FINANCIAL

LITERACY

HANDOUTS

WHAT DOES IT TAKE BE FINANCIALLY LITERATE?

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CONTENT

Manage your money well & keep track of your records

1 What does it mean to live a good life? 6 2 How is money coming in and going out in your household and business? 7 3 What other items do you own which are not cash? 8

Plan ahead

4 What is financial planning? 9 5 How can you set financial goals for yourself? 10 6 How can you make a savings plan to achieve a financial goal? 13 7 Why do you need to save? 15 8 What risks do you face when you borrow? 16 9 Which risks are you exposed to? 17 10 How can you prepare yourself to manage such risks? 18

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Make informed decisions about financial products & services

11 How do you start banking? 19 12 What questions should you ask at the bank when opening an account? 20 13 What are the steps to form a savings group? 21 14 What factors do you need to consider when borrowing? 24 15 What different loan products can the bank offer to you? 25 16 How much does it cost to take a loan? 26 17 What are your responsibilities when taking out a loan? 27 18 What are the bank’s responsibilities when giving you a loan? 28 19 What rights do you have towards a financial institution? 29 20 What happens if the bank fails to meet its obligations? 31 21 How does an insurance policy work? 32 22 What insurance products are available? 33 23 What questions should you ask before buying an insurance product? 34 24 What steps do you need to take when buying and using insurance? 35

Contribute to wise and sustainable financial decisions in household and community

25 How is labor divided in the household based on gender expectations? 36 26 How do you organize household tasks in your family? 37 27 Self-Assessment: financial decision making in the household 39 28 What is a conflict? 42 29 How can we transform a conflict into peace? 43

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Manage your finances to succeed in business

30 What characteristics make a successful entrepreneur? 44 31 Who makes or breaks your business? 45 32 What challenges are you facing as an entrepreneur? 46 33 Is your business profitable? How much profit are you making? 47 34 How do you register your business name? 49 35 Self-Assessment of your business 50 36 What taxes do you need to pay? 54

37 Glossary of Financial Terms 55

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1 What does it mean to live a good life?

The good life means to be able to satisfy your needs – from basic physiological needs that are physical requirements for human survival to psychological needs of belonging, being respected and being able to realize your full potential as human being over your lifetime. The following graph presents those human needs, and is based on Maslow’s hierarchy of needs.

2 How is money coming in and going out in your household and

business?

We can use a cash flow tree to illustrate how money is coming in (income) and going out (expenses). What makes a healthy cash flow? Your income and expenses are balanced. Your income is not spent at once. A portion is put aside for future use.

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3 What other items do you own which are not cash?

The cash you hold is just one form of assets you own. Any item that can be owned and has value is called an asset. Assets can generate cash by being sold, or cash is spent on acquiring and maintaining assets. You can imagine your asset position to look like a house (which in itself is an asset). Just as with the cash flow, household and business assets should be considered separately. When you deduct what you owe to others from your assets, you get your net position (net worth).

Depending on the assets and their quality, their value (the amount of cash you would get when selling them) changes over time. It is important to invest into the maintenance of your assets (e.g. house repairs, car repairs…) to maintain their functionality (and value). Over your lifetime, you can use the income you earn to build up your asset position from lower to higher value (asset transformation).

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4 What is financial planning?

Financial planning means thinking about the future of your family, your business and the community you live in or come from. At any point in time, you want to make sure that your basic needs and those of your loved ones are met. This requires that you have the financial resources available to do so. It also means that you prioritise and avoid wasting money on luxury items today in order to have sufficient resources available tomorrow to satisfy your needs. Financial needs change throughout our lifetime. After graduating from school, we start working and earning a living on our own. Apart from daily expenses, we spend money on special purposes, such as getting married, building a house and all expenses related to raising children. During the later years, we should be able to manage what we have saved for meeting daily expenses. We might earn moderate income through assets we own (e.g. rent income) if we have laid the foundation in earlier years.

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5 How can you set financial goals for yourself?

Financial goals are expected results with regard to our future financial situation, our expected income and wealth. Financial goals represent your future needs and wants in an assumed living situation (for example, you can set the goal to buy land and build a home for your future family before you will be 40 years old).

Financial goals can have a short-, mid- or long-term orientation. For example, your short-term goal may be to repair the roof of your house. Your mid-term goal may be to add a little store to your shop, and your long-term goal to build up a second business. All these activities would cost money, and they need to be funded.

Financial goals should be ranked by priorities - first the most important ones then the less important ones. By setting financial goals and achieving them you will be able to plan for your future and to live within your means. Share your goals with family members, close friends or business partners who would be affected by their implementation. This will create some expectations and help you achieve your goals. Set challenging and achievable goals. If a goal seems to be too "big", split it into smaller sub-goals.

