Asian Journal- The Filipino-American Community Newspaper

The ability to understand finance is referred to as financial literacy, or financial capability as they call it in the UK. Sadly, very few people are financially literate which is why raising interest in personal finance is now a focus of state-run programs in countries including Australia, Japan, the United States and the UK. The US Government established its Financial Literacy and Education Commission only in 2003.

An international study conducted by the Organization for Economic Co-operation and Development (OECD) was published in late 2005 analyzing financial literacy surveys in several countries. The results are interesting:

A Canadian survey found that respondents considered choosing the right investments to be more stressful than going to the dentist.

In Australia, 67 per cent of respondents indicated that they understood the concept of compound interest, yet when they were asked to solve a problem using the concept only 28 per cent had a good level of understanding.

A British survey found that consumers do not actively seek out financial information. The information they do receive is acquired by chance, for example, by picking up a pamphlet at a bank or having a chance talk with a bank employee.

A survey in the US found that four out of ten American workers are not saving for retirement.

While financial gurus debate on how the world got into this recession and how do we get out of it, it would be good for plain consumers like us to have some knowledge of money basics. Specially at a time like this, we need to develop a spending plan, which is one of the most effective strategies for taking control of your spending and achieving financial security. A spending plan can help you live within your income, reduce the need for consumer credit, set aside money for emergencies and save for future goals.

Some good guidelines to follow are:

1.Develop a spending plan with realistic goals in mind.

2.Build savings into your spending plan rather than saving whatever is left.

3.Set aside money each month for large expenses that occur once or twice a year.

4.Build in personal allowances for family members to spend as they wish.

5.Be flexible.

6.Periodically review and adjust as needed.

7. Track your spending. It is important to track your spending in order to stay within the amounts you have planned.