Learning finance

WHEN the Bangko Sentral ng Pilipinas (BSP) released its Financial Inclusion Summary for 2021, we learned important things about the state of financial literacy in the Philippines. Because of the pandemic, 37% of adults started saving more for emergencies and 17% either started or used online banking and digital payments more frequently. As a result, account ownership almost doubled, e-money account ownership and usage are on the rise, and more Filipinos are investing.

That is the good news. On the flip side, less Filipinos are saving while avoiding insurance compared to 2019. With limited income and credit, the vulnerable sector depleted their savings, defaulted on their debts and relied more on government aid. The vulnerable sectors are also financially underserved.

International financial literacy surveys such as that of the World Bank found that only 25% of adult Filipinos are knowledgeable on basic financial concepts.  In a global study by S&P Global Ratings, the Philippines scored in the bottom 30 of 144 countries surveyed on financial literacy.

Financial literacy is the ability to make appropriate decisions in managing an individual’s personal finances. It is an acquired set of skills such as understanding the foundation (reading financial statements), understanding the art of finance (by using limited data to arrive at accurate description of company’s performance), and understanding financial analysis.

The data clearly states the obvious. We need to promote financial literacy on different levels, across all social and economic sectors of society. Only then can our people achieve financial independence through smart savings and investments, as well as demand better financial services and conditions from financial institutions. And we need to break the barriers in learning finance.

At its core, finance involves numbers and to many people it can be intimidating and is conveniently ignored. It is therefore important to hurdle this fear with the realization that getting destressed in finance can lead to more engaging involvement in the individual’s primary occupation. Studies show that empowered and financially literate employees have higher self-esteem. This leads to better productivity for organizations.

To learn finance better, approach it as a subject we can enjoy. Basic financial literacy will not require knowledge of advance math, nor does it require heavy memorization and too high an intelligence quotient. Learners in finance should however develop an understanding of numerical relations and should find finance fun. Numbers should be viewed as telling stories that can help one move ahead in life. If money is our mode of transaction, we should discover how we can make it work for ourselves.

The finance student must learn to develop a number sense. This happens if the student can focus on the visual representation of the number facts. In math, for example, Professor Jo Boaler says students learn best when they work on problems they enjoy, rather than exercises and drills they fear.

Lawrence Debroux, CFO of Heineken, was quoted extensively by Harvard Professor Mihir Desai in his book How Finance Works which, by the way, is one good reference for those looking for a colorful and interactive guide to the subject. Desai’s book demystifies finance through his interactive and conversational writing style.

Debroux says: “If you would have asked me twenty years ago about the most important trait for succeeding in finance, I would probably have told you to be hardworking and to be super-expert and driven. That actually leads you to a certain point, but after that it fails you. You can always be hardworking.”

“But now, being persistent and curious are probably the two things I consider most important. Persistence is key because you can’t take the first answer as a final answer. Finance is about digging, trying to find what is behind the numbers, and what is going on with the assumptions. Is the number right, and if it is not, why not? Is it showing the reality or distorting it? Numbers are very dry if you just look at them like numbers, but if you want to know the reality behind them, that’s where it becomes interesting. If you’re interested and curious about what people do, then they become interested in what you want to bring.”

A healthy attitude towards the subject and a clear appreciation of why it matters can lead to a better journey in learning finance. Mastering the analytical pillars of finance — time value of money, asset valuation and risk management — can help improve the lot of the Filipino. Understanding basic finance is within everyone’s reach.

While we see several initiatives from government, private sector and the academe to address the challenges of financial literacy, ultimately it is an individual choice. And it all starts with an appreciation that finance need not be daunting but can be a fun subject after all. More people should see finance as having simple truths that requires a commonsense approach to learning.

The views expressed herein are his own and does not necessarily reflect the opinion of his office as well as FINEX.

Benel Dela Paz Lagua was previously EVP and chief development officer at the Development Bank of the Philippines.  He is an active FINEX member and an advocate of risk-based lending for SMEs. Today, he is independent director in progressive banks and in some NGOs.