Set one to three financial goals for each section. Make sure your goals are clear, specific and realistic*, e.g. “I will save ...NGN per week from now.”

Based on your goals, make a financial plan (e.g. budget, savings plan, investment plan or loan repayment plan) to know how much money you can (and should) regularly put aside (save) for satisfying your future needs and wants.

* SMART: Specific, Measurable, Action-oriented, Realistic and Time bound

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What personal financial goals do you have?

What financial goals for your family do you have?

What financial goals for your business do you have?

For the next 6 months

For the next 1 year

For the next 3 years

Priority goal

Resources needed to achieve the goal

(including budget)

Budget breakdown

(NGN)

Savings target (how much, how often

I will save for it)

Other considerations (steps to

take/timeline)

Personal financial goal

Financial goal for your family

Financial goal for your business

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6 How can you make a savings plan to achieve a financial goal?

A savings plan is a personal document that helps you to be aware of your future needs and wants and their importance. To draw a savings plan, you

1. Set a financial goal: what item(s) should you save for (if these items address future needs) or what items could you save for (if the items address future wants).

2. Rank the items you need or want to save money for by importance. Think of the consequences of having obtained a specific item (or having paid for a specific service) at a specific moment.

3. Shop around and compare prices for your goals. For long-term goals (expensive items) consider future price increases.

4. Determine by what time you should have accumulated the required amount of money. For some items, e.g. school fees, time is critical. For others, it is not.

5. Finally, work out how much money you need to save every month (or week) to achieve your financial goal in time. Be realistic.

Once the savings plan is complete, cross-check regularly with your budget if you are able to save the required amount. If there are inconsistencies, you need to review either your budget or your savings plan or both.

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Savings goals Ranking of importance*

Total amount required (NGN)

By what time needed

Amount of savings required per period (NGN)

Short-term goals

(to achieve

within one

year)

Seed packets 1,200 6 weeks 200

Subtotal of savings required per week

Long-term

goals

Cow 60,000 12 months 5,000

Subtotal of savings required per month

Total savings required

* Please rank all goals in the respective section starting from 1 "is of highest priority".

It will probably take you longer than a year to achieve these goals.

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7 Why do you need to save?

Saving is important because it will allow you to: Manage your daily cash flow (when your

income seems not to be enough to cover for your daily expenses)

Prepare for emergency cases (sickness, death of family member, flood, fire)

Improve your way of living (education, improving or building a house, preparing for old age)

Build up capital for investment into business or acquiring assets (replace or repair tools and equipment, expand your business…) Finance social obligations (wedding, birth…).

Manage daily cash flow

Be prepared for emergency situations

Improve your way of life

Build up capital for investment into assets/ business

Save for social obligations

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8 What risks do you face when you borrow?

It might be difficult to repay when the loan is used for something that does not generate additional income. Let’s look at the cash flow tree. To repay the loan, the money has to come from somewhere: in the best case from your business sales or your salary. If that is not the case, then you have to go into your accumulated savings (if these are held with the bank, they might not allow you to touch them until the loan is paid off from other sources). You might have to sell your assets (household items, grains, livestock etc.) at a time when you don’t get a good price for it. You might be going around to ask friends and family to help you out (which might put you in a difficult position).Eventually, you might even take on another loan just to be able to pay back and reduce the pressure on you. This will lead to a cycle of debt, and you will find it very difficult to get out of that situation and be free of debt again.

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9 Which risks are you exposed to?

The well-being of yourself, your family, your property and business can be impacted by various events as illustrated in the graph. Some events are easier to cope with; others can affect the living conditions of your family for many years.

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10 How can you prepare yourself to manage such risks?

Make a list of unexpected events and emergencies that may happen throughout your life (from birth to death). Note down those events/emergencies that may be relevant to you, your family and/or your business. Think about the consequences if this event occurred and options for dealing with these consequences.

Adverse event or emergency

relevant to me and my family

Consequences for me and my

family/business

Measures of protection

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11 How do you start banking?

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12 What questions should you ask at the bank when opening an account?

Costs

What fees are charged for using the account, cheque

book, transfers, and withdrawals? Are there any

other costs? Are there penalties for early

withdrawals?

Interest

Will my savings earn interest? If so, how much?

How and when is the interest paid? What is the difference in interest rates

for different savings products?

Requirements

Do I need to deposit a minimum amount? How

much am I allowed to withdraw and when? How

easy is it to withdraw funds from the account?

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13 What are the steps to form a savings group?

Saving in a group is better than saving at home. The group encourages you to put money aside and learn skills, such as keeping records of your savings and managing your money well. You are also less tempted to spend money.

The group is owned, managed and operated solely by its members. For the group to function well, members should Have a common bond Set clear objectives Are honest and work hard to achieve their

objectives Have between 10 – 25 members Agree on rules to follow and note them down

in a constitution. Rules that aren’t enforced are seldom obeyed.

