Financial empowerment is becoming increasingly important in the fast-moving world of personal and corporate finance.
It is the combination of knowledge, skills and behaviours a person needs to manage financial resources confidently. Democratisation of capital markets calls for a renewed look at the most effective approaches to financially empower a larger share of the global population.
Financial institutions can play a key role by finding new ways to encourage investor participation and reach population segments that would benefit the most from financial education.
The prominence of financial empowerment in the agendas of world governments serves as a reminder of its ever-growing importance: as the financial world becomes increasingly fast-paced and complex, and more people have direct access to savings and investment tools, the need to help households make sound investment decisions is greater than ever.
The World Economic Forum’s Future of Capital Markets research and the Democratisation of Retail Investing Survey highlight the importance of financial empowerment as a key enabler to increase participation in capital markets and suggests that financial institutions, as the most trusted source of financial advice, can play a leading role in helping to broaden financial knowledge.
There is a difference between financial empowerment and the possession of wealth & a large bank balance. Although some people have wealth, they still need appropriate financial empowerment.
For example, their monthly salary may be N200,000, and their monthly expense may be approximately N200,000. As a result, they need to achieve what is called financial empowerment.
Whether it involves an individual, an MSME, a corporation or national entity; financial empowerment, careful planning and risk management becomes expedient.
Realising and properly understanding economic financial empowerment means developing a suitable financial plan for all short term, mid-term and long term expenses that will help achieve future goals.
Financial empowerment basically aims to significantly benefit both individuals and society, and improve the financial situation in general.
Notably, it improves stability and financial control over commitments in different aspects of life. It improves the ability to deal with emergencies and find unique solutions, while also providing and supporting public awareness of the importance of financial responsibility to youth.
Financial empowerment reduces debt for people with limited income. This can also be eliminated. As a result of being financially empowered, there’s increased possibility of supporting institutions or organisations to implement large economic projects.
Also, financial empowerment results in improved emotional well-being of all members of society (including the elderly).
There are various strategies that could be deployed to achieve financial empowerment.
It is important to set financial goals clearly because setting “specific” goals can help prepare you to empower yourself financially. So, make your economic goals clear in the short and long term. Ensure that these goals achieve the principle of financial inclusion and the famous SMART rule (a specific or clear goal that is measurable, achievable, realistic, and time-bound).
You can use a piece of paper and a pen to mark the economic issues that are most important to you. Sometimes, you may ignore your long-term goals to achieve the short ones. However, try to shorten this period because it takes you far from empowering and achieving your goal.
Another strategy is changing your expectations and decisions about money. Society’s feelings about money are often complex and challenging to understand. Behavioural economics always points out that most financial decisions are made by emotion and later justified by logic. This is what keeps most people from making the best economic and financial decisions in their lives. Consequently, economic empowerment has yet to be achieved.
The solution, then, is to develop and change the way we think about the financial sector and not expect that money will come in the future! You must learn about sustainable and real ways to earn money, take the appropriate time to develop strategies for spending and investing it in the right place, and take advantage of any opportunity that may achieve financial gain. This method contributes greatly to the development of your financial sector.
It is very important to create an appropriate financial budget.
Create a well-thought-out financial plan for your monthly spending; the most important thing is your commitment to it, especially during long periods. This planner provides you with knowledge and information about where the money goes, where it comes from, and how much you should save each month. The planner is considered one of the critical elements of accounting and financial empowerment because it is the map or compass to achieve the predetermined economy but on the condition of “unlimited commitment”.
In general, the higher your revenues, the higher your expenses. Therefore, you should set an accurate budget to control costs and determine how to reduce them, regardless of the amount of money you earn per month. The right plan plays a significant role in making the perfect decisions, allowing you to stay focused on achieving your goals.
Remember to consider your savings as the main bill that must be paid monthly. This method supports and changes your behaviour toward expenses and simplifies work, empowering you financially.
Another strategy is to study financial management well. As Robert Kiyosaki, the famous businessman and author of the book Rich Dad Poor Dad, explains, most schools and universities do not teach their students the correct management of money but rather only what they need during their studies. They also teach them the basics of money management without following the principle of promoting financial inclusion and detailing all financial concepts in the education process.
