Financial Literacy: Making Sense Out Of Dollars | CBCC News

Money. One of the most important elements in our modern society, yet so many people find it awkward to hold discussions about money… including with themselves.

However, having a clear understanding of your own financial situation is the key to financial stability and to financial literacy. The ability to understand and effectively use financial skills is essential to helping people manage their money wisely.

From attaining basic numeracy for personal financial management and budgeting, to understanding risk and returns on investments, to understanding how your own finances tie into the wider economic environment, being financially literate is the foundation of your relationship with money.

From a social welfare perspective, financial literacy matters greatly if people are able to manage their financial affairs wisely and live within their means. It prevents people from accumulating debt burdens and developing poor spending habits and encourages long-term preparation.

Other benefits include being more prepared for emergencies and helping cushion the impact of rising costs of living and inflation. Children who grow up in financially literate households are also more likely to have healthier relationships with money and manage their finances wisely.

Beyond that, a financially literate society can lead to more resilient financial systems, and ultimately, to the more efficient allocation of resources in the wider economy.

For example, having a strong understanding of compound interest rates, investment time horizon, and risk tolerance can affect how individuals manage mortgages, loans, super funds, and investments. Understanding how their decisions can affect their tax liabilities in the future is also part of having strong financial literacy.

Historically, gender has greatly affected the way men and women are perceived and treated when it comes to employment and business, and financial literacy is another aspect with a persistent gender gap. Research in financial literacy often identify men to be more knowledgeable of financial concepts and are better able to make significant financial decisions, with conclusions often drawn that women are not as interested in money as men.

However, financial literacy for women is an important aspect of their independence, financial or otherwise.

According to research by Fidelity International, Australian women are more confident than their Asia Pacific counterparts in their ability to manage their own money, according to research by Fidelity International.

However, only 54% of Australian women felt fairly or very confident in being financially independent. Within that, only a small percentage of women had the confidence to invest their money as they saw fit. Many women experience higher levels of stress when it comes to managing money, with over a third finding it overwhelming. Providing better resources, support services, and guidance is therefore still greatly needed to help close this gender gap within financial literacy.

But what can make financial management and financial literacy overwhelming for some women?

Many family economists suggest that gender-based labour divisions within the household can contribute to the gender gap in financial literacy. Men traditionally and frequently make the majority of financial decisions for their families. Many women may therefore not have observed positive role-modelling from their mothers regarding attitudes to managing money or undertaking maths-based tasks.

Additionally, research has found that women have been found to be risk averse in many contexts, such as stock investing, gambling, and tasks related to physical skills. In situations where women were asked to make decisions with uncertain outcomes, women often chose the non-response option, whilst men were willing to choose an option with a more concrete answer even if they were unsure of the correct answer. This can lead to women missing out on education or training opportunities in topics that they lack confidence in, such as financial literacy.

However, the financial decisions women make throughout their lives can significantly impact their financial position in later years. Their ability to make sound financial decisions is important for their personal outcomes and for overall societal outcomes. There is a need for intergenerational transfer of knowledge and attitudes to financial decision-making amongst women.

But, just how can women begin to build their financial literacy?