Keep accurate records of their activities and meetings to ensure transparency and trust among the group.

Hold regular meetings at the time and place determined by the group and participate in discussions and decision-

making. The group appoints a management committee consisting of 5 members.

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Members meet 2 to 4 times a month. Transactions are done before the whole membership to ensure transparency. Members sit in a U-shape which enables all individuals to observe all group operations. The management faces the members. Each member of the group is assigned a number starting with the Chairperson continuing with the members of the management committee and the other group members. This order is maintained for the entire cycle and members always sit in the same position. All procedures are conducted in a systematic manner based on this number order.

The fines bowl is positioned in front to the chairperson normally at the entrance to the

SITTING ARRANGEMENT DURING SAVINGS GROUP MEETING

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meeting place as a reminder that it is the responsibility of the chairperson to ensure that the procedures are followed. The working area should remain neat. The cashbox is placed in front of the box keeper. The money counting bowl is placed in front of the money counters and must be clearly visible to all members. Every member holds a personal savings passbook. The money counters count the savings contributions of members. The record keeper updates the savings passbooks.

Between meetings, cash and passbooks are locked in a cashbox with three separate padlocks that are held by 3 different group members who are reliable as they have to come to all meetings or the cashbox cannot be opened. Key holders are nominated from within the group. The members of the management committee cannot be key holders.

At the end of a savings cycle, which usually lasts for one year, the group closes its books. The group can decide to introduce other features over time, such as daily savings option, loans and social fund which serves as a safety need to help members out in case of emergencies.

You can register your group with the State Department of Cooperatives under the Ministry of Commerce and Industry or under the Ministry of Agriculture at the state level. The application must be signed by at least 10 members qualified for membership. A group of at least 5 to 10 co-operative groups may come together as a union.

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14 What factors do you need to consider when comparing sources

where you can borrow from?

Depending on which source you borrow from, the answers to the following questions will vary:

How much will it cost (interest, fees, charges)?

When do I pay back and how

much?

What are my chances of getting

the loan?

When will I get it?

How far is it from my home/ business?

Are there other services/ factors I have to consider?

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15 What different loan products can the bank offer to you?

The conditions for the various loan products vary. Therefore, you have to find out the cost and conditions that apply for your bank by asking specific questions.

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16 How much does it cost to take a loan?

The total cost of a loan is not only the amount you borrow but also the interest, fees and charges for processing the loan application. All these costs are included in your weekly or monthly payments. You get the total cost of the loan when you sum up the individual payments and add upfront charges. You also need to consider the compulsory savings that you bring upfront and will not have access to until the loan is fully repaid. In addition, you may have to spend money for transport or close shop to attend meetings at the bank. You have to think about these costs when taking the loan.

Indirect costs

Penalties for late

repayment

Fees and charges

Interest

Borrowed money

(principal)

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17 What are your responsibilities when taking a loan?

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18 What are the bank’s responsibilities when giving a loan to you?

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19 What rights do you have towards a financial institution?

Financial institutions must:

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20 What happens if the bank fails to meet its obligations?

For various reasons, the bank might have fallen short of meeting its responsibilities, e.g. you might notice that you have been overcharged or not been given complete information about the costs of a product/service.

Remember that you have the responsibility to provide truthful information. At the same time you have the right to be heard. Good financial institutions welcome justified consumer complaints to help them improve the quality of their products and services.

In your complaint: Briefly describe the incident. Explain the reasons for complaining. Give evidence of complaint. Make a constructive suggestion on how to

resolve the problem. Give notice about your action in case your

expectations are not met (set deadlines).

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21 How does an insurance policy work?

An insurance policy is a contract between the client (policyholder) and the insurance company. The policy includes details about: Premium: The premium is the price you have to pay to the insurance company for the protection, usually

every week, month or year. If you don’t pay the premium regularly you are not protected against the loss. Benefits: The money that the insurance company promises to pay to you if a loss occurs that is covered by

the policy. Beneficiary: The person who receives the benefits that the insurance company pays. The beneficiary can

be the policyholder or other persons as specified, e.g. family members.

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22 What insurance products are available?

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23 What questions should you ask before buying an insurance product?

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24 What steps do you need to take when buying and using insurance?

If at any point in time you do not provide correct and accurate information, the insurance company might not compensate you when you make a claim.

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25 How is labor divided in the household based on gender expectations?

Gender division of labor results from society that attributes activities and roles according to the person’s sex. Cultural practices determine masculine and feminine roles and attribute tasks accordingly. Based on the socio-economic context and gender expectations, men and women perform different work roles.

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26 How do you organize household tasks in your family?

