Financial Literacy

If you take a look at the ongoing confusion regarding the country’s pre-need industry, one thing you’ll notice is how a lot of otherwise well-educated, well-trained and hardworking Filipinos are in a state of shock / denial regarding the possible loss of their investments.  There is also a great sense of fear and uncertainty as no one is 100% sure as to the state of the different pre-need companies.  People are scared and don’t know what to do.  Now, I have already detailed some possible actions that can be done now in a previous post so I won’t go into that here.  Rather, I will examine the underlying cause behind situations like this and what we, as a people, can do about it.

Put simply, our country has an extremely low level of financial literacy.  Ask the average person and they will probably not know about stocks, mutual funds, real estate, FOREX products, UITF’s, VUL’s and private banking products.  For most people, their exposure to the world of Finance only extends as far as bank deposit products and a life insurance plan or two.  Very few people actually take the time to actively manage their own finances.  Seriously, ask yourself and the people around you when was the last time you sat down and figured out where to place your money?  Yesterday?  Last month?  Last year?  Since that time, have you updated yourself on how your money has been performing?  Are you ahead?  Behind?  On schedule?  Most importantly, what do you plan to do next given the current financial crisis?  Now, admittedly, that all seems like a lot to take in at once.  Especially if, like most people, you were never taught about these things in school. In most schools, subjects about Finance are generally only offered to Business or Management students.  Furthermore, the books and materials used often assume an American financial system and a lot of the conditions prevalent there do not apply here.  The way I see it, what generally happens is that while our schools teach our people the skills they will need to earn a salary, very few of them teach students what to do with the salary that they will ultimately earn.  Put another way, the sad fact is that the majority of our people learn about Finance in one of two ways — either through a haphazard collection of books / seminars (Kiyosaki anyone?) or when they get “scammed”.  (By “scammed”, I mean not only true scams like Ponzi or Pyramiding but also legitimate instruments that people buy without understanding what they can do and when they lose money they still end up feeling victimized — UITF’s, stocks, mutual funds to name a few.)

So where does that leave us then?  The short answer is that we have to educate ourselves as fast and as early as possible.  “Fast” because if you have never sat down and prepared your own financial plan, then the ugly truth is that you do have a lot of catching up to do.  Consequently, you also have to do it as early as possible since you will want to give yourself time to recover from any mistakes — and trust me, everyone makes mistakes.  The only question then being can you recover from the mistakes you will make?

With all of that said, succeeding posts in this blog will tackle the common (and not-so-common) investment instruments that are available here in the Philippines.  Specifically, we will talk about stocks, mutual funds, UITF’s, Insurance, Pre-Need, bank products and real estate.  For each product, we will discuss the risks, the rewards and common mistakes to avoid when dealing with that particular product.  Next, we will tackle the practical side of each product as in how do you actually put money into them  and, most importantly, how do you get your money back?  Lastly, we will discuss the suitability of each product for different situations so that people can better determine which product fits their need the best.

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