Consumer Protection

Department at Bangko Sentral ng Pilipinas (BSP). The need

for financial literacy becomes inevitable since today‟s

world markets are full of complicated products. Considering

the spending habit of people and the desire to have every

material thing, it is therefore imperative to inculcate

financial literacy among people. Senior high school and

college students in recent times tend to have easy access

to funds, but on the contrary have proven to have

inadequate financial literacy and as a result have become

impulsive buyers (Danes, Huddleston and Boyce, 1999). The

inadequate personal finance among Senior High School

students then has undesirable effects on student’s decision

making. The issue of personal finance therefore must be

given the needed attention as students would be facing the

realities of economic hardships after school. This implies

that there is the need for senior high students to be

equipped with financial literacy in order to achieve some

degree of financial autonomy.

 In the 2014 book Financial Education for Youth: The Role

of Schools, the Organization for Economic Cooperation and

Development notes that incorporating financial education

into the formal school curriculum is one of the most

efficient and fairest ways to reach a whole generation on a

broad scale. “In addition, since the curriculum spans

several years and can start as early as kindergarten, it is

unique means to inculcate and nurture a sound financial

culture and behaviors among future adults,” the

organization adds. Senior high school students in the

Philippines are not exposed to basic personal finance

literacy before completion as the school curriculum places

emphasis on getting admission to tertiary institutions

rather than inculcating financial 3 literacy such as money

management, investments, mutual funds, insurance and taxes

into the syllabus.“As the world faces further economic

uncertainty, it is important that we equip our children

with the financial literacy skills they need to make wise

decision about how they spend and save their money.” Simon

Martin, Head of Group Corporate Sustainability at HSBC.

REVIEW OF LITERATURE
Financial Literacy. Although the concept has been defined

in various contexts in the literature, the definitions

however differ in relation to what the definition seeks to

achieve. This implies that there is no specific definition

for financial literacy or there is few generally-accepted

definitions and conceptual framework of personal finance.

According to (Noctor, Stoney, and Stradling; 1992),

financial literacy is the ability to make sound decisions

regarding the use and management of money. Thus, effective

decisions taken in relation to the use and control of money

(Schagen and Lines 1996). Defining the concept in this

context suggests that the definition is narrowed as

emphasis is placed on management of money.The concept can

also be looked at from a broader perspective as OECD (2005)

defines financial literacy as “the process by which

individuals improve their thought about financial concepts

through communication and instruction to make individuals

confident and aware of financial risks and opportunities so

as to achieve financial well-being.

Remund (2010) tries to conceptualize the definition of

personal financial literacy into five categories which

include; knowledge of financial concepts, ability to

communicate about financial concepts, aptitude in managing

personal finances, and skill in making appropriate

financial decisions, and confidence in planning effectively

for future financial needs. This implies that financial

literacy goes beyond the effective use and management of

money and considers other important areas in finance. For

the purpose of this study, financial literacy is defined as

the combination of awareness, understanding, knowledge and

use of financial concepts to make sound financial

decisions.

IMPORTANCE OF FINANCIAL LITERACY. Financial literacy equips

people with requisite information and ideals needed to make

sound decisions with accuracy to manage financial resources

and to improve financial capability to call for better

financial services (Ali, 2013). The concept then enables

people to be prudent in all financial engagements. A

persons‟ level of education does not necessarily correspond

with how individuals understand and apply the concept in

their human endeavors. It is therefore prudent for all and

sundry to pay attention to personal finance literacy since

an in-depth knowledge in financial literacy tends to have a

direct impact on the management of the economy (World Bank,

2009).

Financial education is one of the most concerned issues

confronted by many economies since financial decisions have

become very difficult to make or challenging. The

proliferation of financial products available on the market

then urges consumers to make informed choices in order to

achieve a maximum satisfaction. This calls for consumers to

be more financially literate in order to improve decision

12 making. Financial literacy and its education then become

imperative since consumers are faced with intriguing

financial decisions or complicated products. In general,

learning financial literacy earlier in life could lead to

essential benefits in the long run as it enables

individuals to withstand any financial distress that would

be encountered.