Note down the tasks done by family members during the day. How would you characterize the way in which labor is divided in the family? Why are the tasks distributed like that? Who bears what burden in the family? Why? What would be the consequences if men performed (more) tasks which are traditionally considered to be "women's tasks" (and vice versa)?

Daily timetable

Time Tasks done by women Tasks done by men Tasks done by children

04:00am

05:00am

06:00am

07:00am

08:00am

09:00am

10:00am

11:00am

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Time Tasks done by women Tasks done by men Tasks done by children

12:00am

01:00pm

02:00pm

03:00pm

04:00pm

05:00pm

06:00pm

07:00pm

08:00pm

09:00pm

10:00pm

11:00pm

12:00pm

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27 Self-Assessment: financial decision making in the household

Recordkeeping and cash flow management

What are your income sources? Who contributes how much?

Do you discuss decisions with your spouse about: Daily expenses (food, medicine…) Purchase of durable household items (TV,

furniture…) Purchase of personal items (clothes, wig…)

Are you comfortable with the way money is spent in your household?

How do you decide how much to save and where to save?

Have you taken a loan before?

Did you discuss it with your spouse? How was the decision taken (together, alone)?

What was the purpose of the loan?

How did you decide how much to take and where

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to borrow?

Have you borrowed from your spouse’s family before?

Financial planning

Do you have common household goals?

How are decisions taken when it comes to money management?

How do you prioritise spending?

Do you set goals together and plan towards achieving them?

How do you decide about bigger expenses, such as children’s education or business investment?

What do you think are you doing well in terms of financial management in your family?

What are the challenges you are facing?

What happens if you don’t agree on an issue? Who has the final say? How are decisions enforced?

What do you think could be done better?

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Using financial products and services

Do you save in the bank?

Do you have a joint account?

Do you have a separate account for family and business?

Coordination with community

Are you and your family members in a savings group?

Do you have influence over decisions taken in the community?

Do you participate in community development?

Coordination in the family (access to resources)

Who owns what in the family (house, land, livestock…)?

Who decides what happens to those assets?

What happens to the assets if the owner passes on?

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28 What is a conflict?

Conflict is a relationship between two or more parties who have, or think they have, incompatible goals. In conflict, positions are opinions and demands the conflict parties express openly. Behind every position is an interest. Interests describe what we really want to achieve in a conflict, they are the reason “why” we take a certain position. Often conflict parties are not fully aware what the interests behind their openly stated positions are. Behind every Interest is a need. Generally, all major conflicts are about basic human needs, things that are necessary for physical and emotional survival: material needs (food, shelter, health care), social needs (sense of respect, belonging, security, human relationships, sense of participation and self-determination in decisions which affect your own life), and cultural needs (sense of identity, religion, a culture that gives shape to values and beliefs).

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29 How can we transform a conflict into peace?

There are four traditional but unsatisfactory ways in which conflicts between two parties are handled: A wins and B loses; B wins and A loses; the solution is postponed because neither A nor B feels ready to end the conflict; or a confused compromise is reached, which neither A nor B is happy with. A satisfactory path to transform a conflict to lasting peace needs to describe a “fifth way” where both parties feel that they win by using non-violence, to be empathetic and to be creative in dealing with underlying contradictions.

Adversarial approach Cooperative approach

TRANSFORMATION

Victim How we perceive ourselves Participant

Enemy How we perceive “the other” Partner

Win-or-lose conflict How we relate with the issue A common problem that needs to be resolved together

Confrontation (game of power): we see each other as the problem, the source of the conflict and focus on

our differences

How we see the process Collaboration: we understand our differences and work together to

find common ground

Source: Search for Common Ground’s“ToT Manual on Advanced Conflict Transformation”

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30 What characteristics make a successful entrepreneur?

A successful entrepreneur…

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31 Who makes or breaks your business?

Your business is all the relations that help you in getting inputs, adding value, selling your products and services and financing your business.

Family also plays a major role making or breaking a business especially by the kind of support or activities they play in the business. For example, providing support with advice, network, capital (loans), expertise and even workforce when needed. On the other hand family may also hold the business down by taking products or services without paying for them, or taking a loan without repaying.

Business relations/transactions are give and take. You give what it needs to get what you want.

They are also dynamic. Finding the healthy balance, looking for new opportunities and better conditions depend on you.

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32 What challenges are you facing as an entrepreneur?

You can analyse the strengths and weaknesses of yourself and your business as well as the opportunities and threats that you face from looking at the environment/place where you operate (SWOT Analysis).

What Strengths do I have? For example: your experience and skills, availability of quality inputs (resources, finance, workers), closeness to market, etc.

What are my Weaknesses? For example: lack of experience and skills, lack of quality inputs, distance to market, poor management and decision-making,

What Opportunities are out there for me to make use of? For example: growing demand for a product, high demand all year round, innovation (new/improved inputs), higher prices in new markets, new ways of adding value, joining a group for bulk purchase/sale.