Fortunately, in the age of technology, you can study and obtain accounting skills to work in the financial management and accounting sector easily and correctly with free programmes and methods, such as YouTube channels, podcasts, or blogs. So it’s not too late! You can start at any time. What is important is that you start properly empowering yourself financially and economically.
Sometimes, you must take specialised training courses such as Finance & Budgeting Courses at home or overseas. This is to study advanced economic concepts and methods.
Another way to go is to track your progress over time. You now have specific financial goals and a better financial outlook. It is, therefore, necessary to track and manage what you do over time to check your approach toward financial empowerment and the vision for the future that you have set. This is to determine what you need to fix and improve.
Developing key performance indicators (KPIs) can help you achieve this. These indicators will help you assess the extent of your commitment to the strategy you set in the previous steps and develop and enable it in the future.
For example, if you have an annual plan to save an amount of X, you should save an amount of Y per month. If you save less than Y in one month, you have to make improvements for the next month to make up for the missing amount.
Rethinking financial education.
Education is the key to starting people down the path toward financial confidence and an opportunity to build wealth. The Democratisation of Retail Investing Survey shows that early exposure to financial education is linked to higher participation in capital markets.
Financial education helps people make more informed decisions on money management, increases awareness of borrowing and repayment of debt and helps avoid predatory lenders and scams. But the traditional ways of teaching people how to make more informed financial decisions, such as classroom learning, may not be the most effective approach to engaging a broad and diverse audience and ensuring the delivery of relevant financial information.
Financial empowerment starts with education — but trust and access are both critical, too.
Studies have shown that contextual learning — where relevant financial education is provided at the very time when a financial decision is made — can be an effective strategy, especially to reach adults and users not accustomed to traditional learning. Opportunities exist to embed financial education into all aspects of an individual’s life where financial decisions are made, including places of employment, retailers or healthcare providers.
When lecture-style classes are delivered, specificity and personalisation have been shown to maximise relevance and engagement, while standardised messages built for an “average” user may disengage underserved segments. For example, people earning a lower income may be more focused on their short-term financial objectives while those with higher incomes could be zeroing in on longer-term investing goals.
A contextual and personalised approach to financial education can positively affect the three key enablers to participation identified by the World Economic Forum 2022 Insight Report.
Access: It is important for people to see themselves as candidates to receive financial advice, that their goals matter and there exists a range of products that align with their objectives and risk tolerances.
Education: Well rounded and action-oriented messaging about financial principles, strategies and product options should be tailored to specific audiences and clearly speak to their unique challenges.
Trust: Beginning investors need to understand entry-level investment language, market fluctuations and how risk and reward relates to their personal scenario to build faith in financial institutions and markets.
Financial institutions and financial empowerment
Surveys have shown that retail investors continue to trust traditional financial institutions over other players when it comes to their monetary decisions. Here’s what organisations can do to maximise the social benefit of that trust:
Design more inclusive products.
There can be a disconnect between the financial needs of low-income consumers and the types of financial products available to them. Also, cost may thwart access to products that can aid in long-term wealth building. By listening and gaining a better understanding of the needs of their communities, companies can design products relevant to a broader set of potential clients.
Align with regulation.
Government action can encourage more people to save and engage in the capital markets. For example, the SECURE Act (Setting Every Community Up for Retirement) recently enacted in the United States aims to stimulate long-term investing by allowing for greater contributions to retirement plans and increasing opportunities for employee participation.
Leverage technology and expertise.
A combination of financial technology and the human touch can guide new investors towards the right financial education, tools and resources resulting in personalised financial advice for segments that would not traditionally receive it.
Join with community organisations.
Consider working with schools, nonprofit organisations and community centers to provide in-person or virtual financial education and support. Offer financial education programmes to help individuals understand the basics of budgeting, saving and managing debt.
Lead with transparency.
The key to building trust and fostering financial inclusion is to provide clear and accessible information on products and services and help ensure that fees, interest rates and any inherent risks are presented in plain, easy-to-digest language.
A stronger, more inclusive financial world.
Financial education is an endeavour that brings multifaceted benefits. As more people gain access to financial services, participation in the economy and social mobility increase and systemic instability declines.
An industry-wide commitment to promote financial education will build trust, help more people make smart financial decisions, strengthen markets and reduce inequities around the world
