Women entrepreneurs are more passionate about their work and ambition as compared to their male counterparts. Women are better leaders because of their emotional stability, and women can juggle between more variety of tasks than men. However, most women fail to understand the nuances of finance, which is where the problem starts.
The Global Trend
As per research, women have a hard time understanding some very fundamental concepts, like inflation and interest. These concepts are vital to make sound financial decisions.
- In the research, a mere 61.9% of the women were able to answer the questions about these concepts correctly.
- Furthermore, the research also claimed that not more than 48% of the women questioned understood the risks related to investing.
Knowledge about risk diversification is essential to make the right decisions in a sophisticated business environment. And looking at the current situation, it is no surprise that a lot of women-owned businesses fail because of low financial literacy.
Another study claims that more than 80% of the women were unable to pass a financial literacy quiz. It also says that women are three times more likely to accept that they cannot save enough for retirement as compared to men.
As per S& P Global FinLit Survey, worldwide, only 30% of women are financially literate compared to 35% of men. Disparities in financial knowledge is largely due to less-educated women and low-income individuals. This finanical illiteracy problem is universal.
The Case in Asia
Much like the global trends, the trends in Asia also indicate poor financial literacy among women. A report on financial literacy trends in south-east Asia shows that while people are aware of financial literacy benefits, they do not put enough effort into attaining it! The report also indicates that with increasing salaries, financial literacy does not improve, especially among women. The overall financial literacy of women in Asia has been stagnant since the 1990s, with only a few exceptions, including Singapore.
Women in Singapore are skilled financial literacy as compared to other countries. As per the 2014 MasterCard Financial Literacy Index, women of Singapore (96) are the second closest to their male counterparts (94) with only 2 points. Japan leads the trend in Asia. Other countries in Asia with ‘good’ financial literacy among women include Hong Kong, Malaysia, and Philippines.
Challenges Faced due to Lack of Financial Literacy
Poor financial knowledge leads to a lot of mismanagement and poor decision making. Below are some practical challenges that can arise due to poor financial literacy.
- The studies show that women live longer than men. It means that women are at a higher risk of facing health issues related to old age as compared to men. However, if women lack financial literacy, they are at the risk of not planning enough for retirement. Throw in more factors like time away from work due to family and children, gender pay gap, higher childcare cost for single moms, and more, and the situation becomes way too complicated for any woman to manage. Shockingly, 15% of senior women end up in poverty.
- The financial products like insurance and investment schemes have become complicated and usually come with a fine print. Selecting a solution from a catalog of sophisticatedly created products requires knowledge of the financial terms, variables involved, and an ability to predict future based on the numbers. In such a scenario, women with low or zero financial literacy end up making no decisions or bad decisions, and invite trying times.
- The economic conditions are volatile and unpredictable. In such a dynamic global landscape, not understanding the financial terms can lead to missed opportunities, losses in business, legal battles, conflicts in partnerships, and a very daunting task of creating a future proof investment plan.
- Financial literacy is not just important for business owners. It is equally crucial for salaried employees. In the past, companies used to guide and even take care of the investments on the employee’s behalf. However, today, the world has become a way too sophisticated place with several options. An employee has to allocate funds in various schemes and products – taxes, investments, retirement benefits, and more. Without adequate knowledge, this is an impossible task!
- Financial illiteracy can lead to debt traps, sign up for fraud schemes, and make the wrong choices regarding credit cards, mortgage, and financial planning solutions.
- Lack of financial literacy can lead to mismamagement of capital & resources, therefore will be daunting task for acquiring new businesses, attracting investors and sustainability.
Why Financial Literacy is Important for Business Owners
Business owners, be it men or women, are expected to make accurate and profitable decisions. Also, business owners need to forecast future demand. Therefore, a business owner must understand the numbers, formulae, terms, and every other financial variable involved in the process. Without financial literacy, a business owner will not understand the trends and the oncoming risks. Such a situation can land a business into a mess and force the company to shut down.
- Making Financial Decisions: Financial literacy also plays an essential role in establishing the business. In the early days, the focus of the company is on retaining sales volume and attracting investments. Business owners can end up occupied with countless meetings and delivering their promises. While this is happening, books and accounts can get overwhelming for the bosses who lack financial literacy. A full-time accountant can maintain the books, but the owners still need to be financially literate to analyse the financial report and make right business decisions.
- Attract Investments: Another important aspect of financial literacy has to do with attracting investments. Investors are more than interested in the financial figures, and how do business owners justify them. Understanding the finances up to the minutest detail enable the entrepreneurs to formulate the overall strategy and convincingly present them to the investors. The ability of the business to scale up profitably, while ensuring the ownership of every single penny requires financial literacy.
- Better Management of Cash Flow : Financial Literarcy will facilitate women-led organizations to take better decisions to save cost and manage cash flow. This is imperative for the smooth running, sustainability, and growth of the business.