What Threats make things more difficult for me? For example: price changes, family emergencies, natural disasters, new competitors, stiff competition, unfavourable government regulations.

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33 Is your business profitable? How much profit are you making?

The primary goal of all businesses is to make profits. Without profitability the business will not survive in the long run. Therefore, measuring profits (past, current and future projections) is very important for the business. Profitability is measured with income and expenses. Income is money generated from activities of the business. Expenses are the cost of resources used up or consumed by the activities of the business.

Money coming in (Income) Money going out (Expenses)

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To know how much profit you are making, you first have to calculate your gross profit. That means to deduct the costs from the money earned on selling products or services to your customers (sales revenue).

GROSS INCOME = MONEY IN – MONEY OUT (SALES) (COSTS OF GOODS SOLD)

In a next step you still need to deduct the tax you have to pay.

NET INCOME = GROSS INCOME - TAX

This gives you an idea how profitable your business is. To know how much money is coming in and going out exactly, you have to keep records of sales and sales on credit, expenses and expenses on credit using your Cashbook. If you have different businesses, you should keep separate records for each of them so that you know how much exactly you are making for each business.

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34 How do you register your business name?

If you want to make your business official, you register it with the Corporate Affairs Commission (CAC). Think of a business name. Avoid names that contain words like consult, expert, and technician etc. You could be required to provide a certificate to prove that you are trained in the area.

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35 Self-Assessment of your business

What is your business (idea) about?

Which sector are you in?

How did you start the business?

Why did you start?

What is your motivation to do business?

What businesses are you engaged in?

Where is your market?

How is the business doing?

What makes you a good entrepreneur?

What is your business model?

How do you ensure that you improve continuously (innovation)? New products, processes, building skills…

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How do you manage long-time customers who demand preferential treatment vs. your business’ financial sustainability (your need to cover costs)?

Do you have a strategy for succession?

How do you manage handing over/delegating to someone else? How will you ensure continuous quality? When is the right time to hand over?

Do you have several businesses? How do you manage them? What are the costs and benefits in diversifying (into different sectors)?

What is your market?

Who are your customers? What do they want?

What are their problems, needs, wishes, concerns?

Which product/service can solve their problem?

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How much can they afford/are they willing to pay?

Is there a market for your product/service?

How can you enter the market?

Why should customers prefer you over your competitors?

Why should people buy from you regularly?

What makes you and your business special? What is your Unique Selling Proposition? What value are you adding for your customers?

What are the challenges customers face with competitors?

What/how can you do it a better?

Are you an innovator (first mover) or late comer?

What do you need to be ready for the market?

Can you offer reliable quality products/services?

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Do you have the skills, knowledge and expertise it takes?

Do you have quality inputs?

Do you have sufficient and qualified staff?

Do you have enough capital?

If not, how much would you need? (Make a budget)

Do you communicate correctly and enough?

Do your customers, suppliers, employees, business partners and financiers trust you?

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36 What taxes do you need to pay?

Tax is compulsory levy imposed by Government on individuals, entities, transactions or properties to generate revenue for the support of Government and for all public needs. Tax is computed on three bases: (1) income earned, (2) consumption made and (3) gains derived from the sales of qualifying capital expenditure (assets). Taxpayers are categorized into: Individuals (sole proprietorships, partnerships, enterprises) and Corporation (incorporated companies). A taxpayer must have a Tax Identification Number (TIN). The most important taxes for companies and self-employed individuals are:

Personal Income Tax (PIT): PIT rate is applied on a graduated scale on taxable annual income: First N300,000 7%, Next N300,000 11%, Next N500,000 15%, Next N500,000 19%, Next N1,600,000 21%, Above N 3,200,000 24% A minimum tax of 1% of total gross income is imposed where an individual has no taxable profit or the tax payable is less than 1% of total gross income.

Company Income Tax (CIT): All registered companies have to pay CIT equalling 30% of total profit. Minimum tax is imposed where a company has no taxable profit or the tax payable is less than the minimum tax. The highest of: 0.5% of gross profit OR 0.5% of net asset OR 0.25% of paid up share capital OR 0.25% of turnover up to N500,000. Plus 0.125% of turnover in excess of N500,000.

Value Added Tax (VAT): Individuals and companies that are VATable persons are required to remit VAT on a monthly basis. VAT of 5% is paid by the consumers at the point of purchase.

Education Tax (EDT): All companies operating in Nigeria are required to pay an Education Tax of 2% of assessable profits, in addition to the payment of CIT.

Withholding Tax (WHT): This is not a separate type of tax but a means of collecting a portion of income tax at source, such as CIT or PIT.

Capital Gains Tax (CGT): This is tax on gains from the disposal of business assets. The rate is 10%.

