FINANCIAL

LITERACY

Safaricom July 2017

Document Title 0
IMPORTANCE OF FINANCIAL PLANNING

Out of 100 people at retirement:

o 49 will be dependent on family and charity.
o 29 will be dead
o 12 will be broke
o 5 will still be working
o 4 will be financially independent
o 1 will be rich

Who will you be?

1 Document Title 1
 FINANCIAL LITERACY CURRICULUM

 What is Financial Literacy

 Distinguishing between Needs & Wants

 Borrowing and Credit cards

 Financial Independence

 Wealth and Investment

Document Title 2
WHAT IS FINANCIAL LITERACY

The possession of knowledge and understanding of

financial matters.

It often entails the knowledge of properly making

decisions pertaining to certain personal finance areas like
real estate, insurance, investing, saving (especially for
college), tax planning and retirement.

It also involves intimate knowledge of financial concepts

like compound interest , financial planning, the
mechanics of a credit card, advantageous savings
methods, consumer rights, time value of money, etc.

Document Title 3
DISTINGUISHING BETWEEN NEEDS & WANTS

A need is a thing that is necessary for an

organism to live a healthy life.
Needs are sustaining.

A want is something that you would like to have.

Wants are entertaining.

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MASLOW’S HIERACHY OF NEEDS

Document Title 5
 TYPICAL EMPLOYEE LIFE CYCLE
Major Life Events

Marginal Investing or wealth

Borrowing Wealth consumption
saving accumulation

Wealth

Receive
Receive inheritance

Marriage

Health insurance
Access pension
requirements

Paid off
College Home purchase
mortgage Losing spouse
Retirement

0 25 30 35 40 45 50 55 60 65 70 75 80+ Age
Years

First job Prepare for

children’s future
Job change Child enter
college

First child Document Title 6

BALANCING NEEDS & WANTS

Where does money come from &

where does it go ?

Income Budgeting Expenditure Impact !

Money in • Saving / Investing • Money out

• Borrowing

Document Title 7
HOW TO ALLOCATE YOUR MONEY

ITEM ALLOCATION KES 50,000 KES 300,000

SAVINGS 10% 5,000 30,000

FOOD 10% 5,000 30,000
HOUSING 20% 10,000 60,000
TRANSPORT &
ENTERTAINMENT 10% 5,000 30,000
SCHOOL FEES 20% 10,000 60,000
MEDICAL 10% 5,000 30,000
INVESTMENT 10%
5,000 30,000
EMERGENCY 10%
5,000 30,000
Document Title 8
BUDGETING: EXERCISE

How many of us have budgets?

Are the budgets written down or they are in your

mind?

Do your budgets balance?

What are the impediments to doing a budget?

Document Title 9
BUDGETING: TEMPLATE
Month Month Month Month Month Month Month Month Month Month Month Month
1 2 3 4 5 6 7 8 9 10 11 12
Balance Brought
forward
Income
Salary
Business / Rental
Income
Investment Income

Expenditure
Food
Fuel
Rent
School Fees
Clothing
Entertainment-
Outings (Dinner)
Donations/Tithe

Balance

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BUDGETING: EXAMPLE
Month Month Month Month Month Month Month Month Month Month Month Month
KES 100K P/M 1 2 3 4 5 6 7 8 9 10 11 12
Balance Brought
-
forward 20,000.00 40,000.00 60,000.00 80,000.00 100,000.00 120,000.00 144,625.00 169,250.00 193,875.00 218,500.00 243,125.00

Income -

Salary 100,000.00 100,000.00 100,000.00 100,000.00 100,000.00 100,000.00 105,000.00 105,000.00 105,000.00 105,000.00 105,000.00 105,000.00
Business / Rental
Income 0

Investment Income 0 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00

100,000.00 120,000.00 140,000.00 160,000.00 180,000.00 200,000.00 226,000.00 250,625.00 275,250.00 299,875.00 324,500.00 349,125.00

Expenditure

Savings 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00 10,500.00 10,500.00 10,500.00 10,500.00 10,500.00 10,500.00

Food 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00

Transport 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 5,250.00 5,250.00 5,250.00 5,250.00 5,250.00 5,250.00

Rent 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00

School Fees 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00

Clothing 2,500.00 2,500.00 2,500.00 2,500.00 2,500.00 2,500.00 2,625.00 2,625.00 2,625.00 2,625.00 2,625.00 2,625.00
Entertainment-Outings
(Dinner) 2,500.00 2,500.00 2,500.00 2,500.00 2,500.00 2,500.00 2,500.00 2,500.00 2,500.00 2,500.00 2,500.00 2,500.00

Donations/Tithe 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00 21,000.00 21,000.00 21,000.00 21,000.00 21,000.00 21,000.00

Investment 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00 10,500.00 10,500.00 10,500.00 10,500.00 10,500.00 10,500.00

100,000.00 100,000.00 100,000.00 100,000.00 100,000.00 100,000.00 102,375.00 102,375.00 102,375.00 102,375.00 102,375.00 102,375.00

Balance - 20,000.00 40,000.00 60,000.00 80,000.00 100,000.00 123,625.00 148,250.00 172,875.00 197,500.00 222,125.00 246,750.00

Document Title 11
BORROWING & CREDIT CARDS

Document Title 12
GOOD DEBT vs. BAD DEBT

GOOD DEBT
Debt incurred as a result of an investment that will grow in
value or generate long-term income.

