Empowering Women Financially – The Why and the How
By Emilie Bellet
Founder and CEO, Vestpod
Why is it Important to Empower Women Financially?
Women are the future of the economy – controlling about $20 trillion in annual consumer spending (in 2009), and that figure is expected to rise to $28 trillion by 2018.1 By 2028, women will control 75% of discretionary spending worldwide.
Moreover, the proportion of working women carrying the primary financial responsibility in their families has risen from 23% in 1996 to 33% in 2013.2 Yet, there are plenty of reasons to be concerned: according to the Institute of Fiscal Studies,3 women, on average, earn 18% less than men – with the gender pay gap being particularly hard on mothers. Such a wage disparity has a direct impact on the way women save for retirement: the median level of wealth held by men in pensions is more than twice that of women.4 The statistics on savings, investing and levels of debt show a similarly bleak gender divide.
Consequently, there has never been a more important time for women to get serious about understanding their finances and for the industry to start serving them better. If we give women the tools to rise above their challenges, we can help them earn more and save more, giving them the freedom to live their lives on their own terms. Financially empowered women also have a positive impact on the economy, helping improve living standards, bettering education and boosting jobs.
However, impediments stand in the way: professional financial advice is expensive, intimidating and not well adjusted to the challenges that women face in the contemporary world. This gap in financial advising has been clearly identified in the UK – both by the Treasury and the Financial Conduct Authority5 – and it only keeps growing. Second, financial products are becoming more complex and difficult to understand, resulting in a sense of overwhelmedness.
It sounds dismal, but it doesn’t have to be. So, how best can we empower women financially?
Empowering Women Financially: How?
Improve Women’s Financial Literacy
A recent survey by the OECD6 showed that most countries score abysmally low when it comes to financial literacy. As defined in this report, “financial literacy is a combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial well-being”. Women scored lower than men in almost every country studied (in the UK, 67% of men gained a high score (6 or more on the knowledge measure), and just 40% of women achieved the same). As financial markets become increasingly more sophisticated and households assume bigger risks and responsibilities, financial literacy becomes even more pertinent.
An individual’s financial literacy plays a crucial role in shaping wealth equalities. Having sound financial knowledge helps us make well-educated decisions, save more for retirement, carefully manage investments and better manage household finances. On the other hand, the financially ill-informed rarely make efficient choices and are more likely to incur more debt, save less and be more prone to fraud.
Evidently, the focus needs to be on providing better and greater access to financial education, which should trickle down to schools and universities. Financial literacy training should also be provided in the workplace, but it is important to note that this alone is not enough – the majority of new freelancers (55%) today are women,7 and they too need financial support outside the workforce.
Vestpod’s mission is to empower women financially by making it easier to be smarter about money and take action to better manage it. We are continuously exploring ways to communicate with women in an engaging and relevant manner. Our weekly newsletters see high engagement rates and the feedback we get is extremely encouraging.
Engage Effectively: Address Women- Specific Needs
Women have a different approach to wealth building. For example, women save and invest with specific lifestyle goals in mind, while men are more inclined to focus on the products and investment outcome. Due to this variance, women benefit from a more holistic and personalized financial strategy: understanding their values and beliefs is key, as is delivering advice in an accessible, clear, concise and friendly manner.
Women are also less likely to engage in perceived risky trading, are more diligent in their research, make more diversified investments and are humble when it comes to admitting mistakes. Indeed, women make good investors, but their financial drive is yet to be fully understood and effectively addressed by traditional financial institutions.
Finally, women are in need of a good confidence boost. A study by Annamaria Lusardi and Olivia S. Mitchell8 revealed that while women scored lower than men on financial literacy tests, when the option of answering “I don’t know” was removed, they scored just as high as men. Thus, understanding and addressing women’s values and beliefs, while helping them build their confidence, is vital to engaging women with finance.
Help Women Take Action Through Innovation
While financial literacy is important, it is only part of a much larger picture. Effectively empowering women and helping them take action will have a direct impact on their financial independence and a positive outcome on their lives. In order to achieve this, we need to consider the gap in financial advice.
At present, professional financial advice is unaffordable for most segments of the women gender group. In addition, financial products are complex and their jargon is often intimidating. The industry is also historically heavily targeted at professional males: finding an understanding advisor able to genuinely connect with women’s needs and concerns is not easy.
To further complicate things, a lack of trust plagues the financial industry, with the millennial generation being particularly sceptical of traditional institutions (only 8% trust financial institutions according to a Facebook survey of millennials aged 21–34 in the USA).9 The FinTech scene has been swift to address this opportunity: internet banks are growing in popularity, while robo-advisors and investment managing apps continue to gain traction among them.
At Vestpod we offer a unique, user-friendly platform tailored specifically to women’s needs, helping towards taking steps to save and invest. We believe in helping women break the taboo associated with “money talk” by communicating digitally and leveraging online communities.
With start-ups geared to disrupt the financial space, it is vital for banks and traditional institutions to respond and step up their game, which in turn will benefit women. Financial institutions can start by improving how they communicate with customers and focus on personalization. With a more targeted approach, banks will be better placed to understand and address women’s needs. It is important that they particularly take into account the wide-ranging segments and financial backgrounds to which women belong.
As such, innovation is imperative when it comes to bridging the gap in financial advice, regaining consumer trust and targeting the mass market. Financial institutions need to adjust to the demands of consumers, particularly those of women and millennials, and solutions need to be cheaper, more relevant and accessible.
It matters. Why?
Empowering women financially is a win–win for all. Financial independence gives women the freedom to live their lives on their own terms and boosts their confidence, which in turn helps their families and future generations. It also helps close the gender-based disparities in retirement savings and pay. But empowering women is also smart economics – closing the gender pay gap is important both for policymaking and development. Research has shown that greater gender equality enhances economic productivity and helps make institutions more representative, while greater spending power helps shape consumer markets. What is more, charities and philanthropic causes are also likely to benefit from female empowerment – studies show that women are more generous than men when it comes to charitable giving.
Finally, greater female empowerment means added financial security for families. In the past 20 years, the number of women who carry the primary financial responsibility for their family has increased dramatically – something that was unthinkable in previous generations. So, while much remains to be done, the world is slowly adjusting, adapting and embracing the idea of empowering women financially. It is our collective responsibility and benefit to ensure we continue the positive trend, and fill in the gaps sooner rather than later.