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37 Glossary of Financial Terms

Terms appear in logical order.

Manage your money well & keep track of your records

Needs The basic necessities of life that individuals cannot do without or the "must have" in life.

Wants Items that are "nice to have" but not necessarily needed. Wants vary from person to person and over time. Wants largely depend on psychological factors.

Cash flow Net amount of cash moving into and out of a business and household.

Recordkeeping Writing down all the money that comes into your business and household and all the money that goes out of your business and household

It also means keeping all official financial records (statements, documents) which you receive when making financial transactions (e.g. buying or selling goods, rendering services, withdrawing or transferring money etc.) in a safe place.

Income Money that comes in from the activities you do, e.g. from salaries, profits, rents or from other sources, e.g. remittances, gifts, profit shares.

Gross income (or revenue or turnover) is the money received from the sale of products and services before expenses are taken out. Net income is money received from the sale of products and services after expenses are taken out.

Expense Money spent on household items (food, transport, school fees, rent, utilities, hospital treatment etc.)

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or business activities (inputs, labour, utilities etc.).

Profit A financial benefit that is realized when the amount of money gained from a business activity exceeds the expenses, costs and taxes needed to sustain the activity. Any profit that is gained goes to the business owners, who may or may not decide to spend it on the business. Opposite: Loss

Gross profit is earnings of a business after all expenses have been taken out (EBT - Earnings Before Tax). Net profit is earnings after all related expenses have been charged against net sales, all interest and tax has been paid (Earnings After Tax).

Loss You spend more money on producing or buying your goods or services than you receive by selling them. Opposite: Profit.

Asset Economic resource that is owned or controlled to produce positive economic value. Assets represent value of ownership that can be converted into cash. Opposite: Liability.

Liability An obligation to pay debts. Opposite: Asset.

Plan ahead

Budget An estimation of the income and expenses over a specified period of time.

Saving Putting money aside for future use. Income not spent, or deferred consumption.

Savings plan A guide for how to achieve your short- and long-term savings goals. In a savings plan you prioritize your saving goals and determine how much to save in total, by what time the money will be needed and the amount of money required per period (e.g. week or month).

Risk The possibility of a loss or harm, e.g. caused by flooding, fire, accident, sickness, job loss, theft etc.

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Insurance policy A contract signed between a client (policyholder) and an insurance company that specifies the kind of risk the client is protected against and the amount of money to be paid out by the insurance company (cover) in case the risk happens. For the insurance cover to be effective, the client has to pay regular amounts called premium to the insurance company.

Make informed decisions about financial products & services

SAVING & TRANSACTIONS In-kind saving Non-cash saving; includes all assets such as jewellery, household items, livestock, land, buildings.

Current account A type of non-interest-bearing bank account held at a bank or other financial institution for the purpose of securely and quickly providing frequent access to funds on demand. It allows the accountholder to write cheques and make payments for daily goods and services in withdrawing money. Operating a current account is a prerequisite for taking out a loan.

Regular savings account

Most common type of savings account. Timing and amount of deposits and withdrawals are flexible. Accountholders usually earn an interest on their savings, but if they make a certain number of withdrawals they will not earn any interest. There might be a minimum balance to open the account, e.g. NGN 500. See also Fixed deposit savings account, Target savings account.

Target savings account

Type of savings account opened by the accountholder to accumulate a specific amount of money to achieve a financial goal. The interest is typically higher than on the regular savings account but access is restricted (e.g. clients have to pay a penalty charge for early withdrawal).

Fixed deposit account

A type of saving in which the client deposits a fixed (usually higher) amount of money over a pre-determined period of time and at a fixed rate of interest. Access to the savings is restricted until the set date. It attracts higher interest than passbook savings or regular savings accounts.

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Minimum balance Minimum amount of money required by financial institutions for opening an account or applying for a loan.

Standing order Method of payment based on an agreement with a client's bank to make regular payments for an exact amount of money each month. The client determines the amount and the account into which the money should be paid.

Mobile money transfer

A service in which money is transferred by a payer to a payee through mobile phone device. Neither the payer nor the payee need to operate a bank account.

Remittances Domestic or international money transfer without holding a bank account.

BORROWING (LOANS) Borrowing Taking money from an individual or financial institution (e.g. bank) with the obligation to return it

within an agreed period of time (usually with an interest or a fee charged for the use of money).

The cost of credit is the real cost of borrowing. It is the extra amount a borrower has to pay back by the end of the loan above the amount that was borrowed. It includes the interest and other fees and charges. To calculate the cost of credit, add all weekly or monthly instalments plus any other (upfront) charges. Then subtract the amount borrowed (principal) from this total.

Loan Money that is borrowed and must be paid back on time, usually with interest and other costs and charges.

