Personal Finance for Mentors

17 November 2015
Implications of Low Financial Literacy
On an individual or
household level:
low knowledge of
financial concepts can
result in poor decisions
that affect economic
well-being;
more susceptible to
debt trap;
low savings
 At the financial institutions level:
potential or current clients with low financial
literacy may lead to choosing inappropriate
products that can adversely affect the
institutions, e.g. non-repayment of loans, lower
sustainability, negative image, etc.

Low domestic saving rate is a basic constraint to

achieving higher levels of investment needed to
support faster face of economic growth
Did you know ?

(BSP Consumer Finance Survey)

Did you know ?
Only 2 out of 10 Filipino households have
a bank deposit account

P200
The average outstanding balance of
deposit accounts is P105,927 but the
median outstanding balance is P 6,875.

(BSP Consumer Finance Survey)

Did you know ?
Main reason cited by 92.8% of households for the
absence of a deposit account was that they did not
have enough money for bank deposits.

(BSP Consumer Finance Survey)

Did you know ?

Four in ten credit

card bills are
paid in full
Did you know ?
How do I get in-shape
financially?
I. FINANCIAL GOALS
 Short-Term Goals Intermediate Goals Long-Term Goals
(Less than 2 years) (2-5 years) (over 5 years)

Pay off credit card Attend graduate Buy a farm land

debt school But a retirement home
Pay off other loans Remodel home Provide for retirement
Increase savings Increase Investments income
Increase life Take a vacation to Accumulate a college
insurance Europe fund for children
Take an annual Buy a new car Move to a larger home
vacation Build a health fund
II. CASH FLOW
Cash flow pattern of a POOR PERSON
Income Paycheck
Job

Expense Taxes
Food
Rent
Clothes
Fun
Transportation

Assets Liabilities
 Cash flow pattern of a MIDDLE CLASS
Job Income Paycheck

Expense Taxes
Mortgage
Fixed Expense
Food
Clothing
Fun

Assets Liabilities
Mortgage
Consumer Loans
Credit Cards
Cash flow pattern of a WEALTHY PERSON
Income Dividends
Interest
Rental Income
Royalties
Expense

Assets Liabilities
Stocks
Bonds
Notes
Real Estate
Intellectual
Property
Cash flow pattern of an ASSET Cash flow pattern of a LIABILITY

Income Income

Expense Expense

Assets Liabilities Assets Liabilities

 Spend less than what you earn
- it's the secret to creating wealth

INCOME - EXPENSE = SAVINGS

INCOME - SAVINGS = EXPENSES

 People using
credit card are
willing to
spend up to
twice as
much than
people using
cash
- Massachusetts
Institute of
Technology
How then do we control the urge?

One technique is to ask

yourself not once but several
times if you really need a
product.
Make a shopping list and stick
to it.
For those who have less self-
control, it would be good to
stay away from the hot spots.
Delay gratification up until
the time you can very well
afford in life.
III. DEBT MANAGEMENT
Issuances
BSP Circular No. 730
(20 July 2011) Basic Features
SEC Memorandum Circular 07 Interest charged on
(September 2011) outstanding balance
IC Circular Letter No. 31-2011 at the start of each
(5 October 2011) interest period
CDA Memo Circular No. 2012-05 Disclosure of ALL
(14 March 2012) charges incident to
BSP Circular No. 754 the loan
(17 April 2012) and
EIR in all loan
BSP Circular No. 755 documents
(20 April 2012)
Factors to Consider

Maturity period
Interest rates and other charges
Questions to ask yourself
Do I really need it?
Must I have it today?
How much do I need?
Can I afford the loan amortization?
Can I manage my debt?
 Borrowing Tips
Never sign a blank
promissory note
Get a copy of the signed
promissory note and the
disclosure statement
Ask for the manner of
interest computation/
payments
Know the other costs
involved
 All loans not paid at maturity
are considered past due.

Loans or receivables payable

on demand if not paid on
the date indicated on the
demand letter or within six
(6) months from date of
grant, whichever comes
earlier.

Bills discounted and time

loans if not paid on the
respective maturity dates of
promissory notes.
 Loans receivables payable in installments Total
outstanding balance thereof shall be considered past
due in accordance with the following schedule.

MINIMUM NUMBER
MODE OF PAYMENT OF INSTALLMENTS
IN ARREARS
Monthly 6 installments
Quarterly 2 installments
Semestral 1 installment
Annually 1 installment
IV. INVESTMENTS

If you dont invest your money,

You are guaranteed to lose your money.
Bank-based Savings Instruments

Risk Return Liquidity/

Time Frame
Savings Deposit Low Below 1% Highly Liquid
Checking Deposits Low Generally 0% Highly Liquid
Time Deposits Low Below 2% Relatively
Liquid
Dollar Savings/ Low Below 1% Highly Liquid
Checking Account

LTNCD Low Minimum of 5 Relatively

years Liquid
Government Securities
- Treasury Bills (T-Bills) short
term investment that matures in
less than a year; with tenors of
91, 182 & 364 days

- Retail Treasury Bonds (RTBs)

intended for small investors
with a minimum investment
amount of only P5,000; tenors
are from 3 to 5 years
Stocks

High Risk, High Return

Managed/Pooled Funds

Mutual Fund
(Insurance Companies
& Investment Companies)

Unit Investment Trust Fund

(UITF)
(Banks)

Fund Manager, Peace of Mind, Minimum Capital

Variable Unit-Linked (VUL)

Value Meal
Foreign Exchange

High risk, high return

Real Estate

Condo
Apartment
Residential lots
Agricultural lots

High earning potential, possible recurring income,

high capital, not easy to convert to cash
Choice of financial
strategy depends on:
a) Income
b) Financial goal
c) Risk tolerance
d) Time horizon
To sum up:

Financial
Planning