FINANCIAL EDUCATION

Prepared by: Nicholas Mundia/ Kalimukwa Muzungu

Caritas Mongu- FIN Project

Date: 20 th February, 2019

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INTRODUCTION
SILC group’s members can reap great benefits from acquiring skills in basic financial
education. Financial education refers to the set of skills and knowledge that allow
individuals to plan and manage their money. This module will cover basic financial
concepts. Specifically, these tools will enable SILC members to make good financial
choices regarding income, expenses, saving, and borrowing. Through the creation of a
budget, members can track their cash flow, identify patterns in both income and
expenses, explore ways to reduce unnecessary expenses, and plan for future needs.
Examining savings strategies and options will help members take the steps towards
building assets for a future investment and becoming less vulnerable to economic
shocks. Knowledge on financial instruments and loan sources provides insight into
available financial tools, enabling members to select the tools that are most appropriate
for their needs. This manual aims to helps SILC groups members learn how to better
manage their money.
Financial education is relevant for anyone who makes decisions about money and
finances. Financial education can prepare individuals to anticipate life-cycle financial
needs and deal with unexpected emergencies. Financial education can help farmers
reduce their vulnerability to the many risks associated with seasonal income. It helps to
enhance their skills in managing money as they attempt to bridge income gaps, absorb
shocks, and prepare for the future.

This manual has two main purposes:

1. To help groups learn about financial tools and money management.

2. To teach financial and money management skills to farmers or groups and other
rural people the skills by practicing them.

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Module 1: Setting Goals and How Much It
Costs to Reach Them.
Set financial goals and priorities them.
1. Ask the participants to find a partner and discuss
2. "What are your goals for a happy future?"
3. After 5-10 minutes, ask each pair to share with the whole class. They will likely include goals
such as sending children to school, home improvements, more income, less debt, larger
business, no sickness in the family and so on. The participants may have a lot of goals for which
they need the necessary financial resources.
4. Ask if they can achieve all of their objectives at the same time. They will say 'no'.
5. Therefore, ask them to prioritize which ones they want to achieve first and which ones they want
to achieve later.
6. Do women have other goals than men? If yes, how is this dealt with within the family?
7. Ask participants to close their eyes for 3 minutes dreaming of their ideal future livelihoods.
8. What does it look like if your goals are achieved? Then ask them to open their eyes and draw a
picture of their dream in 2 minutes. They can use symbols to represent their thoughts.
9. When finished, ask them to describe their pictures. Write down key words (for example, no debt,
no illness, and children going to school, etc.) on the whiteboard. Stick their drawings on the wall.
10. Then ask them: What can you do to make sure you have the financial resources to make your
dream come true?

Summarize the answers of the participants. Make sure the following points are made:
In order to achieve your goals for the future, you need to:
 Figure out the amount of money you earn and spend on basic family needs,
 Determine the costs of your goals
 Make decisions about how much to save, how to pay off debt and how much to invest in your
business,
 Decide on the timing for doing these things.

This is called financial planning

Ask participants to discuss the importance of financial planning in pairs. Summarize their ideas and
make sure to include the following:

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Financial planning:
 Helps you decide your spending priorities for the future
 Gives you discipline for spending and saving
 Helps avoid unexpected money shortages
 Helps you feel less financial stress

Module 2: Making a Budget

Question for discussion

1. What is a budget?

2. What is income?

3. What is expenses?

What a budget is:

A budget is a summary of estimated income (money in) and expenses (money out) for a specific period

of time (such as a week, month or year). Budgeting is an important money management tool that helps

you to understand how you earn and spend your money. Anyone can use a budget because it allows

you to tailor it to fit your financial realities. A good budget has a detailed list of your various sources of

income and your expenses. Expenses should be separated and categorized as necessary household

expenses (food, shelter, and loan payments), optional household expenses (soda or extra clothes),

business expenses, and savings.

A budget is useful for everyone regardless of income level or financial situation. Anyone can create a

budget. For people with very small incomes, a budget can help them to manage very limited resources.

In the ideal budget, your income is greater than or equal to your expenses. If your budget shows that

your expenses are greater than your income, you must correct this difference. You can make this

correction by finding additional sources of income such as seeking additional work, taking out a loan,

decreasing expenses, or using a bit of your savings.

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KNOW YOUR INCOME

Income is the money that flows into your household. It is the money earned from selling goods,

providing services, or other income generating activities. Money and goods received as gifts,

remittances and loan disbursements count as income. To estimate your total income, add up the total

value of all the money you expect to receive from all of your different income sources in a given period.

A good way to estimate future income is to track what you earn over a specific period of time, such as a

week.

There are several main sources of income to consider:

SELLING GOODS

Farmers can earn income by selling harvested produce and animals. Goods include items you make or

produce (such as honey, textiles, and baskets) or items that you have bought and are reselling.

Providing a Service

Farmers receive money by doing paid work for others. They can work for another farmer, provide special

skills (working as a veterinarian or carpenter), or provide special equipment (a plow) for a fee.

