‘Financial literacy’ is one of those terms that gets rolled out periodically in the business world, and often only serves to make you feel guilty about how many coffees you have had this week that your budget probably doesn’t allow for.
And yet beyond it’s ability to induce guilt, financial literacy is really important in creating financial security – especially for people living at the bottom of the economic pyramid, and especially for women.
According to the Organisation for Economic Co-operation and Development (OECD), financial literacy is:
“the combination of consumers’/investors’ understanding of financial products and concepts and their ability and confidence to appreciate financial risks and opportunities, to make informed choices, to know where to go for help, and to take other effective actions to improve their financial well-being”.
Financial literacy is a broad concept that includes both information and behaviour, and it is relevant for all consumers regardless of their wealth or income. It sounds complex and wordy, but what it essentially boils down to is one’s ability to spend, save and manage finances in an effective way - an important skill for everyone to master.
And yet, financial literacy is lacking – everywhere – but particularly in developing countries. With mounting evidence showing that those with low financially literacy levels are more likely to have problems with debt, are less likely to save and are less likely to plan for the future, this is a concerning trend. Developing countries are currently experiencing rapid growth in the financial sector, which makes understanding financial management both more crucial and more complex.
Cambodia is symptomatic of these issues. For five years now, the Kingdom has enjoyed high economic growth; the country’s gross domestic product has grown by 7% or more each year since 2011. Indeed, this growth has led the Asian Development Bank (ADB) to forecast that Cambodia will become one of the ‘new tiger economies’ of Asia in a recent report. However, Cambodia’s financial literacy levels are failing to keep pace with this rapid change. According to the 2015 Global FinLit Survey, only 18% of Cambodian’s were able to answer three or four questions related to basic financial literacy. Financial literacy in the region is low, but Cambodia’s ranking fell particularly short managing to be rated just 135 out of the 144 nations surveyed.
Beyond national rankings, other factors also play a role in determining an individual’s financial literacy. In particular, women in general have less financial knowledge and less access to information that can guide financial decisions and economic activities. This is for the same plethora of reasons that we often explore when we look at the gender gap – lower opportunities to pursue education, the designation of the care of the home and family and gender stereotypes that prioritise men’s financial capabilities over women. In Cambodia for instance, many women have told us of their inability to take out a formal loan from a bank, being told instead that her husband must do it for her.
And yet women face greater financial risks, and in many ways, have greater financial responsibility. Coming from a weaker labor market position, having a lower earning capacity thanks to gendered pay disparities and having longer lives but shorter working lives all amount to enhanced financial risk. Consider this in conjunction with the fact that women are likely to have to make important daily decisions over the allocation of household resources (including how health, education and food expenditure is prioritised) and the likelihood that women are going to be instrumental in the transmission of financial habits and skills to their children, and it becomes apparent that women's financial literacy is crucial to promoting the economic well-being of families and communities as a whole.
With the complexity of financial markets in Cambodia increasing, it is evident that women need to acquire the financial knowledge, skills and confidence to effectively participate in economic activities both within, and outside, of the home. However, this is not just about giving women the understanding they need to control the household budget; it is about empowering them to make financial decisions that work for them, that let them chase their own goals. It is about giving women the access to the information they need to develop and manage entrepreneurial activities to create broader economic impact in general. We already know about the cost of gender disparity - financial literacy education is one component of redressing this cost.
Given that women own over 55% of private businesses in Cambodia, women’s access to financial education has the potential to create a huge impact here. In this context, financial literacy is not just about understanding money, but it is also about making decisions for the future that are going to help a business to grow, scale and create more impact. As a Global Brigades report suggests – “the most effective financial literacy programs go further (than basic budget planning) – they empower individuals so that they are able to evaluate their options in the marketplace and then take appropriate actions in their own self-interest”.
This is a key part of what the SHE Incubator attempts to offer our participants – the skills and support they have yet to receive in making financial decisions – an area most of our entrepreneurs identify as a weak spot in their current business planning. The financial literacy component of SHE's programs includes the following areas, all rooted in the realities of Cambodia's economic and social conditions:
- Personal, family and business financial management
- Separating family finances from business finances
- Feelings about money, savings challenges, and how to save
- Tracking and managing expenses
- Basic budgeting techniques
- Understanding debt (interest, paying back debt, what it means to be in debt long-term, etc.)
- Setting savings goals
SHE also partners with organisations to deliver Train the Trainer Financial Literacy Programs. For example, SHE is currently partnering with Cambodian Volunteers for Community Development (CVCD) to train their trainers in facilitation techniques and financial literacy workshops, so they can deliver this training to women’s savings groups in communities around Cambodia.
Financial literacy continues to be a core component of our programs because of the tangible impact it creates. 84.6% of participants in SHE's Pilot Program last year reported that they had more decision-making power when it came to making both family and business financial decisions. This meant that they were more confident in their households and businesses to understand their finances, plan ahead, and make financial decisions.
Take Leang* for example, a participant in SHE's Incubator Program, who began to use the money tracking tool she learned during one of SHE's workshops. She began to write down her expenses every week so she could see where she was spending money, and identify where she could potentially save. By implementing this simple technique, Leang was able to save $50 in just one month, and this gave her the motivation to keep tracking her expenses and saving where she could.
Chunneang* was also an Incubator participant. She not only began tracking her expenses like Leang, but also sat down with her husband to teach him about what she had learnt in the workshops. Together, they began to record what they spent their money on each week. By the end of the month, Chunneang and her husband had not only saved money - they also felt like their relationship had improved. This was because her husband stopped spending so much money on alcohol (which through financial tracking, they had observed was where most of their money was going), and because husband and wife were increasingly discussing their finances and making decisions together, rather than in isolation.
We hope that the positive impacts of being financially literate will continue for these ladies, and for all of the individuals and businesses in Cambodia who are seeking this knowledge. Yes, financial literacy sounds a bit dull - but understanding how to make decisions that can improve your quality of life and your ability to reach your goals is anything but boring...as the Global Brigades report suggests - “Financial education, like all types of education, is about empowering individuals so that they are better equipped to analyse diverse options and take actions that further their goals”
* Names changed.
- Written by Prue Allen, WhyDev Fellow at SHE Investments