The Role of Financial Literacy in Reducing Poverty (2024)

Financial literacy is the ability to understand and manage one's personal finances. It involves skills such as budgeting, saving, investing, borrowing, and protecting oneself from frauds and scams. Financial literacy is not only important for individuals, but also for the society as a whole. It can support economic growth, poverty alleviation, and financial inclusion, especially in a country like the Philippines where many people face challenges in accessing and using formal financial services.

According to a survey by the Bangko Sentral ng Pilipinas (BSP), only 41% of Filipinos can answer one of three financial literacy questions correctly, and a meager eight percent can answer all three. This indicates a low level of financial knowledge and awareness among the population, which can have negative consequences for their financial well-being and opportunities.

Financial literacy can help people make sound financial decisions that lead to financial health and financial inclusion. Financial health means having enough income, savings, and assets to meet one's needs and goals, while financial inclusion means having access to affordable and appropriate financial products and services that suit one's needs. Financially healthy and included people can take advantage of economic opportunities, cope with shocks and emergencies, and plan for the future.

Financial literacy can also help people fight poverty and inequality. As Senator Sonny Angara said, "Financial literacy could play a key role in fostering financial inclusion and fighting poverty, especially in a country like the Philippines where every citizen strives to make the most out of their money". By learning how to save, invest, and borrow wisely, people can increase their income, build their assets, and reduce their vulnerability. According to the Philippine Institute for Development Studies (PIDS), "Financial inclusion helps individuals and small businesses invest for the future. It helps smooth consumption. It helps households and small businesses manage their finances. Therefore, it can help enhance productivity and long-term growth, and potentially help reduce poverty and inequality".

To improve the financial literacy of Filipinos, the Department of Education (DepEd) has issued the Financial Education Policy, which aims to integrate financial education in the K to 12 Basic Education Curriculum in various disciplines across grade levels. The policy also targets to enhance the financial literacy and capability of public-school teachers and DepEd personnel. The policy is aligned with the Economic and Financial Literacy Act of 2016 and the Youth Entrepreneurship Act of 2015, which mandate the promotion of financial education among students and young people.

Financial literacy is not only a skill, but also a mindset. It requires a positive attitude towards money management, a willingness to learn new things, and a commitment to act on one's goals. By becoming financially literate, Filipinos can improve their quality of life, contribute to nation-building, and achieve their dreams.

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Additya Singh