LOANS

Money that you borrow today and must repay in the future is a loan. The money you receive from a loan

is considered part of your income. It is money in. Loans can come both in cash and as goods (seeds,

fertilizer and other farm inputs). The money you use to repay a loan along with the corresponding

interest and fees is an expense. It is money out.

GIFTS OR REMITTANCES

Friends and relatives often help each other with gifts of different goods, services, and money.

KNOW YOUR EXPENSES

An expense is the money you spend. One of the first steps of money management is to understand

how you spend your money. A good way to start is to record each of your expenses over a short period

of time, such as a week. With this knowledge, you can prepare a realistic budget. Planning your

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expenses for a specific period of time has many benefits. It can help you plan how to cover major

expenses and achieve your financial goals.

Having a greater goal in mind helps you reduce the temptation to buy things that are lesser spending

priorities. You will be aware of the things that are most important for you and how much they cost. It may

be helpful to categorize expenses while you are prioritizing.

Here are several types of expenses:

HOUSEHOLD EXPENSES

The money you spend to manage and run your household. Many people, basic household expenses,

such as expenses for food, transportation, and shelter, do not vary greatly from month to month.

Expenses for items, such as school fees, clothes and phones can vary greatly depending on need.

BUSINESS EXPENSES

All the costs associated with your livelihood. The difference between business and household expenses

is not always clear for smallholder farmers because they pay all expenses from the same pool of money.

A farmer may have transportation expenses both for his business (to bring the goods to the market) and

for personal needs (to visit a relative).

UNEXPECTED EXPENSES

Life has many surprises and unfortunately many of these surprises are unexpected expenses, such as

funerals, illnesses, natural disasters, crop failure, family members needing help, replacing broken items,

etc.

SAVINGS

Its money you keep for future use it is considered an expense in your budget because you are

subtracting it from your income and making it unavailable to spend on other items.

SURPLUS VS. DEFICIT

If your income is greater than your expenses, you have a surplus. A surplus means that you have

money left over after you have covered all of your planned expenses. It is money that you can save.

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If your expenses are greater than your income, then you have a deficit. A deficit means you did not

make enough money to cover all of your expenses.

Mention the benefits of making a budget:

 Eases decision-making about spending and saving

 Encourages cautious spending

 Encourages discipline saving

 If followed, helps you to meet financial goals

 Helps you to take control of your money

1. Ask: Have you ever prepared a budget? If yes, invite them to share with the other participants

what their budget looks like.

2. Invite one or two participants to draw on the board (if they can write) or describe it (if they cannot

write).

3. Make sure that a budget consists of different expenses and sources of income.

4. Ask participants to imagine that their daughter is getting married next month, so they need to

develop a budget for her marriage now.

5. Divide the participants into 3 or 4 groups. Ask: What information do you need to develop this

budget?

6. Ask participants to look at their budget. Ask the following questions:

 What steps did you take to prepare this budget?

 Which budget included all sources of income? (Presents from guests, relatives, family

members, friends, etc.)

 Which group estimated a realistic amount of income?

 Which budget identified all expenses and made a realistic estimate of all expenses?

 Which budget has a good balance between income and expenses?

 If you were asked to do this again, what would you do differently?

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Steps to develop a budget

1. Review your financial goals

2. Estimate the amount of income from different sources

3. List all expenses and amounts needed

4. Make sure your expenses are not more than your income

5. Decide how much you will save

6. Review and adjust as needed

Module 3: DIFFERENT TYPES OF EXPENSES

NEEDS AND WANTS

Needs are expenses that are absolutely necessary, such as food and shelter. Wants are optional

purchases, such as buying a soda or grilled meat at the market. A well-defined financial goal provides

strong motivation to save and reduce spending on unnecessary wants. Some items might be needs for

some people and not for others. When creating a budget put your expenses in categories. First look at

the needs (they are of highest priority) and then continue to the wants. Most people earn less income

than what they need to purchase everything they need or want. Some expenses, such as airtime, may

be both a need and a want.

Module 4. Saving
To save is to put aside money or spend less today so that you can use it in the future. People save for

many reasons, for example to have money to cover an emergency (a child falling ill) or to meet a family

need or dream (buying a bicycle). Saving money is often difficult because there are always many

demands for your money. Having savings can help you to make future purchases more easily and

achieve your financial goals.

Some people think “I do not have enough money to save.” That is not true! People of all income levels—

including the poor—can and do successfully save.

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Savings are the accumulation of assets. Any physical item that you own is an asset. Assets can include

cash, money owed to you, animals, and any item within your household or business. There are five

elements or criteria to think about when evaluating saving options.

1. Liquidity. How easy it is to change into cash? Very liquid assets can be used immediately. The

most liquid asset is cash kept in your home. The more steps needed to turn an asset into cash,

the less liquid the asset.

2. Level of risk. How likely can savings lose their value? Savings kept in a bank or other formal

financial institution carry minimal risk. Savings kept in your home are more vulnerable to theft,

fire or other dangers. It is easier to spend monies in your home on less important wants because

of easy access. Savings kept in animals or jewelry, while more difficult to spend, carry greater

risks. If an animal dies, you will lose all of your savings. Market prices can vary and you may

receive less money than you paid for these assets, if you need to sell the asset quickly.

