Gacot, Renalyn A.

FINANCIAL LITERACY AND FINANCIAL WELL –BEING

Financial Literacy- the ability of an individual to make appropriate decision in

managing their finances, the ability to understand how money works, in the world, how an
individual manages to earn or make it, and how a person invests it.

- Financial literacy means the ability to understand how money works in

business and in personal life.

Financial Literacy components:

1. Income- money that is earned from work, business, and investments.

- It is the money that we used to cover our daily needs and to live the life we
dream off.

2. Expenses- something on which money is spent.

- It is the things where we spend our money like for examples: foods,
transportation, school expense, bills and etc.

3. Budgeting- a plan used to decide the amount of money that can be spent and how
it will be spent.

4. Credit- money that a bank or business allow a person to use and payback in the
future.

- Example for this is borrowing money in the bank for the business purposes, for
us to be able to meet the money we need in starting a business we tend to
borrow money because starting a business is not that easy we need a lot of
money, we borrowed money of course we need to payback it to the near future.

Five key concepts to work on in order to improve your financial literacy:

1. The basic of budgeting- creating and maintaining a budget is one of the most
basic aspects of staying on top of your finances.
- In budgeting we can monitor where our money goes and how much our income
is spend. Also with the use of budget we will know if we are spending our
money in our needs and not in our wants.
2. Understanding interest rates- it can help you save even more, but it can make a
difference between borrowing a small amount and paying back much more that
you need to for years to come.
- Before we invest our money we should check first how much our money will
gain money. Through this we will know if or money is increasing not only
sleeping. It is also important to know the interest rate of ours credit for us to
be aware with our credit.
3. Prioritizing saving- learning to save early on can help you gain knowledge, practice
asset of skills you’ll utilize throughout your entire life.
- Before we buy things we want we should save first to make our future stable
and secure.

4. Credit-debt cycle traps- it’s much easier to lose credit than gain and many
students don’t realize how easy it is to ruin their credit and how difficult it can be
regain credit before it’s too late.
- Credit can be extremely useful tool if it’s managed correctly. Making rash
decisions when you’re young can end up costing you throughout adulthood so
it’s important to grasp the concepts and tools behind responsible credit
practices as early on as possible.

5. Identify theft issues and safety- in this modern day and age, identity theft is more
prevalent than ever.
- It’s important to safeguard your finances as best as possible to avoid the
threats that exist.

Financial well-being- it is the state of mind that measures the satisfaction with
one’s own financial matters.
-Is the state of mind that measures the satisfaction with one’s own financial
matters?
- Is about sense of security and feeling as thought you have enough money to
meet your needs. It’s about being in control of your day- to day finances and
having the financial freedom to make choices that allow you to enjoy life.

Ideas for maintaining financial well- being:

1. Write down your budget- knowing your income expenditure and disposable
once your day- to day expenses are covered will give you confidence in your
decision.
- In writing our budget we will know where our money goes. We are writing our
budget because we want to write but because we need it and we used it.
2. Avoid income comparisons- research shows that comparing ourselves to our
friends or peers reduce life satisfaction.
- Keep in mind that we have different priorities and find pleasure or enjoyment
in different things.

3. Look for positive- giving you a feeling of contentment and well-being.

- Being contented with the things you have and income you have can help to feel
free and away from stress. If you’re not looking to a positive then it can reduce
your productivity as an individual.

The four elements of financial well-being consists of:

1. Control over your finances- knowing where your money goes each month
and more importantly, the reason behind why you spend it.
- Controlling our finances can help us to save more because we can minimize the
money going out from our income.

2. Capacity to absorb financial shock- insurances that will keep them covered
in case of emergency.
3. The financial freedom to make choices to enjoy life- a plans that design to
help you reach the goals you have for your future, will still giving you the
financial freedom to enjoy your good life today.
- If you are financially stable, then you can do what you want and buy what you
want, then you can enjoy your life as long as you are secured in everything you
need.
4. Being on track towards meeting your goals- we understand that not
everything in life goes according to plan.
- For example you are planning to buy a house this month then suddenly there’s
an emergency that need a big money, so have no choice but to use that money,
for that situation you should understand that you need to sacrifice the things
you want to achieve, just not stop to save to meet your goals.

What influences financial well-being?

1. Social and economic environment- what surrounds you, in your family

and community?
- Example for this is when you are surrounded with the people who love
luxurious things then it can influence you as an individual.
2. Personality and attitudes- how you tend to think, feel and act.
- This is how you think to use your money if you will save, invest or you will buy
your wants for your satisfaction.
3. Decision context- how a particular decision is presented the person
encounters can make a difference in what action he/she takes.
4. Knowledge and skills- what you know, and what you know how to do.
5. Behavior- what you actually do.
6. Personal financial well-being- how satisfied you are with your financial
situation.
7. Available opportunities- what options are open to you.

“When it comes to the struggle between choosing our wants over our
needs, remember to determine the key differences between short-term
satisfaction and delayed gratification.”