FINANCIAL LITERACY IN THE PHILIPPINES. Although there are

several empirical studies on financial literacy in most

advanced economies, there is limited research and evidence

on financial literacy and its effects on financial decision

in most developing economies including the Philippines.

There is therefore a financial literacy gap between the

advanced economies and developing economies.

In a financial capability survey implemented by the

World Bank in 2014 as part of a broader engagement on

enhancing financial consumer protection and financial

education in the Philippines, a sample of 3,000 adults were

asked to answer seven questions dealing with basic calculus

and financial concepts (simple interest rates, inflation,

compound interest, risk diversification and the main

purpose of insurance products) to gauge their financial

knowledge and basic numeracy skills. The results were

dismaying. On average, the respondents were able to answer

only 3.2 out of the seven financial literacy questions

correctly. And 10% of them got six questions right, and

only 2% managed to get a perfect score. It’s evident from

these surveys that the financial literacy of the Filipinos

is lacking, and it should be a cause for great concern.

To enhance the financial literacy of the Filipinos, BSP

started an initiative called the Economic and Financial

Learning Program (EFLP), which consists of 10 learning

programs designed for specific audiences: children, college

students, the working sector, investors, overseas

Filipinos, and select unbanked sectors. More recently, the

central bank, the Department of Education (DepEd) and BDO

Foundation joined forces to develop financial literacy

materials for an estimated 24 million students and around

700,000 teaching and non-teaching personnel in more than

47,000 public schools nationwide.

 The partnership forged by the three institutions can be

a model for the kind of collaboration that the government

and the private sector should have to better tackle the

financial literacy issue. “BSP provides overall direction

through its National Strategy for Financial Inclusion. BSP

also contributes to the content and materials development.

DepEd, on the other hand, handles the pedagogical aspect by

incorporating financial literacy into the curriculum,

contributing ideas into the development of the videos,

developing the lesson plans and discussion guides, and

actually rolling them out within the entire public school

system. BDO Foundation, for its part, lends its expertise

and financial resources to the project and handles overall

project management,” Mr. Deriquito explained. The National

Strategy for Financial Inclusion he mentioned was launched

in 2015 to optimize collective efforts toward financial

inclusion in the Philippines. It provides a platform for

the private sector to support the government in improving

the financial literacy of the Filipinos through financial

education. A tenet of the initiative is that a well-

informed and adequately protected public is critical to

realizing financial inclusion. Ms. Tayag also states, “We

think that financial education, financial inclusion as well

as consumer protection should be a collective

responsibility. This is an issue which requires all hands

on deck,” .

FINANCIAL LITERACY AND FINANCIAL BEHAVIOR.The existing

literature in the field of personal finance has established

the link between financial literacy and financial

behaviors. Bernheim (1995, 1998) concludes that the lack

the basic personal financial literacy and consequently

deploys crude rules of thumb when measuring saving

behavior. Several empirical studies have proven that a

positive relationship exists between personal financial

literacy and financial behavior. Hilgert, Hogarth and

Beverly (2003) develop “Financial Practices Index” which

places emphasis on basic concepts in money management. The

results of the index indicate that there is a direct

relationship between personal finance knowledge and

financial behavior. Personal finance literacy therefore has

an important effect on financial behavior. It is therefore

an important factor which plays a vital role in sound

decision-making and youth of today wish they had in

abundance.

