Most Filipinos now struggle with financial literacy, which is the ability to effectively manage one’s finances through budgeting, saving, and investing in stocks, a mutual fund, or on real estate, such as a property for sale. The pandemic has made financial management skills even more important, especially as Filipinos battled with layoffs and health issues that resulted in unforeseen financial shocks and medical expenses.
The culture of instant gratification and huge quick wins fostered by social media and other investment products has also had an impact on the mindset of the younger generation. While this may have an effect on short-term investor behavior.
Understanding Financial Literacy
We are aware that the sooner you acquire the essentials of managing your finances, the more secure and prosperous your financial future will be. Although it’s never a bad time to start acquiring knowledge, getting a head start is advantageous. Education is the first step into the realm of money.
Understanding and employing a number of financial skills, such as managing one’s finances, budgeting, and making investments, are components of financial literacy. Understanding financial ideas and principles including the time worth of money, interest rates, debt management, and financial planning are also necessary.
Individuals can avoid making bad financial judgments by developing their financial literacy. It could aid in their independence and financial stability. Developing financial literacy requires taking important measures like understanding how to make a budget, and keeping tabs on consumption, debt, and retirement plans.
Learning about these subjects also includes understanding how money functions, establishing and accomplishing financial goals, being aware of unethical or discriminatory financial activities, and handling the difficulties that life presents.
How to track a budget?
Your monthly income should be broken down into all of its various sources and the associated dollar amount. Paychecks, interest from investments, maintenance, settlements, and earnings from side employment or other endeavors, including selling crafts, can all be included.
The monthly purchases you must make are known as fixed expenses. They are regarded as vital and their levels don’t alter much. They consist of utilities, loan payments, and rent or mortgage payments. Spending that is not absolutely necessary, such as on things like dining out, shopping, clothes, and vacation, is referred to as discretionary spending. Instead of necessities, think of the
Record your monthly savings, whether they are made in ash, transferred into a bank account, added to an investment account, or placed in a retirement account.
Basic Financial Concepts
Personal Finance
An individual’s status and behavior are specific to their personal finances. Consequently, linked financial plans are heavily influenced by an individual’s income, living needs, objectives, and preferences.
One such requirement is retirement savings. For them to be able to do that, they must set aside or invest enough cash throughout their working careers. Personal finance refers to this kind of financial management decision.
Using or getting financial items like debit cards, insurance, loans, and different kinds of investments are only a few examples of personal finance-related actions.
Corporate Finance
The financial activities involved in managing a corporation are referred to as corporate finance. To supervise those financial activities, a division or department is typically established.
Startups may obtain funding from venture capitalists or angel investors in exchange for a share of the company. A company is going to sell shares on an exchange for stocks if it succeeds and decides to go public.
Public Finance
A government’s ability to pay for the services it offers the general public is influenced by its revenue generation, spending, financial management, and debt-issuance policies, all of which fall under the umbrella of public finance. The fiscal policy encompasses it.
By regulating resource distribution, income equality, and financial stability, both the federal and state governments contribute to preventing market failure. Taxes provide the majority of regular funding. Government borrowing from financial institutions, insurance firms, and other countries also contributes to the funding of public expenditures.
How Financial Education Affects the Economy?
Financial development is important for both economic progress and the eradication of poverty, as is commonly acknowledged. A general definition of financial literacy is the capacity to comprehend financial ideas and the knowledge and ability to manage one’s financial resources. A crucial element of initiatives aimed at financial reform. Financial literacy influences many people’s financial decisions and behavior, according to a growing database of research.
The term “financial literacy” describes people’s knowledge of financial principles as well as their aptitude for managing their finances and making wise financial choices. The management of everyday expenses, spending, and financial assets is reported to be more challenging for households that are financially illiterate and for those with weaker cognitive capacities. This is especially true and concerning for the underprivileged that, on the one hand, are more prone to lack financial literacy and, on the other hand, experience ongoing and cumulative financial hardship.
Financial literacy has an impact on people’s spending habits and economic choices, according to research on both economic and consumer behavior. Financial literacy affects financial behavior because it is an innate motivation for someone to learn more and take action on what they learn. Undersaving is sometimes attributed to low financial literacy, which describes a condition in which those who are uneducated rely on social learning and ultimately herd on less-than-ideal decisions.
Post Pandemic Financial and Economic Recovery
The Philippines has made significant progress toward recovery. Following a recession brought on by the pandemic in 2020, the economy expanded by 5.7 percent last year and maintained its impressive pace with an 8.3 percent increase in expansion during the first quarter of 2022. The first quarter saw widespread growth.
Real Estate Investment Trusts
Real Estate Investment Trust is a publicly traded company that was founded primarily with the goal of holding income-producing real estate assets, but not limited to apartment complexes, buildings, healthcare facilities, roadways, warehouses, hotels, and railroads. A rental income from the fundamental real estate asset serves as the source of the return on investment for investors in this kind of investment vehicle. Dividends are given as a type of return to the investors.
Real Estate Investing
Any type of property investment carries a number of risks. But there is an adjustment, as there is with most things. Before diving in headfirst, you’ll need some experience. To profit from a real estate investment, you need experience and knowledge.
What Is Real Estate Investing?
