Borrowing is an essential part of modern living. From the credit cards of urban residents to the rural neighborhood moneylenders, financing is needed for emergency situations, household consumption and even capital for income-generating activities and small businesses. The availability of lending sources and the easy access to some of these sources pushed some people to have multiple loans, over-indebtedness and financial ruin.
It is in this context that financial literacy becomes relevant. People need to be educated to become prudent and to acquire skills in managing their finances. Effective financial literacy programs are composed of two sets of topics. The first set are those that advocates change in perception and the other set are those that teaches skills in managing finances. Among the most relevant financial literacy topics are the following:
1. Defining Life Goals. Setting life goals allow people to have something to hope for. A reason to work towards a target objective. It helps when the goals are visualized with actual pictures of one’s dream house, business or any other thing. Some people tend to work hard more with a visualize dream.
2. Acquiring the Money Mindset. The shift in perception is the main focus of this topic. Among the subjects covered are: valuing money, identifying the best role model in financial management and learning the mindset of people with money.
3. Budgeting as a Coping mechanism. This topic covers the basic skills in computation – identifying assets and liabilities, income sources and expense items and determining net worth. Only when the person got hold of his basic financial circumstances can he start working to improve his financial condition.
4. Savings. With a budget as a guide, savings skills are shared. The skills in regularly setting aside portion of the income are emphasized. Practical tips are discussed to make it a habit.
5. Preventing Over-Indebtedness. Responsible borrowing is covered in this topic, answering the basic questions of why, when and where to borrow. Other subjects include defaults, its causes and consequences. The most relevant topic is the discussion on how to get out of debt.
6. Retirement Planning. What to do when one cannot earn anymore by reason of age? Preparations for the time when one is retired and setting up a nest egg culminates the financial literacy course.
For clients of microfinance institutions, these topics are the most appreciated and most requested.