The cost of financial ignorance

By Hamilton Angluben, Cashalo General Manager

Three in four Filipino adults are financially illiterate, and that financial ignorance costs us millions of dollars, the economy billions and for the country – the opportunity to alleviate poverty. Consumer spending contributes about 70% to the overall economic growth in the Philippines — the world’s 26th largest consumer market with a population of nearly 107 million. For the past decade, the economy has been one of the fastest-growing in the world, and yet, wealth largely remains within the upper echelons of society.

With the economy expected to grow at least 6% this year and next, the influx of investments and wealth generation opportunities are a boon for the country’s emerging middle class – if they know how to access them to their advantage.

Not knowing, unfortunately, is the problem. One in 10 Filipinos have no basic financial knowledge, according to a World Bank survey. The study showed 10% of respondents had zero correct answers to seven financial literacy questions that covered basic numeracy, compounding interest, price comparison, inflation, and investment diversification. Only 2% got all seven correct.

Meanwhile, a survey by the Standard & Poor’s Ratings Services put the Philippines’ financial literacy rate at 25%, lower than the global average of 33%, making it one of the 30 least financially literate countries in the world. In comparison, Scandinavian countries topped at 71%, Singapore had 59%, and the United States had 57%. Even neighbor Thailand edged out the Philippines with 27%.

Like most developing countries with large populations, having access to public services like education and health is critical to financial inclusion. The average Filipino is focused on covering basic needs like food and shelter, and they overlook long-term financial well-being and get stuck in a cycle of debt and spending. Any extra income is seen as a treat, and more often than not, is spent on dinner at the mall or a family outing.

That’s where financial education comes in. Filipinos grow up mindful of socioeconomic class divisions, and money management is a sensitive topic that is not taught in local schools. Filipino families don’t talk about finances either, because culturally, showing any sign of ignorance or inability to take care of the household is seen as shameful.

To “save face,” the head of a household will budget based on trial and error, vulnerable to making poor financial decisions that cost more in the long run. Studies show that not understanding compounding interest causes a consumer to pay higher interest rates, spend more on transaction fees, borrow more and run up bigger debts.

To combat this culture of financial silence and ignorance, the Philippine government, banking institutions and financial technology (or “fintech”) firms are building an ecosystem of information sharing and resources to promote financial inclusion and responsibility.

The Philippine government designated the second week of November as Economic and Financial Literacy Week. Meanwhile the private sector, universities, NGOs and community organizations are collaborating to reach target audiences, including young people entering the workforce, educators, OFWs, MSME entrepreneurs, and female heads of households who manage money. The Fintech Alliance and the wider fintech industry, too, are developing an industry-wide code of conduct and a collective voice to promote financial literacy and build trust in the burgeoning but still nascent sector.

At Cashalo, we spent months developing a meaningful national financial education initiative designed to reach every Juan wherever they are. “CashAcademy,” was developed with the aim of cultivating a generation that is more financially knowledgeable, responsible, and empowered. The CashAcademy program offers online and offline education modules as well as in-person seminars conducted at various locations in universities, at the SME Roving Academy (SMERA) of the Department of Trade and Industry, and at the Kapatid Mentor ME programs of GoNegosyo.

CashAcademy features eight learning and development modules designed to help Filipinos make more informed financial decisions and understand the pitfalls of poor money management and the importance of being a responsible borrower. As a fintech company built on the principles of inclusion, innovation, and collaboration, Cashalo will continue to partner with government and non-government bodies, including DTI, Bangko Sentral ng Pilipinas, ASSIST Asia, Google, Knowledge Community and more to fight financial ignorance and help every Juan improve their financial well-being.

With higher financial literacy, Filipinos can break away from loan sharks, build financial identities through apps like Cashalo and take advantage of more fair, affordable, and secure financing options.

It’s time to harness the power of technology to alleviate poverty and help millions attain financial security and independence. Financial literacy is not just the key to one’s financial well-being, it is a path to a more equitable distribution of wealth in our fast-growing economy.