have been asked to speak to you about the importance of being financially fit. but what is finance? the text books have a more elaborate way of defining finance but in common usage, the term finance simply means the management of large sums of money over time. for our purposes, we would define “ finance ” as simply the management of funds, not necessarily large. funds need to be managed because of two main factors : financial resources are scarce in relation to our aspirations and secondly because our receipt of funds and our need to incur expenditure do not normally coincide. by convention, most employees are paid monthly but their expenditure needs are spread across different times of the month. a parent may receive employment income today, but tuition fees for his or her ward may not have to be paid until next year. because considerable time can elapse between expenditure being incurred and the receipt of income, various institutions, including commercial banks, have emerged to assist in the financing of business during this interval. therefore time plays an important role in financial calculations. being financially fit simply means positioning oneself to deal with financial uncertainty. it means developing a series of financial habits that will make us better able to deal with unexpected expenses, rising cost of living and a decline or loss of income. we may draw an analogy with the human body, in the sense that one desires to be physically fit so that the body is better able to fight unexpected diseases. in short, sound financial management is simply a sensible way of spending and investing your money over a given period. to be financially fit, your money payments should be less than or at least equal to your income over that period. to achieve this you need to devise a personal plan that involves regular monitoring and evaluation. the planning process has a number of steps, usually five. you first need to assess your financial situation, then set financial goals, create an action plan to guide you towards those goals, take an identified course of action and monitor your progress over time. assessing your financial situation usually involves a listing of all your assets and liabilities. examples of your assets would include things like a car, a house, a bank account, and so on. your liabilities would include items like credit card debt, a bank loan, and so on. subtracting your total liabilities from your total assets will indicate your personal financial situation or your personal net worth at that point in time. finding out that your financial net worth is negative is like getting on a scale and finding out that you

thanks to the development of advanced financial techniques. this acted as an additional factor boosting household debt. assessment of the increase in household debt this great increase in household debt did bring positive effects to the macro economy, as well as household welfare and financial institutions business. the expanded borrowing opportunities of households helped to improve their qualities of life, by making life - cycle consumption - smoothing and house purchases easier. financial institutions were able to enjoy a wider range of profit opportunities, through household lending and through transactions in credit derivatives with household loans as the underlying assets. the total outstanding volume of credit derivatives worldwide is estimated to have swollen more than 110 times from 180 billion us dollars in 1997 to 20 trillion us dollars in 2006. in korea, the share of household lending in banks'total loans rose from 28 % in 1996 to 50 % in 2006. with corporate demand for funds greatly blunted after the 1997 financial crisis, korean banks instead increased their profit bases through household lending. this increased household lending helped to heighten housing market vitality, to stimulate consumption and to enhance banks'profitability. in these respects, it is evaluated as having contributed to the improvement of the macro economy in terms of the trends of business activities and of employment. having said this, however, i should point out that if household debt rises to an excessive level, there is a greater likelihood of households being unable to repay the principal and interest on their loans when interest rates rise or housing prices fall. this, of course, generates financial institution insolvency and financial market turmoil, which in turn has a negative impact on the real economy. this possibility has been dramatically demonstrated by the us sub - prime mortgage meltdown. in the case of the sub - prime mortgages, strict screening of borrowers'redemption capacities was often neglected at the time of loan extension. credit risk was then passed through to the financial system as a whole by way of mbss and cdos. for these reasons, when economic conditions weakened, it aggravated the seriousness of the problems of non - performing mortgages with corresponding severe impact on the financial market. in case of korea, however, there has been no signs of household debt turning sour so far, although it has increased very rapidly since the early 2000's. the delinquency rates on banks'household loans stood at only 0. 6 % at year - end 2007. future policy tasks in many countries, a large proportion of household debt is made up of housing finance loans. to maintain household debt