WHAT IS FINANCIAL LITERACY?
Financial literacy is an often ignored, underrated, but essential life skill. It is the result of an individual’s capacity to combine the financial knowledge, skills, attitudes and behaviours necessary to make sound financial decisions that provide short and long-term benefit to you and those who rely upon you. These financial decisions vary based on personal circumstances, which change throughout the different stages of life. Yet, when made appropriately from an informed perspective, these decisions enable women to improve their financial and personal wellbeing.
Financial literacy also means being able to understand and negotiate the complex financial landscape of the 21st century, which will require that you have the capacity to:
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Manage money and financial risks effectively and responsibly.
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Pursue and attain financial and lifestyle goals.
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Cultivate financial independence.
WHY IS IT IMPORTANT?
Financial literacy is an essential ingredient for every woman’s life-skills toolkit. The capacity to assess and understand what will have positive or negative financial outcomes in a fast-paced consumer society is crucial. Ensuring that you have the know-how to manage your money and financial risks effectively will not only help you to avoid financial pitfalls, it will give you a solid foundation from which to make confident choices about how you live your life.
Here at Imalia, we are firm believers that improving your financial literacy can bring significant benefits to all women, regardless of age, income or background. It helps you to make informed choices, on a short-term day-to-day and from a longer-term, whole of life perspective.
WHY CULTIVATE FINANCIAL LITERACY?
‘Smart Financial Strategies For Women,’ provides ample evidence as to why women need to make a commitment to working towards their financial independence by cultivating financial literacy. The report opens as follows:
"Australian girls excel at primary school, high school and university, but as they enter the workforce, various systems that were established over the last 100 years begin to work against them.
As a result, full-time working Australian women earn on average $295 per week less than men, or $15,000 a year. Extended over a typical 45-year career, the gap equates to about $700,000 – or the cost of a house in most Australian cities.
The cross-over point between female advantage and disadvantage typically occurs around the age of 21, when female university graduates earn 4 per cent less in their first job than their male peers, and worsens throughout their lifetime.
This is one of the reasons women are also more likely to retire in poverty than men. And the current retirement statistics are confronting.
Did you know:
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Women, on average, retire with only around half as much superannuation as men.
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Around 90% of women will retire with inadequate savings to fund a comfortable retirement.
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On average, women retire before man and are in retirement longer than men.
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In 2010, 1 in 5 women yet to retire had no superannuation at all.
Cultivating your financial literacy is therefore a key contributor to your capacity to improve your financial and personal wellbeing. Improving financial literacy facilitates and supports individuals, families and communities to progressively achieve greater financial security and independence.
The key message about financial literacy is that we each need to acknowledge and accept the fact that building financial literacy and wellbeing is a dynamic, ongoing and absolutely necessary process if we are to surmount cultural biases.
The results of the 2011 ANZ Survey of Adult Financial Literacy in Australia (ANZ Survey) identify five behavioural indicators of financial literacy:
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Keeping track of finances: including monitoring account statements and keeping track of household expenses.
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Planning ahead: including checking and using insurance, retirement income planning and using financial advisers.
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Choosing financial products: including understanding investment risk, and shopping around for financial products and services.
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Staying informed: including the extent of use of financial information and tools.
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Financial control: including control of general financial situation and debt, and ability to save money.
HOW DO YOU BUILD FINANCIAL LITERACY?
The G20/OECD INFE Core Competencies Framework on Financial Literacy for Adults outlines four key competencies (and associated sub-categories) around which they recommend you build financial awareness, knowledge and understanding. The purpose of this is so that you can improve your skills and behaviour to thus build confidence, motivation and a positive financial attitude. Cultivating knowledge and understanding in the following areas will result in cultivating a level of financial literacy that can help you build financial independence.
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Money and transactions:
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Money and currencies,
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Income,
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Payments, prices and purchases,
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Financial records and contracts.
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Planning and managing finances:
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Budgeting,
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Managing income and expenditure,
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Saving,
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Investing,
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Longer-term planning and asset building,
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Retirement,
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Credit,
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Debt and debt management.
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Risk and reward:
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Identifying risk,
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Financial safety nets and insurance,
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Balancing risk and reward.
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Financial landscape
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Regulation and consumer protection,
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Rights and responsibilities,
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Education, information and advice,
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Financial products and services,
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Scams and fraud,
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Taxes and public spending,
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External influences.
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Understanding these competencies is not enough however, you also need to apply your knowledge and understanding to actually practice the habits, and take the actions that will result in financial security.
All good habits, are built by repetitive actions that become ingrained behaviours. They key is to consistently and continuously put your financial literacy into action. The following actions are great means by which you can cultivate the types of habits that will build a firm financial foundation:
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Keep track of your finances,
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Track your household expenses,
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Check your financial transactions,
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Plan for your short, medium and longer term financial needs, including retirement,
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Protect your assets,
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Choose financial products wisely and only after assessing their risks to understand whether they meet your needs,
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Shop around and ascertain best value for money,
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Understand investment risk,
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Stay informed about the current financial landscape,
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Use information, tools and guidance when needed
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Exercise financial control,
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Manage debts,
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Save regularly.
If you’re interested in some tools that will help you manage your finances, plan for your future, and understand your short and long-term financial outlooks, ASIC’s Money Smart website offers some great tool to get you started:
It also helps to work with a financial planner who both understands and is committed to meeting women’s needs. We believe it is important that you work with an advisor who will help you to build knowledge, understanding and financial security. Imalia recognises that finding a trusted source of financial advice and knowledge is important (and sometimes challenging) for women, who often lack the confidence to approach an advisor, or know if the advice is appropriate. That’s why we’ve created a partnership with Thirdview Financial Planning. The alliance between Imalia and Thirdview was borne from the alignment of values and a joint commitment to empowering and enabling women to be financially literate, financially secure and plan for the whole of life.
Unfortunately, the stark reality for many Australian women today is that we still have to work harder, for longer in order to build a secure financial future. By educating yourself and cultivating your financial literacy, you can build a firm, secure foundation. Doing this begins with the basics, based on the awareness that no information is too simple, no question is too stupid and no stone should be left unturned.
Imalia’s mission is to educate and empower women to cultivate financial literacy as an important foundation from which to build financial independence. Financial security reduces stress, gives you more choices and increases the degrees of freedom you have in terms of how you live your life. We hope this article points you in the right direction and provides you with the inspiration to commit to your own financial independence by taking steps to cultivate your financial literacy.
If you are inspired and would like to join the revolutionary movement that we are creating, you can request to join our Facebook group The Wolfpack, to share ideas and learn from other like-minded women.
1. COAG Reform Council, Tracking Equity: Comparing outcomes for women and girls across Australia, COAG Reform Council, Sydney, 2013.
2. Association of Superannuation Funds in Australia (ASFA) and Suncorp Life, Suncorp-ASFA Super attitudes survey, 2012.
3. ANZ, 2011.