BAD DEBT
Debt incurred to purchase things that:
• Quickly lose their value
• Do not generate long-term income and
• Have a high interest rate, like credit card debt.

Compare what you'll spend in interest on a loan versus

what your money could earn if it were invested

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GOOD LOAN vs. BAD LOAN: EXCERCISE

GOOD OR BAD LOAN?

Excess/ Overdraft Student loan

Auto Loan Mortgage loan

Credit Card Loan Personal Unsecured Loan

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 CREDIT CARD BILLING CYCLE
Grace = 50 Days
Period

30 Days 20 Days

30 Days 20 Days

Start of 2nd Billing Date Due Date

Billing Date. Due Date
Billing Cycle. 5 Mar 25 Mar
5 Feb 25 Feb
5 Jan
Statement Sent

Maximum amount Due: Total outstanding Credit Card balance.

Payment
Minimum Amount Due: A percentage of your credit card outstanding
Types:
balance +All Charges + All Fees + Interest for the month + Arrears.
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CREDIT CARD FEES

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 ONLINE CREDIT CARD SECURITY

1. Protect your credit card just as you would actual cash in your wallet/purse - Only
enter your credit card number on websites that you are sure are 100% legitimate.
2. Never send confidential data e.g. passwords, credit card information via e-mail
unless using secure mail as it can be intercepted by a third party.
3. Verify that the website is encrypted by checking the web page URL (HTTPS)

4. Ensure that data being transmitted is encrypted by checking to make sure that a
padlock is displayed
5. Use caution when accepting prompts- to install programs or add-ons to your
computer or smart phones.

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PROS & CONS OF CREDIT CARDS

PROS CONS
 Quick way to borrow especially
X Overuse
for emergencies
X Paperwork
 Cheapest source of funding
X High-cost fees
 Convenience and flexibility
X Deepening your debt
 Record keeping
 Perks: Cash Back, reward points,
discounts etc.
 Shopping in safety

Document Title 18
SIMPLE CREDIT CARD RULES TO FOLLOW

 Always sign the back of your card as soon as you receive it

 Don't use your credit card as extra income
 Don't use your credit card to live beyond your means
 Always read the fine print
 Treat your credit cards like cash; secure them accordingly
 Report lost or stolen credit cards immediately
 Always verify the amount on your credit card receipt before signing
 Do not sign blank credit card receipts
 Always check and re-check your billing statements each month
 Do not share your credit card information with strangers

Document Title 19
FINANCIAL INDEPENDENCE

Document Title 20
DEFINE YOUR FINANCIAL HEAVEN
Financial independence begins by knowing where you currently stand.

Start by determining the following

• Income
• Expenses
• Assets
• Liabilities

Measure wealth in terms of time

Determine your Wealth Number = Your available money

Your monthly expenses
= X Months
Document Title 21
Start Early, Re-invest gains
HOW TO DETERMINE YOUR NET WORTH

Document Title 22
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CAUSES OF FINANCIAL DIFFICULTY

• Job loss
• Medical expenses
• Unexpected expenses “We buy things we
• Living beyond ones don't need, with money
means we don't have, to
• Trying to keep up with impress people we don't
the Joneses like.”
• Poor money management ~ Dave Ramsey ~
skills
• Rise of inflation

Document Title 23
HOW TO DEAL WITH FINANCIAL DIFFICULTY

1. Understand why it happens

2. Address the issues head on –
take ownership
3. Learn how to have a healthy
relationship with money
4. Live within your means
5. Borrow to invest versus to
spend
6. Learn how to budget

Document Title 24
FINANCIAL DIFFICULTY AND YOUR HEALTH

Employees facing financial difficulties have

• Poor overall health
• Poor on-the job performance
• Poor work and family relationships

Financial stress can result in:

• Depression
• Substance abuse – alcohol, drugs

What to do:
Seek medical assistance immediately
Document Title 25
HOW TO ATTAIN FINANCIAL INDEPENDENCE

LIFE
MANAGING INVESTMENT FINANCIAL
INSURANCE STYLE
CREDIT OPTIONS PLANNING
CHANGE

Credit is good if used for Several Options A safety against •Avoid Impulse •Budgeting
investment but could from High Risk emergencies. buying
easily lead to financial to Low. •Keep track of your
difficulty if not •Buying a house This ensures •Avoid Keeping expenses
controlled. •Fixed income your wealth or up with the
•Share save savings is not Joneses •Pay yourself
•Staff loans- Mortgage, •Life, education & wiped out by
PL,&CC health insurance unexpected event •Have a heart of •Maximise your
•Micro Finance e.g. policies e.g. Theft, fire, Contentment retirement savings
Kenya bankers – High •Precious metals accident, illness •Finally Save for
Rates •Stocks @ NSE and now days •Have a vision. known-expenses,
•Hire Purchase •Starting a terror attacks Have a long term emergencies and
•Credit from Friends and business plan. investments
Family Document Title 26
. . . A FEW OTHER POINTS TO CONSIDER

The power of compounding. e.g. in our pension you earn

interest on interest

Start early, stay focused .

Be consistent and disciplined. Live within your means

Review and rebalance your investment portfolio regularly

Seek advise from financial experts (wealth management

team)

Don’t put all eggs in one basket

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