3. Cost: What is the price for the service? A bank or other formal financial institution may charge

fees on savings accounts. If the bank is far away, you must spend money (transportation—direct

costs) and potentially lose money due to missed work (time to go to bank—indirect costs) to

make your deposit or withdrawal. What costs are associated with keeping your savings in

livestock? They require food and other maintenance costs. What costs are associated with

keeping your savings at home? There are no fees or maintenance costs, but there is easy

access to both you personally and other family member.

4. Profit. How much do you earn from your savings? For example, a bank may pay you interest on

your savings or your savings’ group may pay you a dividend on your savings at share-out. The

interest rate is the percent that is applied to the amount of your savings.

5. Accumulating assets. How easy is it to increase your savings? To accumulate savings, the

savings mechanism must allow you to easily make deposits and be more difficult to make

withdrawals. It is easy to make deposits when saving money at home; however, it is also very

easy to access and spend this money, especially when neighbors or family members ask for

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 assistance. Saving with a formal banking institution reduces the temptation to spend the money;

however, if the bank is far away or difficult to reach, it could be very difficult to make deposits

Module 5 – BORROWING
Borrowing is a way to do something today for which you do not currently have the money. It can help

you to expand your business. Borrowing can help you to access critical resources during an emergency.

If used wisely, borrowing can be a very effective tool to develop your livelihood activities. It carries risks.

Borrowing too much money or borrowing money for unnecessary items could lead to problems with

debt.

People borrow money for three primary reasons:

1. To invest,
2. To respond to an unexpected emergency,
or
3. To consume

Investing: Many people borrow money to make an investment in their own income generating activities

or even to invest in someone else’s income generating activities. A loan can provide you with the

resources to respond to a promising business opportunity. A good investment can create a profit, which

can be used to repay the loan and the interest.

Responding to an unexpected emergency: When an emergency occurs we need money quickly. If

you don’t have enough money in savings, you may need to borrow money to meet these expenses.

Consuming. Some people borrow money to purchase an item today which they do not have the money

to purchase through savings or their income. Some people borrow more during the lean season to make

up for the decreases in income during that period. Sometimes it makes good business sense to make

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these purchases. A loan could help you buy something that costs less today and which could be more

expensive later, such as certain products right after the harvest.

In general, loans for investment will earn income that you can use to repay the loan. Loans for

consumption and emergencies do not bring new income and must be repaid from another source.

When taking out any loan, it is important to think about how you will repay the loan.

A loan is something that you borrow for temporary use and promise to repay within a certain timeframe.

It can be cash or goods. Farmers borrow goods, such as seeds, fertilizer and other inputs. If a person

borrows cash, usually that loan must be repaid as cash. If seeds are borrowed that loan can be repaid in

seeds, cash, or something of similar value.

The loan principal is the original amount of the loan. It does not include interest.

A lender is the person or institution that gives the loan. A borrower is the person or institution that

receives the loan. When the lender gives the cash or other inputs to the borrower that is called a loan

disbursement.

When a lender makes a loan to an individual, group or business, the lender takes a risk. The lender

wants to be sure that the borrower will repay the loan. Collateral is a form of security or guarantee that

the borrower provides to the lender. If the borrower does not repay the loan, the lender will take the

collateral as repayment for the loan. Many savings groups allow members to borrow up to a defined

multiple of their total savings.

A guarantee is a form of collateral. A guarantee is when one person promises to repay a loan for

another person, if the borrower does not repay the loan. When a person co-signs a loan for someone

else, the co- signer guarantees that the borrower will repay the loan. The co-signer is equally

responsible for the repayment of the loan and the payment of interest as the borrower. The co-signer

must repay the loan if the borrower does not repay the loan.

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Group loans are a form of guarantee for the lender. In a group loan, the group guarantees the loans of

all the other group members and in effect co-signs the loans of each group member. If one group

member does not repay, the other group members are responsible to repay the loan.

Module 6. MY MONEY VS. SOMEONE ELSE’S MONEY

COSTS OF LOANS
Borrowing has costs. You should think about these costs and how these costs will impact your profit

before taking a loan. There are three primary costs associated with loans: fees, interest, and indirect

costs.

Fees are charged by financial institutions for various activities. These activities can include the loan

application, early repayment of a loan, transferring funds from a savings account to the loan account,

making late payments, and others.

Interest is the fee you pay the borrower for using the money. It is calculated as a percentage of the loan

amount and can be applied for any time interval: day, week, month, year, or over the total loan period. It

is very important to know the time period for calculating the interest (per day, per month, etc.) and to

calculate the total cost of the interest before choosing to take the loan. Some lenders may just tell you

their fee for use of the loan, rather than use an interest rate.

Indirect costs are not charged directly by the lender to the borrower. They are still necessary for the

borrower to pay to access and manage the loan. These costs can include transportation costs to and

from the lender to receive the loan and make loan repayments. If the lender is far away, you may need

to take time away from working or selling your goods. If the loan is a group loan, the time spent in loan

meetings is a cost, as is the amount you have to pay should another member default.

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