I’m recuperating from flu as I write this column with shaky hands due to side effects of my medication. I hate being sick and bedridden. It ruins my schedule. Monday was supposed to be a fun date with my sisters and mother to watch a movie we decided to see together because we are four sisters and a one-and-only brother in our family who also happens to be the youngest, but who now resides in the States with his family. I’m feeling better now and I’ve turned up my blinds to let the sunshine in. The sun really gives you an energy boost.
Looking at the brighter side of things, being confined in bed also allows you to take a break from your usual routine and makes you think about and mentally assess some long-term goals. It allows you to watch old movies that you want to see again. In fact, I sometimes gain weight after getting sick because of a habit I acquired from my youngest son who likes to order his favorite food when he’s sick. So far, I’ve indulged myself in pizza, softdrinks, cheesecake, and yesterday Buffalo chicken wings when I saw one Jonas brother eating it on tv.
Unfortunately, this brighter side may not be true for the majority of Filipinos who get sick. If getting sick means lost income, I don’t think you will have the state of mind to think of long-term goals if you’re worrying about money to meet short-term needs. Definitely, you will not have the gall to order food that you crave for when you compute how much income you just lost because of your absence. As an ad says, “Bawal magkasakit!” Chances are, if you watch tv, you might just end up watching those noontime shows that sell you hope of winning big time to improve your situation. You need a quick fix.
The truth is there is no quick fix to our financial situation. And the fundamental solution has to start with education.
“Our Survey Says…”
I am happy to be part of this movement to increase our country’s FQ (Financial Intelligence Quotient). Last Thursday I was invited to attend the presentation of Sun Life Financial on the findings of their 2013 SOLAR FLARE. (SOLAR stands for Study on the Lifestyles, Attitudes, and Relationships, and FLARE stands for Financial Literacy Advocacy Report). My first encounter with Sun Life was when Lalie Novero requested to feature a couple of my published articles in their company magazine. Last Thursday it was great to meet the women-led team of the country’s number one insurance company for the past two years – Riza Mantaring, President & CEO; Mylene Lopa, Chief Marketing Officer, Riena Pama, President of Sun Life Asset Management who’s also my college batchmate, among others. Let’s look at some of the findings of their survey.
Filipinos are really an optimistic lot. A significant 87% expressed optimism about their financial future in the next three to five years. The study entailed face-to face interviews with 1,100 respondents coming from middle to upper middle class income segments. The interview included a 16-question financial literacy quiz with an average length of interview at 90 minutes. Wow! That’s a lot of time, and it showed the Filipino hospitality once again, with some respondents even offering drinks and merienda to the interviewers. And this is why I remain optimistic about our nation despite the paradox that was discovered in the study. We are generally kind and happy and I believe that good things happen to kind and happy people.
Here’s the financial literacy paradox. According to the study 20% claim to be experts in finance, 46% between novice and expert, and only 34% novice. However, their basic financial literacy quiz revealed otherwise. No one got over 91%, so no expert. And only 8% scored above 80%. And “having enough bank savings” is still the top answer when asked to define financial security.
It looks like we still have a long way to go in terms of educating our population about money. That is why I welcome studies like this and even commercials on financial products that veer away from the traditional serious storylines in order to attract attention. If financial institutions can use the advertising power usually employed by FMCGs (Fast Moving Consumer Goods), then by all means. I’ve seen some come out on tv recently. They’re starting to appeal more to the emotional side now, the side that moves us to action. Although we know that we should use our rational side in making decisions about money, if these emotional commercials can get people moving because they feel a pinch somewhere, I think it’s a good start. (I’ll discuss more about emotions and money in a future article on Behavioral Finance).
Ignorance is not bliss.
Some interesting findings can be gleaned from the details of the report, which make me wonder a bit. In the Score Per Financial Concept, “Bond” garnered the lowest correct answers at 23%. This is not surprising because this is not yet a commonly used term across our population. I would even think that James Bond is more popular than bond, the financial instrument. Now here’s what makes me wonder. “Savings Account” ranks low at 8th out 16 financial concepts despite the fact that the same study reveals that it is the top answer of the respondents when asked about financial security. Other concepts such as investment, annual interest rate, credit card, asset, life insurance, real estate and debt rank even higher.
“Stocks” ranks no. 11, just three notches lower than savings account. And I think the stellar performance of the stock market brought about this increased awareness possible. Another puzzling result is “Inflation” which ranks third to the lowest. Why? Any human being who engages in buying things even from the sari-sari store knows what inflation means by experience. And the respondents were decision-makers in purchasing financial products. I wonder if it was a matter of phrasing the question. Did the respondents get lost in the multiple choices, the same way students react to trick questions in a quiz with choices “none of the above” or “all of the above”?
On top of the lack of knowledge or ignorance in basic financial concepts, there is another obstacle to securing our financial future. It is the undue aversion to risks. I’ve talked to so many people, even family and friends, who really just keep their money in their savings and time deposits. And of course, I am 100% sure these people understand inflation perfectly, and know how to correctly compute interest earnings. But why do they continue to do this? And this they do, even if they already have enough emergency funds.
This is what I’ve noticed. When you tell them they need to invest their money for the long-term to really make it earn, and when you say 10 years or more, they readily feel restricted and they don’t want to “lose that control” of taking out their money anytime with principal still intact. Again, it’s an emotional attachment to this “control.” But this control is just an illusion because doing this is actually giving up your control over to inflation! Yes, you’re giving inflation the control of what your money can afford to buy you in the future because you refuse to act on the matter right now by taking calculated investment risks.
This undue aversion to risk is the more dangerous ignorance. The ignorance on the financial concepts can be addressed by reading and studying. But undue aversion to risks usually entails more than just that. It’s because this ignorance is coupled with being stubborn in what you believe in and what you have been used to. And I can’t blame them because there used to be a time when fixed income instruments paid double digit interest rates making LOI (Living On Interest) possible. But gone are those days.
It’s not easy to acquire the stomach or the temperament to keep your cool as you see the value of your investments go down. Filipinos would often say, “Pera na, naging bato pa!” It takes actual experience of having your investments go down and then rise up again before you acquire a healthy confidence in taking risks on your hard earned money. And this is another strong argument why we should not only teach our children how to save early on, but also how to invest. My sons already know deep in their hearts that the lower the risk, the lower the return; the higher the return the higher the risk. And come to think of it, they have experienced almost just as many bulls and bears as their parents have experienced. This is because we started them off right out of their diapers.
This is my mantra. Let’s involve the whole family when it comes to matters about money. Let’s start our kids’ financial literacy journey as soon as they’re born. Breadwinners should not keep their family members in the dark when it comes to money matters. Let the sunshine in. Allow the Pinoy’s sunny disposition into your family’s money matters. I don’t mean that you should pass on the financial burden to your minor children by enlisting them in the next search for the child wonder but discuss money healthily as a family. The more you discuss, the more you learn about it, and the more you move together in a common direction to achieve your goals. This way we can translate that sunny and optimistic disposition of Filipinos into a bright future!
Wishing you all financial happiness,