Financial literacy means understanding how money works in the world: how we earn, manage and invest it. This understanding requires knowledge of things such as budgeting, insurance, investing, and tax, retirement and estate planning, as well as an understanding of the broad principles of the markets, such as risk and inflation.
A disturbing global report on financial literacy published in 2009 (and we doubt that much has changed) made the following findings:
- Financial illiteracy globally is widespread, including in countries with well-developed financial markets
- Across these countries, the older population believes itself to be well-informed even though it is actually less well informed than average
- Women are less financially aware than men, although they are aware of this shortfall
- More educated people are more informed. Yet education is far from being a perfect proxy for literacy
Equally disturbingly, a report released in 2016 by the Financial Markets Authority and the Commission for Financial Capability (formerly the Retirement Commission) showed only half of those approaching retirement in New Zealand had a financial plan. It also found that only one in 10 over 50 were certain they’d saved enough.
We didn’t get taught financial literacy in school. We were lucky if our parents knew enough to teach us what we needed to know. Financial advisors and friends are a mixed bag, with some being more skilled and personally successful than others. And what’s more, money was, and often still is, a taboo conversation for many of us in polite conversation, even amongst friends.
So what does it mean to be financially literate at midlife? Essentially the following:
- You know what you earn each month from all sources
- You know what you spend each month and on what
- You know which of your outgoings is fixed and which is discretionary
- You have savings and appropriate insurance in place to tide you over if misfortune suddenly befalls you
- You know how much you are worth
- You have calculated what you will need/want to live on in retirement and have a plan in place to achieve this
- You understand the broad concepts of savings, interest, the impact of inflation etc. and the possible impacts of these on your plans
- You understand your personal risk profile and the kind of investments this predisposes you to
- You understand the broad investment vehicles – savings, shares, business, property etc – and have made informed decisions about those that are right for you
- You review and adjust your financial plans and management regularly
If, like me, this list makes sobering reading, can we just reassure you it’s never to late to start educating ourselves. I suspect there are very few midlife women who haven’t wished they had made some different financial choices along the way, but the important thing is that wherever we are at now, we stop, start or continue in a way that aligns with Maya Angelou’s observation that ‘when we know better, we do better’.
Financial literacy, like so many things in our lives doesn’t come in a box (damn it!). To become financially literate, we need to educate ourselves. There are many ways to do this – read books, magazines and the financial pages in the newspaper, talk with friends, attend seminars, Google. But the important thing is that we are honest with ourselves about if, and where, the gaps are in our financial education and take steps to address these.
Even though it’s tempting to stick our heads in the sand and kid ourselves we’re going to get around to sorting out our finances soon, this strategy won’t work in either the short or long term – guaranteed.
Ripenist’s Reckoning: So on that rather sobering note – how financially literate are you and what commitment are you prepared to make to becoming more so?
Share the Wisdom – maybe sharing this article with a friend could be the catalyst you both need to share your fears or questions about things financial? Go on take a risk – connect!