FINANCIAL EDUCATION AND FINANCIAL BEHAVIOR. Although

financial behavior tends to have direct relationship with

financial literacy, the impact of financial education on

personal finance behavior is not certain. This 18 means

that there are some doubts as to how financial education

affects financial behavior (Lyons, Palmer, Jayaratne, and

Scherpf, 2006). This shows that there is variation in

opinion with respect to effects of financial education and

its consequences on financial behavior. According to

Bernheim, Garrett and Maki (2001) students who studied

financial management course in high school have proven to

have higher propensity to save compared to others. Mandell

(2006) on the other hand indicated that well-planned high

school personal finance course tends to have less

significance on students behavior especially from 1 to 5

years after completion

COST OF FINANCIAL IGNORANCE. According to Sanderson Abel

(2014), the phrase “financial illiteracy” describes the

widespread inability of individuals to understand key

financial concepts and manage their personal finances

wisely. Financial illiteracy is costly to both

individuals and society. The cost of financial illiteracy

can be viewed from various angles: forgone savings and

investment opportunities, lives shattered by financial

loss or bankruptcy, higher prices than necessary paid for

goods and services, dreams and aspirations that go

unfulfilled, and marital discord about money. The

collective loss resulting from common financial errors is

tremendous and quite devastating.

The lack of financial literacy may prohibit

individuals from becoming productive members of the

economy and society much like the inability to read or

write disadvantaged earlier generations. Financial

illiteracy handicaps anyone seeking to become financially

secure and the country as whole, examples include low

savings rates, stock market panics, and increased

potential for fraud. Costly financial errors that people

make due to financial illiteracy include high debt loads,

substantial income unaccounted for, inadequate insurance,

lack of investment diversification, insufficient use of

tax-favored investments, inadequate emergency funds, lack

of clearly defined goals and/or savings earmarked to

achieve them. If financial literacy is the gift that keeps

giving, financial illiteracy is the endless cycle of

compounding costs and dwindling savings.

THEORETICAL FRAMEWORK
 The theoretical construct predominantly used when

studying financial decisions and resource management

practice is systems theory (Goldsmith, 2005). The present

research used family resource management theory (Deacon and

Firebaugh, 1981), based in systems theory, to understand

the financial management practices of college students. The

four stages (inputs, throughputs, outputs, and feedback

loop) in the family resource management model explain how

people make financial decisions and develop financial

behaviors.

CONCEPTUAL FRAMEWORK

This study is entitled “The Need to Implement Financial

Literacy as a subject to Senior High School Students of

Father Saturnino Urios University”. Upon the completion of

this study the researchers have the objective to provide

knowledge to senior high school students regarding the

significance to have a financial literacy subject on their

curriculum.

The study will involve grade eleven and grade twelve

senior high school students of Father Saturnino Urios

University- Pueblos S.Y. 2019-2020; that of which are

composed of 50 respondents. The researchers will survey

about how the senior high school students budget their

allowances, Do they put a side money for savings or are

they taught how to budget or save money?

Based from that survey the statistician would transcribe

the tally and would determine if the government should

implement financial literacy subject on senior high school

or not. The conclusion and results discussion of the

research will depend on the responses given by the

respondents and the data that would be gathered from them.

STATEMENT OF THE PROBLEM

The Republic Act 10922 emphasizes financial literacy as

an integral part of learning and promotes its awareness and

enhancement . This study supports this Act and sought to

answer the following:

1. Why is financial literacy important?

2. Why is there a need for it to be implemented as a

subject to Senior High School students?

3. How does a student’s knowledge in personal finance

influence his or her opinions and decisions?

SIGNIFICANCE OF THE STUDY

The result of the study will be of great benefit to the

following:

Senior High School Students. This result will provide the

students a knowledge about being a financially literate, in

which they will know how to budget, save, and if possible,

invest.

To those people interested. This result will provide young

adults and adults how to properly account their salaries,

wages and income.

To Future Researchers. The outcome of this study will be

used by students as their future reference for the

development of studies related to the topic of this

research.

SCOPE AND LIMITATION OF THE STUDY

The focus of this study is to conduct an empirical

overview of financial literacy among Senior High School

students. This study however focuses on some selected

Senior High School in Father Saturnino Urios University

since the area is full of people with diverse background

and as a result gives the true reflection of personal

finance literacy of senior high school students in Butuan

City. The study needed to have been conducted within one

Semester. In addition, only Grade eleven and Grade twelve

students are used for this study due to the fact that

Senior High School contains only two grade level. The

questionnaire to be used in this study is inherently

limited in scope. However, the needed information required

for the survey was collected irrespective of the above

mentioned limitation.