A business owner with a strong knowledge of finances will naturally feel confident while looking at their balance sheets. Such entrepreneurs will be able to make sound financial decisions by looking at their profit and loss statements. A business owner may not have all the time and resources in the world to be a master of the finances. Bare minimum knowledge of concepts life risk diversification, stocks, and accounting can help the business owner in creating a viable business in the long term.
To sum up, a strong foundation in financial literacy will helps women entrepreneurs with:
- Knowledge of accounting concepts
- Reading financial reports
- Understanding of P&L statements and cash flow
- Manage the balance between creditors and debtors
- Monitoring the earnings on a long-term basis
- Understanding risks and creating strategies to averse it
- Formulate methods to save money by cutting down expenses
- Avoid rookie mistakes during financial presentations to the investors
- Customize the reports to capture the right information
- Avoid guesswork, and make accurate decisions
How Can Women Entrepreneurs gain Financial Literacy?
There are websites like Udemy that have thousands of courses aimed at learners of all levels. Women entrepreneurs, or rather, anyone can begin their journey towards better finances using such resources. One reason why Udemy is a preferred choice is because of its strong community that honestly reviews the courses, and the sincere efforts put in by the staff members in maintaining the quality of courses that are sold on the platform.
Also, there are some interesting free resources as well, like Investopedia. Investopedia is like Wikipedia for finance. The website has an explanation and details on every little and big concept about finance. Investopedia has a guide on how to become a self-taught financial expert that can provide for the learning path. Once the learner is done through the free resources, he or she can head to premium courseware created by Investopedia Academy. However, learners can search for specific terms on YouTube and LinkedIn for more free resources.
Communities around the world are also making Women-centric efforts. One such example is The New Savvy. The idea of The New Savvy is pretty simple and straight forward – to enable women to understand finance and be independent. The initiative is right now active in Singapore, Hong Kong, Philippines, India, and Vietnam. The initiative provides resources and conducts conferences to empower women entrepreneurs with building knowledge in finance. The initiative that has been recognized by CNBC, Forbes, and other such agencies, caters to the women-centric issues that stop them from gaining educated on topics like finance.
Investing in Entrepreneurs: The initiative is undertaken by women who have made their way out of financial troubles in the past. These women have invested in stocks, bought a house or a car, and ventured on the path of entrepreneurship. The learnings are mostly what these women leaders have learned through their journey.
Role of Singaporean Government in Building Financial Literacy among Women
While there exists no specific policy or program by the government to enable women to undergo financial training, many studies have been conducted in this aspect. The researches and studies lay out the ideas that need to be materialized by the Government of Singapore to foster keen financial awareness among women. Below are the top points that have to be considered as per these studies.
- Enhancing the opportunities available to women in labor-intensive sectors by ensuring the availability of affordable child care. It needs to be coupled up with equal pay for equal work. Such measures will present entrepreneurial opportunities for women in labor-intensive sectors.
- The government should create offices that cater specifically to women business owners. Such offices could then go and develop policies and frameworks to educate women on different aspects of entrepreneurship, including financial management and investing.
- Policies in the SME sector should also be revised to assist women entrepreneurship with access to investments and networking opportunities. Networking with industry experts will help the women business owners in gaining exposure to ideas and knowledge in the entrepreneurship domain. Partnerships and co-operation can eventually result in better financial management within women-owned businesses.
- Also, such policies and programs should be evaluated from time to time to measure effectiveness. It should be immediately followed by taking the appropriate steps to enhance the programs’ output and framework. Financial literacy needs to be one of the guiding forces in such initiatives.
However, Productivity Solutions Grant (PSG), is an initiative by the Government to support SMEs in the areas of financial management, customer engagement and data analytics.
Finally, motivating the women entrepreneurs through factual data and analytical reasoning will improve the overall condition of women in society. As per McKinsey Global Institute, they are increasing gender equality at the Singaporean workplace could increase the GDP of the country by S$26 billion by 2025. Such presentations will also create willingness among women to understand numbers and focus on improving them for the coming years and the young girls that they inspire.
Irrespective of gender, financial literacy is vital for business owners. Without an understanding of the numbers and finances, the business owners cannot make sound decisions. Also, financial literacy helps in creating strategies that diversify the risk, enhance the profitability margins, and lower the costs. Women play an essential role in the economy of Singapore. It is important that the government creates a separate policy framework that enables women entrepreneurs to pursue financial literacy and get independent.
That being said, women, too, need to take an interest in being financially literate. Premium resources like Udemy and Investopedia Academy can be the starting point of learning about finances. The New Savvy is doing a tremendous job and leading by example. Women entrepreneurs could look forward to joining such initiatives, attending seminars related to economics, and even participating in discussions that actively discuss topics related to finances.