Financial Literacy Is Empowering Women
Women together can change antiquated narratives about buying a home.
Women have never felt more empowered than we do today. There are more female CEOs than ever. Women are running for office in record numbers. More women are pursuing entrepreneurship. Women are earning more bachelor’s degrees than men. More working mothers are the primary or sole earners in their households. The list goes on and on.
Women have made tremendous progress in various economic aspects over the years. However, women still trail men when it comes to financial literacy. Financial literacy refers to an awareness of the skills and tools needed to make informed decisions when using your money.
For too long, women have been socialized to believe that they were bad with money or that financial management was a role better left to their husbands. While women have come a long way, there remains a significant gender gap in financial literacy.
Not surprisingly, low financial literacy, which is the forerunner of poor financial decisions and ineffective financial behaviors, can lead to multiple challenges for the modern woman. According to the results of a recent study conducted by the Global Financial Literacy Excellence Center at the George Washington University School of Business, women are less likely than men to provide correct answers to questions about basic financial concepts and more likely than men to admit that they do not know the answer to such questions.
This is especially important because women live longer than men and tend to retire earlier. Consequently, to maintain the same lifestyle in retirement, women need a larger retirement fund than men. This all points to an urgent need to increase the levels of financial literacy among women today. Otherwise, those women in traditional household roles and those leaving such roles will find themselves less prepared to secure their financial future.
Ninety percent of women will need to be self-reliant with financial decisions at some point in their lives. Let’s discuss ways that can help women improve their financial situation, no matter where they start, through becoming more financially literate and financially effective.
Be actively engaged in pursuing knowledge and building financial self-confidence.
Ask questions and begin a conversation about personal finance by focusing on a topic on which you feel comfortable and to which you can relate easily.
Be involved in financial decisions that can affect you or your family.
Pay yourself first by participating in an employer-sponsored retirement plan. Or, if you are self-employed or are a stay-at-home parent, create a retirement plan that you can contribute to for your future.
Spend less than you earn.
Build an emergency fund equal to three- to six-months of expenses.
Set short- and long-term goals and develop an estate plan, including a will, which you can review regularly to ensure it continues to meet your needs and life circumstances.
Seek the guidance of experienced financial advisors who you can trust to guide you through the process and help you make the decisions that are key to your long-term financial success.
Now let’s dive deeper into some key aspects of financial literacy that every woman should understand.
Income
The first step to a stable and secure financial future for anyone, of any age, involves securing and growing personal income. Whether you’ve been in a traditional household role and are entering the workforce because of divorce, being widowed or partner unemployment, or you are just leaving high school and are ready to take on the world, earning income will be at the top of your financial to-do list.
Here are just some of the ways to secure a good income:
Continuing your education to earn a degree and/or certificates.
Researching your role, so you can negotiate fair and reasonable salaries.
Exploring the risks and rewards of owning your own business.
Identifying your strengths and skillset and knowing their value.
Creating multiple streams of income, whether active or passive income.
Budgeting
The next step in building your finances must be understanding and controlling your expenses. The best way to do this involves the creation and use of a budget, also known as a spending plan.
With a budget, you develop a plan of action that helps you allocate your income. A typical budget will separate your income into at least five segments, these include: paying bills, paying off debt, saving/investing, giving and enjoying. Budgeting helps you to see clearly where your money comes from and where it is going.
Here are some basic steps to create a budget of your own:
Gather all financial documentation (pay stubs, bank statements, bils, etc.) and list all of your monthly income and expenses.
Organize your expenses into categories such as, fixed (recurring monthly at the same amount), variable (recurring monthly at different amounts), or periodic (all others).
Calculate your total income and expenses separately.
If your income is greater than your expenses, you are allocating your money wisely.
If expenses are more than your income, you will need to cut down on unnecessary expenses, increase your income, or potentially both.
Keep track of your budget by using a spreadsheet, or one of many budgeting apps or websites so you can see your spending trends month to month.
Along with identifying and eliminating unnecessary expenses, you can also use a budget to set limits on your spending and prioritize debt repayment or saving.
Credit Building
Credit is a very important aspect to financial literacy. Any time you apply for credit, whether that is a credit card, a loan or potentially even applying for certain jobs, your credit score determines your eligibility. A credit score attempts to show lenders how likely you are as a borrower to repay the lent money on time as agreed upon. The higher your credit score, the better.
For individual borrowers, the FICO score dominates the lender decision-making process. This score ranges from 300-850 points. A score in the mid-to-upper 600s is often considered good. While lenders typically see a score of 750 or higher as excellent. It is ultimately left up to each individual lender to determine what they consider a poor, good or excellent score.
There are ways to build up your credit score, even if you don't use a traditional form of credit or have any loans. Here is one way:
Consider applying for a secured credit card. This type of credit card acts similarly to a prepaid card. You deposit a specific amount of money which is used as collateral by the financial institution (usually between $300-$1,000). That deposit equals your credit limit. Look for a bank or credit union that offers no annual fees associated with the card.
Making on time payments is incredibly important, as your history of debt payments makes up the most important factor to determining your credit score.
Other than looking for an affordable secured card, make sure that the issuer of the card reports the credit activity to the credit bureaus. If the activity is not reported, it will not build your FICO scores.
Debt
Eliminating debt should be a top priority when discussing finances. While women in general are earning more advanced degrees than men, this achievement comes with higher amounts of student loan debt as well.
Aside from prioritizing debt repayment in your budget, here are a few more ways you can eliminate debt:
Increase monthly payment amounts, so you can pay debt off faster.
Negotiate with your lender for lower interest rates.
Consider transferring your loan to another lender with lower interest rates, or take advantage of credit cards that offer 0% interest on credit card balance transfers.
As with all debt, making on-time payments is crucial.
The best way to live debt-free is to prevent yourself from going into debt in the first place. Here are tips to help with you goal of living debt free:
Choose to pay with cash whenever possible.
Avoid putting yourself in the position where an impulse purchase becomes likely (grocery shopping when you’re hungry, “window shopping”, or online browsing).
Set a spending limit on your budget and stick with it.
Make sure to include self care and treating yourself within your budget as well so you feel less like you are depriving yourself of the things you enjoy.
Never take out a loan to repay other loans unless you are committed to a plan that lowers the interest you are paying and has you out of debt faster.
Consult with a credit counselor if you feel you cannot consolidate your debt repayment on your own.
Financial literacy and women’s empowerment go hand in hand. Increasing your financial literacy can give you a clearer roadmap to your career, or it might help you achieve your life goals more effectively, it might just do both.
Reference:
Akoboski, P.J., Lusardi, A., & Hasler, A. (2020). Financial Literacy and Wellness Among U.S. Women: Insights On Underrepresented Minority Women. Global Financial Literacy Excellence Center. https://glec.org/research/?type=reports
