Financial literacy is the key to uplifting women

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In the dynamic landscape of global financial markets, the role of women is gaining well-deserved recognition as a force for positive transformation.

Research from both the International Monetary Fund and the Organisation for Economic Co-operation and Development underscores the profound impact women can have in enhancing economic growth, reducing poverty, and fortifying overall economic resilience.

As governments and organisations worldwide actively advocate for gender-inclusive financial policies, the ‘financial literacy’ journey toward true economic empowerment begins at the grassroots level.

Building financial literacy and resilience

Financial empowerment is the process of gaining control over one’s finances. It involves acquiring knowledge, skills, and confidence to make informed financial decisions, ultimately leading to financial independence and security.

Financial literacy empowers women to cultivate a habit of regular savings and investing, and it starts with keeping track of expenses and budgeting. These foundational skills form the basis for financial resilience in the face of unexpected expenses or economic uncertainties.

The popular 50/30/20 rule recommends allocating 50 per cent of income to necessities (rent, mortgage, transportation, and food), 30 per cent to non-essential expenses (entertainment, vacation, hobbies), and 20 per cent to saving and investing.

A bank account is a good starting point as it makes it easier to save money and earn interest on savings. High-yield savings accounts offer the highest interest rates on deposits. According to the International Monetary Fund (IMF), 65 per cent of women worldwide hold a bank account with a financial institution versus 72 per cent of men.

Build and improve credit

Every lender will check your credit score if you ever apply for a loan or mortgage. It reveals your creditworthiness. A good credit score opens doors to loans, mortgages, and even better interest rates.

Credit improves with simple habits like maintaining the minimum account balance, paying your bills on time, and not constantly spending the maximum limit on your credit cards.

Set up an emergency fund

Life is uncertain, so it is best to keep some cash aside to face unexpected events, this is often referred to as an emergency fund.

A good rule of thumb is to save up between three to six months of monthly expenses but how much you should save up depends on many factors, including marital status, healthcare services, and unemployment benefits -or lack of- in your country of residence. It’s all about considering at which level you are comfortable and feel safe.

Start small if needed, but be consistent.

Having an emergency fund grants peace of mind, empowering you to handle any surprise confidently.

Investing for the future

Saving is great, but unlike investing, it doesn’t create wealth. Investing can, on the other hand, help grow wealth over time. Less women invest compared to men across all age groups and many women are uneasy exploring investment opportunities. Some of the reasons often cited for not engaging in financial markets include the lack of understanding and the difficult financial jargon.

Financial literacy educates you on the importance of investing, the different investment options, risk management, and the potential for wealth accumulation over time, fostering confidence in making informed investment decisions. There are tonnes of resources available, including webinars, articles, and books, that can help you increase your knowledge and understanding of how financial markets work.

you can get started

There are various assets you can invest in. They differ by their risk level and return. Some investments, such as stocks, carry more risk but offer higher returns, while bonds are less risky and hence have lower returns. Mutual funds and exchange-traded funds are collections of securities (stocks and /or bonds) that offer instant diversification with different risk levels.

Becoming an expert is not a prerequisite to start investing. The quantity of investment is not the primary focus. The key is to cultivate positive investing habits and empower oneself.

With everything said and done, regardless of the extensive knowledge one may possess, the most important thing is to take the first step and simply get started today in your journey toward financial literacy.

The writer is the head of Commercial ESG at Saxo Bank.