Loan application Document that provides the essential financial and other information about the borrower on which the lender bases the decision to lend.

Loan disbursement The act of paying out the loan to a borrower.

Loan repayment The act of paying back money previously borrowed from a lender. Repayment usually takes the form

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of periodic payments that normally include part principal plus interest in each payment. The other common method of repayment is a lump sum with interest at maturity.

Overdraft A form of short-term loan. An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation, the account is said to be "overdrawn". If there is a prior agreement for an overdraft, and the amount overdrawn is within the authorized overdraft limit, then interest is normally charged at the agreed rate. If the negative balance exceeds the agreed terms, then additional fees may be charged and higher interest rates may apply.

Bullet loan A type of loan that is not repaid in regular installments but the whole amount (money borrowed plus interest) is paid back at once at the agreed date.

Group loan A loan given to a group of 5-25 members who is registered with the bank; group members guarantee for each other.

Principal The original amount of debt on which interest is calculated. When borrowing, banks may additionally deduct upfront charges from the principal.

Interest (rate) Interest is the income you receive if you save money with a bank (in this case the bank is borrowing from you). It is also the money you pay if you borrow. Interest can be expressed as a percentage rate over a period of time (usually monthly or per year, for example 20% p.a. is 20% per year). 3% per month equals 36% per year.

A flat interest rate is an interest calculation method in which interest is charged on the initial loan amount rather than on the outstanding loan balance. In contrast, a declining interest rate is calculated only on the outstanding loan balance. In contrast, flat interest rate calculates the interest due on the entire amount borrowed irrespective of how much money has been paid back already.

A variable interest rate is not stable but keeps changing with the changes in economic conditions

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within a country. In contrast, a fixed interest rate does not change over the period of the loan.

When taking out a loan, usually a fixed and declining interest rate is the best (cheapest) option.

Installment The amount of money borrowed plus interest, fees and charges that is to be paid back in portions every day/week/month.

Collateral The security that the bank asks for before giving out a loan, for example a land title. The bank holds the title during the loan duration. In case the borrower defaults on the loan repayment, the bank can sell the land to recover the loss.

Guarantor A person who agrees to be responsible for the payment of the borrower’s remaining debt in case the person is not able or willing to repay.

Cycle of debt A situation where an individual, business or entity is perpetually in debt. There are different stages. One of the worst stages in the debt cycle is continuously borrowing money to pay another creditor.

Multiple borrowing Borrowing money for meeting previous debt obligations (repayment of previous loans).

Delinquency A situation where a borrower is late on repayment. Continuous delinquency leads to default.

Default Usually, a loan is declared in default when the borrower has stopped payment on a loan for more than 2 or 3 due dates.

FINANCIAL SECTOR Savings group Involves a group of individuals who agree to meet for a defined period in order to save (and borrow)

together.

Cooperative society An autonomous and voluntary association of people, who cooperate for mutual social, economic, cultural and financial benefits, through jointly owned and democratically controlled enterprise. A collection of cooperative societies with similar goals and objectives can come together to form a union

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as umbrella body.

Microfinance bank (MFB)

Any company licensed by the CBN to carry on the business of providing financial services such as savings and deposits, loans, domestic fund transfers, other financial and non-financial services to microfinance clients (small businesses, farmers and youth). Unit Microfinance Banks can operate within one LGA, state licensed Microfinance Banks can open several branches within the state and national Microfinance Banks can operate across the country.

Deposit Money Bank (DMB)

Commercial banks that provide different types of financial products and services (savings, loans, cheque, debit cards, ATM, online banking) and typically target customers with medium and higher income. It is the safest option for savings because the DMBs are regulated and supervised by CBN and NDIC. Deposits are insured up to an amount of NGN 500,000.

Regulatory authority

A public authority or government agency responsible for exercising autonomous authority over some area of human activity in a regulatory or supervisory capacity. Regulatory authorities are commonly set up to enforce standards and safety, or to oversee use of public goods and regulate commerce.

Central Bank of Nigeria (CBN)

The Central Bank of Nigeria controls and supervises the banking sector, promotes stability of the Naira and acts as a lender and financial adviser to the federal government. The CBN also houses the Consumer Protection Department (CPD).

Nigerian Deposit Insurance Corporation (NDIC)

The NDIC is an independent agency of the Federal Government of Nigeria that protects depositors’ funds, thereby helping to maintain financial system stability. All banks pay a contribution to the NDIC to compensate depositors of failed banks. Each depositor is entitled to claim up to N 500,000 for deposit money banks (DMBs), and up to N 200,000 for microfinance banks (MFBs) and primary mortgage banks (PMBs).

