Financial literacy — the water in the ecosystem



Diwa C. Guinigundo Diwa C. Guinigundo

Bill Gates’ definition of what education is all about is arguable but Bill Gates’ own narrative is unchallenged: “Research shows that there is only half as much variation in student achievement between schools as there is among classrooms in the same school. If you want your child to get the best education possible, it is actually more important to get him assigned to a great teacher than to a great school.”

But we don’t think this is immediately possible in the Philippines if we are to give credence to — and there is no reason why we should not — to the pioneering research paper from the great staff of the Department of Economics of Cebu Normal University, Imelda C. Montalvo, Angeline M. Pogoy, Gwendolina A. Villarante, and Genalen M. Pepito. Their paper received excellent feedback from the first Asia Pacific Financial Education Institute held in Singapore a few weeks ago. The same paper was published by the Journal of Global Economics.

The buzzword is financial literacy.

Using Annamaria Lusardi’s analogy, financial literacy is the water in the ecosystem. All of these financial innovations in payments and settlements infrastructure are all just tools. Bill Gates has this to say: ”In terms of getting the kids working together and motivating them, the teacher is the most important.” Even Albert Einstein had an extremely high regard for teachers. For him, it is their task to awaken joy in creative expression and knowledge. And the best metric of pedagogic success is for teachers to be able to say, as Maria Montessori once quipped, “The children are now working as if I did not exist.”

So our economists and teachers from Cebu decided to focus on the state of financial literacy among our teachers in Luzon, Visayas, and Mindanao. If the teachers will be the best guide of their students, being the most important element in the learning process, and their most critical job is to inspire imagination and creativity, our expectation of our teachers should be much higher than the sea level.

In their review of literature, our Cebu teachers and economists found that financial literacy is very low whether in developed economies or in emerging and developing countries in Asia, Africa, Latin America, or the Middle East. Financial illiteracy is quite widespread in the US. In UK, financial literacy was lowest among the young, those low in social classes and those with low incomes. In Japan, more than 2/3 of those surveyed knew very little about stocks and securities and more than half were ignorant of financial products. In Germany, while 4/5 of those surveyed were confident about their understanding of financial issues, only half of them could answer half of the questions asked. This was also the bottomline in Canada and Poland.

I find it interesting that our Cebu colleagues discovered that developed countries have only recently put premium on financial literacy and education. The advanced economies have realized quite belatedly that individual financial decisions impact the national and global output and general welfare, as well as financial stability and development.

From this perspective, many developed countries like the US and Australia have decided to integrate personal finance standards into their state education systems with many states actually requiring their implementation. This is something that emerging markets, many of which have started on their own financial inclusion strategies, are well advised to follow while on their way to their individual development journeys.

How compelling is the case for financial literacy in the Philippines?

A total of 1,924 teachers in both public and private schools in the three main islands of the Philippines were covered in the Cebu study. Surveys were conducted to ascertain both basic and sophisticated financial literacy of the respondent teachers who are either professional having served for a period of between 5 and 25 years or pre-service who are enrolled in the student teaching program.

The first finding of our Cebuano colleagues is very surprising. Of nearly a thousand professional teachers, less than a third passed the basic financial literacy survey. Of the rest who are pre-service teachers, less than a quarter made it to the passing list. While the respondents were numerate in the sense that they could do basic arithmetic computation, their understanding of basic concepts and processes was deficient. The respondents had very little knowledge of financial products and services that we always see on the broadsheets being launched by banks and fintech companies. They were strangers to the issue of compound interest, inflation, time value of money, money illusion, and stock market.

The finding suggests that Filipino teachers are not equipped to understand — and of course teach (my conclusion) — and apply basic financial computations having difficulty with percentages and fractions. They can not apply financial principles to their daily lives and, hence, they avoid taking risks like doing investment. What can we expect them to impart to their students in terms of thinking beyond the box, or even thinking as if there is no box. What happens to the students’ imagination that limits what they can really do if their guide cannot see beyond the food they need to eat and clothes they need to wear?

The second finding is dismal. Both groups of teachers scored very, very low in their personal financial knowledge. Teachers have scant skill in understanding and processing basic economic and financial information that would assist them in making decisions on money, saving, borrowing, spending, and investment. It is dismal because the professional teachers who have rendered service for many years could have made wrong financial decisions with serious repercussions on their very own retirement years.

If both groups of teachers were barely literate, it was not surprising that they scored even lower in the sophisticated literacy survey. To better appreciate this reality, the teachers obtained only 50 percent below the passing score for basic literacy. They hardly knew about stocks and securities, they could not tell the difference between the price of these bonds and the return on these bonds. Thus, they managed to get only 33 percent below the passing score for sophisticated literacy survey.

Let me quote from the study which is very much related to the issue we raised last week about launching sophisticated innovative financial products while many of our people remain financially out of the loop: “The results proved that the respondents are unaware (of) the growing range of financial products and services available in the market. They failed to maximize the uses of these financial services in making good financial decisions and plan for their future.”

Government agencies advocating financial inclusion and the private providers selling various financial products and services have a big challenge. It is a tall order for the general population to step up higher in leveraging on these innovations if the teachers in both public and private schools are themselves hardly financially literate. To quote from the study: “More financially literate individuals increase the demand for the use of financial services, help to strengthen financial market stability, and contribute to wider economic growth and development of the country.”
What is urgent therefore is to give more stress on raising the bar of financial literacy while innovating on financial products and services.

It would be very difficult to sustain the assertions of Bill Gates and Albert Einstein that the formula for succeeding in life is a great teacher who would be there to awaken the students’ sense of adventure and imagination or Maria Montessori’s declaration about individual independence if the teachers in both public and private schools have very little to share with their flock. The professional teachers in the twilight of their career are hardly prepared for their own retirement.

We need to draw water and ensure the ecosystem does not grow dry. There is a clear case for inclusion of financial education in the curricula of basic and higher education. We need our young people and their teachers to shift from activities that enrich the malls and the food courts, the tea and coffee shops, as well as budget trips and airbnb to activities that would enrich their minds so that saving and investing become second nature to them. Exposure to economics and finance is very critical. When the population is more literate and enjoys access to financial services and products, they can better participate in nation building.We await that time when more Filipinos can command where their pesos are going rather than asking where they went — a paraphrase of Roger W. Babson’s famous quip: “More people should learn to tell their dollars where to go instead of asking them where they went.”