Financial literacy and behavioral economics

Whenever I sit down with sources in the business beat, say over lunch, dinner or drinks, my journalist ears and brain go on autopilot when they start talking about financial literacy. Almost always I just weed out what I hear, or forget about it altogether.

Financial literacy after all would not make the headlines, neither will it give me the next big story.

But while I still believe financial literacy stories won’t land my by-line on the front page, I now have a much better appreciation of it, but more so in relation to behavioral economics, thanks to Rose Fres Fausto’s Why Financial Education Alone Does Not Work, a Crash Course on Behavioral Economics, a book I really enjoyed.

The book is, first of all, a testament to the greatness of women. It is my honor to celebrate the power and greatness of my fellow women every chance I can, but especially on the occasion of International Women’s Month.

It is, after all, no easy feat to put together a serious book on financial literacy and behavioral economics in a language that is easily understood, with matching illustrations and concrete examples. Props to you, Rose!

In his introduction, economist Fernando Aldaba, dean and professor of Economics at Ateneo de Manila’s School of Social Sciences, summed the book well:

“The different chapters of the book shows how she successfully explains why financial education is necessary, but not sufficient condition to transform one’s behavior in effectively managing wealth and finances. She also elucidates the very difficult subject of Behavioral Economics and adeptly connects this to why financial literacy is just a small part of the solution to one’s financial woes.”

Rose, an investment banker turned full-time homemaker, takes off from the works of business school professors Daniel Fernandes, John Lynch Jr. and Richard Netemeyer on the effect of financial literacy and financial education on downstream financial behavior.

The experts basically explained why financial education alone does not work and, from this, Rose explains further and provides several concrete examples and illustrations in this regard.

Financial literacy, in industry parlance, is the ability to understand and effectively use financial skills, including personal budgeting, money management and investing.

But this alone is not enough to achieve one’s financial goals or why even the most financially literate person can still be burdened with financial woes.

As Rose said in the book, a student can ace all his finance classes but still be buried in debt. It is puzzling, indeed, but Rose explains this, citing examples of how our brain works.

All the lessons are stored in our prefrontal cortex, but the ones which dictate our behavior – desires to go have that vacation, to go shopping, etc. – are the voices in our limbic system and they are not the same, she explains.

But the good thing is that Rose, who is a well-known speaker on money matters, does not just identify the problem. She gives solutions.

“Fortunately, there is hope,” she said.

And this is where behavioral economics – the study of psychology as it relates to the economic decision-making processes of individuals and even institutions – comes in.

The book is a crash course on behavioral economics and is the second in her FQ Trilogy. It’s really a must-read, especially for those wondering why despite all their financial knowledge, they still have financial woes.

I guess one’s relationship with money can really be as complex as any other relationship we have. Sometimes, our mind tells us everything we need to know to make the relationship work – whether it’s our relationship with our work or with a loved one – but our behavior does not necessarily heed the dictates of the mind.

But as Rose said, there is hope--find yours in the pages of her book, published by ABS-CBN Books and which incidentally will be launched on Friday.

JTI Philippines’ John Freda rises to the challenge

Around this time a year ago, JTI Philippines introduced its new general manager John Freda, a British. It was quite a challenging time to be at the helm of an organization in a foreign territory and at the height of a pandemic.

The last time I spoke with him around Christmas last year, he said that, indeed, one of the difficulties he faced was ensuring the safety of his team while keeping the organization running.

But John seems to have adjusted well. In fact, the organization, under his stewardship, received a recognition, UK’s Investors in People, equivalent to an ISO accreditation and the seal of excellence in employee-management relationship.

This marks the third consecutive year that JTI Philippines received the accolade.

The Philippine Economic Zone Authority (PEZA) also recognized the company for its CSR collaboration with the investment agency at the height of the COVID-19 pandemic.

JTI partnered with PEZA in providing transport, food packs, temporary shelter and other provisions to stranded OFWs and locally stranded individuals traveling back to their home provinces.

Iris Gonzales’ email address is [email protected]. Follow her on Twitter @eyesgonzales. Column archives at eyesgonzales.com