Nigerian Inter-Bank Settlement System

The NIBSS facilitates settlement of payments and fund transfers based on bank account numbers, through Bank Teller Points, Internet Banking, Mobile Phone, e-Commerce and other modern service

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(NIBSS) delivery channels in a safe and efficient way. NIBSS is owned equally by all licensed banks in Nigeria, and the Central Bank of Nigeria.

Bank Verification Number (BVN)

The BVN registration was a directive from the Central Bank of Nigeria to all Deposit Money Banks (DMBs) in the country to register all their customers biometrically as part of the Know Your Customer (KYC) policy.

PIN PIN stands for Personal Identification Number. It is a secret code consisting of letters and/or numbers that is used to verify the identity of the individual. Accountholders must key in their PIN to withdraw money from the ATM using debit card. Don’t share your PIN with anyone.

Responsibilities An obligation or duty that must be honoured based on the contractual relationship with a financial institution and regulatory guidelines. Responsibilities are obligations regulated by law. Opposite: Rights.

Rights Something to which you have a just claim based on the contractual relationship with the financial institution and regulatory guidelines. Entitlement to or not to perform certain actions. Opposite: Responsibilities.

Fraud If a person deliberately deceives another person to secure a monetary gain or other benefits. The most common form of fraud is theft by false pretence. Fraud can be committed in person or through media, such as email, phone calls, SMS, internet etc. It is a civil and criminal offence; the perpetrator may be prosecuted and imprisoned and forced to pay monetary compensation.

Ponzi scheme Financial fraud system in which investors are promised high returns in a short period of time. This promise makes them contribute their money to the scheme. In fact, investors are paid from their own money and subsequent investors instead of paying returns from profits on investment. The system will collapse after some time when the contributions by new investors are smaller than the pay-outs

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or when the promoter of the scheme disappears taking all the remaining investment money.

Scam An attempt to defraud a person after first gaining their confidence by trusting others, being compassionate, naïve or greedy. The common factor is that the victim relies on the good faith of the trickster. Scam is different from fraud because it is usually not directed at a specific individual, group or company, but it is a scheme targeting a large number of people.

Wonderbank Ponzi scheme that poses as financial institution to steal customers' money by promising them exceptionally high returns. Wonderbanks capitalize on greed and often operate through churches, mosques and cooperative societies to sell their products. If you give your money to them, you will not see it again.

Manage your finances to succeed in business

Investing The act of putting money, effort, time into an asset with the idea that the asset will provide income in future, appreciate and make profit. However, there is no guarantee that these expectations will be met. If the investment performs badly, you may lose part or even all of the invested capital. Investing is always associated with risk!

MSME The Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) classifies MSMEs according to the number of employees and the assets (excl. land and buildings). Micro enterprises: less than 10 employees, less than N 5 million asset value. Small enterprises: 10 to 49 employees, N5 to N 50 million asset value. Medium enterprises: 50 to 199 employees, N 50 to N 500 million asset value. If there is an inconsistency between the two factors, the employee criterion will hold.

Entrepreneurship 1) The process of designing, launching and running a new business, i.e. a start-up company offering a product, process or service. 2) The capacity and willingness to develop, organize and manage a

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business venture along with any of its risks in order to make a profit.

Unique Selling Proposition (USP)

Real or perceived benefit of a good or service that differentiates it from the competing brands and gives the buyer a logical reason to prefer it over other brands.

Tax Tax is compulsory levy imposed by Government on individuals, entities, transactions or properties to generate revenue for the support of Government and for all public needs. In contrast to tax: - Charge is an amount paid for the use of goods, services or infrastructure provided by the

Government. - Fee is a payment for the labour or professional services provided by a Government entity or

agency. - Fines & penalties are sums of money imposed by the Government on individuals and companies

for not meeting a particular condition i.e. for committing an offence. - Rates are usually imposed on property or other assets and are determined with reference to the

value of the asset. - Levies are flat amounts imposed on the citizens by the Government for the purpose of achieving a

given developmental programme. Levy does not have basis for computation and is not based on assessment.

Tax Clearance Certificate (TCC)

A written confirmation by the tax authority that a taxpayer is tax compliant.

FIRS Federal Inland Revenue Service (tax authority).

SIRS State Internal Revenue Service (tax authority).

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RESOLUTIONS: I WANT TO IMPROVE…

MANAGING MY MONEY WELL AND KEEPING RECORDS BY:

PLANNING AHEAD BY:

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MAKING INFORMED DECISIONS ABOUT FINANCIAL PRODUCTS &

SERVICES BY:

CONTRIBUTING TO WISE FINANCIAL DECISIONS IN MY HOUSEHOLD &

COMMUNITY BY:

MANAGING MY FINANCES TO SUCCEED IN BUSINESS BY:

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Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH 22 Haile Selassie Street Asokoro Abuja / NIGERIA T +234 7044369589 E sedin@giz.de I www.sedin-nigeria.net