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.
“The number one problem in today’s generation and economy is the lack of financial literacy.”
– Alan Greenspan
Why is Financial Literacy So Important?
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.
Does Gender Affect 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?
Build Your Financial Literacy
Learn Basic Budgeting Skills
An ANZ report found that the financial wellbeing of men and women begin to be affected from early adulthood. The gender pay gap places women at a disadvantage as soon as they enter the workforce. Additionally, women looking to raise a family in the future can be further affected because of any parental leave they take.
Being able to build their savings and get ahead from the moment their careers begin will help women be prepared for any career breaks and also manage their superannuation funds to prevent any shortfalls. This can be done by learning basic budgeting skills, which will help you see how much money you have to spend or save to achieve your goals.
Manage Your Debts
There are many debt calculators and methods that can help you manage your debts. The two most significant debts most women will have are education-related debts, such as HECS, or your home loan.
Use tools like a Mortgage Calculator to help you understand how much you can afford to borrow. This will help you work out a repayment plan that fits your budget.
For individuals who own credit cards, a Credit Card Calculator can help you manage your spending and stop your debts from spiralling out of control.
Investing For Your Future
As mentioned before, women are less likely to take risks and are less confident in their critical decision-making skills. As such, women are less likely to choose high-growth investments like shares. This can lead to women missing out on potentially higher returns on their savings over time.
As women generally retire earlier but live longer than men, they can expect to have longer retirements. This makes it more important for women to have enough money to last their retirements.
Many superannuation funds and investment funds give recommendations for which investment options match your life stage. Make sure to do a little bit of research to understand what fits your life stage best to have the best chances of your investments growing over time.
“It takes a lot of work and time to change your thinking and to become financially literate.”
– Robert Kiyosaki
Although financial literacy is important for all, women are at higher risk of being financial illiterate. Becoming more financially knowledgeable can change a woman’s life. It empowers her to be self-sufficient, independent, and make confident decisions to improve her financial situation.
The CBCC understands that achieving financial literacy can be a challenge for many women, especially for those from culturally and linguistically diverse communities. That is why we launched BRAVE: Return To Work. In partnership with Western Sydney University, we are providing women with the opportunity to gain micro-credentials in financial literacy.
Become financially literate and start changing your life today.