Are you Serious with Financial Literacy?

Business Mentor Notes: Armand Bengco Executive Director of Colayco Foundation for Education, the first and most experienced in providing financial literacy for Filipinos in the Philippines and around the world. A loving husband to Marie Jocelyn Bengco for 26 years, they have two boys Armike, 24 years old, a Bedan alumnus and now a Trust Officer in BPI Asset Management Inc. and Arnick, 22, also a Bedan alumnus and now an HR Officer in Australian New Zealand Bank.

 

Financial literacy is a universal and perpetual issue. Universal because it knows no social class, gender, race. Perpetual because it knows there is no age or season.

Financial literacy simply means accepting that personal finances involve concepts of money, income and wealth. Its not just having lots of money or able to earn high income. Or wealth having to be able to buy anything we need or want. Money we learn in school, is just a tool, a medium of exchange. It has value as it is easily accepted (circulated) in exchange of goods and services. Income is something we get because of our efforts.

Wealth is something we accumulate, build, and protect and what we can actually share.

Financial literacy is to know that money or “pera ay nauubos”; income or “kita ay natatapos”. One has the obligation to become wealthy.

It is said, it is not one’s fault to be born poor but it will be one’s fault if we die not wealthy more so if God has blessed us will all the faculties; mental, physical and all.

Simply, being financially literate also means we accept the obligation and responsibility to manage our personal finances.

Not because one is “kuripot” or cannot be easily swayed to lend money; one is managing his/her personal finances well.

There are five (5) activities, which one has to do, not everyday but definitely in a month; these five activities were done or is being done.  The activities in managing personal finances are:

• Earning

• Planning

• Saving

• Spending

• Investing

All five are equally important.

Earning, may you be employed or self employed or an entrepreneur or even a student; one has to accept that money is earned! Earning the legal, decent and honest way.

Planning is always taken for granted if not, “kinatatamara” as the essence of planning is it should be WRITTEN down.  The plan is not good or great because everything written down happened or turned out right but plan is definitely wrong if it was not written down.  What should be written down at least is what is the purpose or objective or target / when do you want it / how are you to get it / and the most forgotten question to answer is why do you want or need it?  Personal financial planning simply is laying down (written) what are your purposes, target (amounts) with an identified timeline; within 1 year, next year, 5 years, 10 years, 20 years or upon reaching 40, 50, retirement.

Saving is the easiest but the most difficult simply because among the five activities this is where there is resistance. Many reasons for the resistance, one, we are about to buy something we need or want and we have to re-think if we really need or can afford or right time to buy as we remind ourselves to save. Two, with lack of financial literacy, it is not so inspiring to save and actually where to put our savings.  Over 90% of Filipinos who save and not that financially literate will just have the savings accounts of banks as their vehicle on where to put their savings. Reality check; banks do not exist to make us rich or wealthy. At least the usual bank products like savings account or time deposits.  These are safekeeping vehicles where objective is not to grow money but to safe keep only.  Wrong instrument to place our money or savings makes us uninspired to continue saving. (Plus factor in the issue of inflation; the more we get uninspired).  Saving is the easiest because just spend less than you earn there is savings. Francisco Colayco, known personal finance guru in his book Wealth Within Your Reach. Pera mo, Palaguin mo.; has a simple savings equation:

Income – Savings = Expenses.

This is far from what we have gone accustomed to of

Income – Expenses = Savings

As this second/old equation; if one is not disciplined enough, there always be items to spend on thus end up with no savings.

There is a worse equation that admittedly in early part of my adult life and career I got into;

Expenses – Income = Debts!

I got buried in over half a million of credit card debt. This is manifestation of living beyond one’s means; keeping up with the joneses. Expenses are higher than income and to cover up the difference; debts and loans.  Debts or Loans actually are one’s best ally in managing personal finances and even getting wealthy.  Powerful countries, big companies, wealthy individuals make use of debts; good debt. Bad debts, often associated with consumer debts or debts via credit or simply buying things one may not actually need with money one doesn’t have and worse, to oftentimes impress people one does not like even.

Spending seems to be the easiest or most liked activity among the five.  Or opposite to saving, it is here in this activity of spending where most have the easiest to accept or do. But it is in this activity where most of the mistakes in managing personal finances happen. Often it is reminded to identify needs and wants and almost dictated and wrongly relayed that we only will spend for the needs and buying wants is wrong or bad. I disagree. As long as the want is not illegal and not immoral; whether we admit it or not, rightly or wrongly, buying our wants contribute to our happiness. Thus, my spending tips; is not just forego or delay buying wants or earn extra to be able to buy wants. These two spending tips; have helped me and what I share with others and some have given their results of following it as very effective if not practical.

First spending tips; be a planned spender and not an impulsive buyer. It’s self-explanatory. Never buy on impulse whether need or want. Second tip is very related which is; Separate shopping day with buying day. Whether acquiring a need or want; since one will be a planned spender; separate the time or day when to shop (window shop; canvass) and when to buy. One may spend the whole day in the mall since its shopping day but be firm on the decision not and never buy on that shopping day. The buying day is reserved after a week or a month; the longer the days between shopping day and buying day, the better for the individual.

Last of the activities in managing personal finances because one is financially literate is Investing.

Investing is the activity where most are interested, curious and/or readily willing to get into.  Some have tried but did not understand what they got into. Others tried but failed. Worse, others were scammed. Investing as we, Francisco Colayco and I, defined, literally and figuratively in our books and seminars, is

 A commitment to use money

          Expecting to make more money

          Based on long-term goals.

Each word and stanza was carefully thought of; commitment because investing is not and never one time. Once one has started investing, it will be “forever”. Even my 85-year-old mother is still invested and investing. My kids started when they were 8 and 10.

In investing there is no assurance (“walang sigurado”). An investor will only be expecting, hoping and praying to make more money. When one approaches anyone and says SURE INVESTMENT; two things only, either the one offering does not know what he/she is saying or that person or what is being offered is a SCAM, run away!

All investments carry risks. All returns will come from risk. The investment rule remains, the higher the risk, the higher the return and low risk gives low return.  An investor, studies, manages, mitigates risks, not return. No one controls return.

To help manage and mitigate risks, investments should have long-term goals.  Long term is 5 years and up. Never get into any investment instrument/vehicle without a clear purpose-target-timeline.

An investment is not good because of what the investment is but if the investment has met one’s purpose, target amount, within the timeline he/she has set out.

There is no better time now for the Filipino, in the Philippines or overseas, to start serious investing but the times now. With new administration coming, not only a slogan that change is coming but also a #BETTERCHANGE is coming.  Yes, the rich may get richer but the poor need not get poorer as long as there are

Literacy, Participation and Unity.

Get into financial literacy; not only now but continuous, “may forever!”

If given the opportunity, future articles will be about Simplifying Investments, types and strategies.

The bottom line is financial literacy is not about numbers; its all about mindset.