Financial literacy is vital to the success of any business, especially for women. Even though gender equality has seen significant process in recent years, in the business world, women are still faced with unique financial challenges. Currently, the gender pay gap in the UK is currently at an average of 15.4% and women-owned businesses remain significantly under-financed. As a result women often have very different needs when it comes to financial information and advice.
Ginger Rogers and Fred Astaire were both amazing dancers; Ginger just needed to be able to do the steps backwards and in high heels as well. That’s pretty much how women have to approach financial literacy.
Financial literacy requires knowledge and understanding to effectively manage one’s finances. Financial literacy is important to not just women in business, but everyone regardless of their age and financial status, as it helps people make informed decisions about money, both in the short and long term. It requires a broad range of skills such as budgeting, investing, managing debt, and financial planning. A lack of financial literacy can lead to missed opportunities, financial instability, and ultimately, failure in business. Here are four benefits of financial literacy.
Making Decisions
An advantage of financial literacy for women in business is the ability to make more informed investment decisions. There is also the issue of the gender pay gap, which results in lower earnings overall for women than their male counterparts. The pay gap challenge women face can result in lower retirement savings and a reduced ability to invest in business ventures.
So having a strong understanding of finance concepts, such as taxes and tax returns, financial statements, inflation, compound interest, risk tolerance and cash flow can help women make informed financial decisions, which can help to increase their chances of success in business. This involves creating business plans and proposals, effective cash flow management, debt management, and strategic investments planning that aligns with business goals. And of course, you do not have to produce all of those documents yourself, but it will help massively if you understand and engage with the concepts and figures involved.
Financial Challenges Reduction
Women-owned businesses have been on the rise in recent years, but despite this growth, women-owned businesses still face significant financial challenges. For example, due to gender bias in the finance industry, women-owned businesses find it more difficult raising financing for their businesses in comparison to their male counterparts, which can hinder business growth. Financial literacy can help women entrepreneurs to better understand the different types of financing options available to them, such as loans, grants, and venture capital. It can also help them to navigate the complex process of raising capital and negotiate more favorable terms.
Risk Management
Risk management is a very important part of business management. Financial risk protection involves the identification and mitigation of potential risks that can threaten the growth of a business. Having a sound understanding of financial literacy can help protect against financial risk. There are different types of risks associated with a business.
This includes stock market volatility (2008 stock market crash), inflation risk as seen due to effects of the COVID-19 pandemic, compliance and regulatory risk (new legislation), environmental risks (natural disasters), political or government risk (Ukraine war), cyber-attacks, and strategic risk (competition). Once strategies are placed to mitigate risk, businesses can thrive and scale.
Wealth Building
Investing can be an excellent way to grow wealth, and women are less likely to invest in the financial market, often due to lack of confidence and knowledge, which limits their return potential. And investing in the stock market is one of the most effective ways to build long-term wealth, even outside of your business.
So, building a well-diversified investment portfolio for long-term growth entails having a good understanding of investment concepts such as diversification, risk tolerance, and asset allocation. Having investments, especially in retirement, is very important for women as we tend to have a longer life expectancy in comparison to men. Building a nice little investment pot can provide financial security in case of unexpected emergencies and business failures.
Government, Employees, and Community Roles
Financial education should be a part of school curricula, which the government can do to promote financial literacy in women. The government can offer tax incentives to organizations providing financial literacy programs. It can also provide funding for organisations that can offer fair advice to the economic illiterates and introduce legislation ensuring all financial products are labeled so that customers make informed decisions.
Employees can support financial literacy education by offering training programs, seminars, workshops, and boot camps to their women employees. They can also provide employees with resources to help them manage their finances, such as free coaching programs, budgeting tools, and debt calculators.
These services can help eradicate financial illiteracy and ensure their employees know about planning their salaries and commissions, saving, and investing vast amounts so they can pay their debts and have a solid plan for their retirement. This will ensure a stable life after retirement.
Community groups can partner with financial institutions like local banks, credit unions, and businesses to sponsor women’s financial literacy classes and seminars to better equip them with financial knowledge. Community Development Financial Institutions (CDFIs) provide free financial counselling, government grants, and money management, classes. Also, community groups can offer financial literacy through other means, such as public awareness campaigns and distributing free educational materials such as notes, cards, magazines, or books. It can also be done through radio and television advertisements, billboards, and other marketing campaigns.
In all, financial literacy is an essential skill for women in business. By improving financial literacy, many of the challenges that women face can be overcome and successful businesses that support each financial goal can be built. In addition, financial literacy helps women build their personal wealth outside of their businesses. This in turn provides long-term financial stability. Therefore, financial literacy should be a priority for women, there are several resources and educational materials available to help you to develop the skills you need to succeed.