One of the most widely recognized types of investing is real estate investment, which predates the creation of stock trading. Due to the ongoing rise in real estate prices, it’s one of the most secure ways to enhance your wealth.
Real estate investment is the practice of purchasing assets such as land, homes, buildings, and a variety of things above and below the ground for the purpose of making money as opposed to doing so purely for habitation or occupancy.
Advantages of investing in real estate
Property demand is stable despite the COVID-19 crisis, and the Philippine real estate industry has been resilient, which goes against what you may assume. In reality, because of the epidemic, the market is now in a good place with reduced rates of interest and longer payment terms.
Real estate investing is less risky than investing in equities because of the consistent price growth. Although it may not have the same profit potential as stocks, real estate is less subject to price changes.
Adding real estate to your investment portfolio can reduce volatility and your chance of losing money if your portfolio is primarily made up of stock assets. It has been demonstrated that diversity lowers risk while preserving growth potential in almost every financial industry, including stocks, commodities, and real estate.
Types of real estate investing
Buy and Sell – You can purchase damaged properties, repair them, and sell them at a profit if you have a sizable cash reserve and are skilled at managing and turning your money. Flipping houses or apartments is another name for this type of real estate investing. Real estate flipping requires a lot of labor, but it also requires a keen eye for spotting homes that, with a little repair, may be profitable.
Rental property – Rental revenue is recurrent, therefore it is a reliable source of income for years to come. It can be a great strategy to have additional money, in the bank or to assure financial security before retiring. This is particularly relevant if you intend to invest in rental housing by purchasing an apartment complex.
Real Estate Transaction
When a seller lists their house for sale and a buyer agrees to buy it, that procedure is known as a real estate transaction.
The process of purchasing a real estate property involves a number of steps, each of which is unique based on the particulars of the transaction and local laws. There are many processes and procedures that must be finished on time before the settlement can happen and the buyer receives the property’s title.
Typically, during a transaction, a real estate agent or broker works for the buyer or the seller. The agent might occasionally represent both the buyer and the seller in a single transaction. To assist them with the procedures involved in transferring real estate, traditionally both parties will be assigned to their own agent.
Digital Financial Literacy Lessons
The ability to use technological advances alongside financial literacy is known as digital financial literacy.
Technology like web browsers and cell phones may aid or hinder access to financial tools depending on the user’s skill level. A person with strong technological skills might find it simpler to buy and trade cryptocurrencies. It could be difficult for someone with little technological skills to log into a bank account via the Internet.
It is now acknowledged that using software, applications, and digital platforms to provide monetary services to consumers and companies through digital devices like smartphones is a promising strategy to advance financial inclusion or the availability of financial products and services to excluded households and small businesses.
Knowledge of digital financial dangers is the second aspect of financial literacy in the digital age. The additional dangers that users of digital financial services may face must be understood. These hazards are more varied yet occasionally more difficult to identify than those related to conventional financial services and goods.
How Financial Illiteracy Can Affect Financial Behavior in Young Investors?
All socioeconomic groups and ages are affected by financial illiteracy, which can result in poor financial decisions that have an adverse impact on a person’s overall well-being. It can lead to numerous individuals suffering from credit problems or bankruptcy as a result of loans that are predatory, mortgage subprime fraud, or exorbitant interest rates.
Large debt loads and bad financial decisions might result from a lack of financial literacy. If you are financially literate, for instance, topics like the benefits or drawbacks of variable versus fixed interest rates are simpler to comprehend.
Every person needs to be financially literate in order to manage their finances and succeed. People must practice wise financial management in order to develop the information, skills, and confidence necessary to recognize financial products and services. This is necessary for them to have a high degree of financial literacy. Credit management is a key component of financial literacy when it comes to spending. In that regard, it’s important to have a good budget and exercise restraint when making purchases so as to make plants. One example is how to purchase something that is genuinely needed or necessary, as opposed to just doing so to satisfy a need.
Everyone needs financial knowledge to prevent financial difficulties. Financial troubles may develop if a mistake is made in the financial system, rather than only being a result of poor income. Such as the improper use of credit and a lack of budgeting are examples of poor management. Stress and low self-esteem can be brought on by financial difficulties. Joining an online financial literacy campaign or looking into innovative financial education initiatives may help with boosting your confidence in investing and facing financial difficulties.
Overall, financial literacy is a vital aspect of managing one’s finances effectively. It involves understanding financial concepts such as budgeting, saving, and investing in stocks, mutual funds, and real estate. Financial literacy has a significant impact on personal finances, corporate finance, and public finance. Filipinos need to learn financial management skills, especially during the pandemic, to ensure their financial stability and prosperity in the future. Real estate investors, including successful real estate investors, understand the importance of financial literacy and how it impacts their investment decisions. The Philippine economy has shown significant progress toward recovery, and real estate investment trusts are a viable option for investing in income-producing real estate assets. By embracing digital financial literacy, Filipinos can take control of their finances and secure their financial future.
Financial decisions, both short-term and long-term, are all impacted by financial literacy, which has effects on both the individual and society. Poor financial literacy is associated with expensive borrowing and managing debts, inefficient spending and financial planning, and ineffective borrowing.
Related Blog: Philippines: an Ideal Place for Real Estate Investments
