Women & Wealth: The Importance of Financial Literacy in Women Empowerment

Financial literacy refers to educating or making people aware of basic financial services. Services here refer to but are not limited to budgeting, microfinance, and understanding how savings and investments work. Such literacy is important not only because it provides a foundation for informed financial decision-making, but also because the financial responsibility of people is increasing. One example of financial literacy which is vital in everyone’s life is the management of money. Let us say that a daily wage worker is earning Rs. 10,000 a month. If they managed their expenses properly or knew how to budget, they might be able to control their expenses in such a way that it is lower than their income, enabling them to avoid getting into debt while also saving some money for the future.    

According to a survey carried out by the government, three-fourths of the Indian population is financially illiterate. As a result, such people are not able to obtain financial services from the formal banking system. Financial literacy is the sole tool which can help people become aware of their money and work towards financial independence. Even among those from the lower socio-economic backgrounds, a report says that 80% of Indian women are financially illiterate and a further 63% of them do not even have a bank account. 

In order to gauge the financial awareness levels of people from such lower socio-economic backgrounds, I conducted primary research as a part of my project at TribesforGOOD. I thus interviewed women from lower-income households including domestic staff, vegetable sellers, etc. These are women living from paycheck to paycheck and they had very little to zero knowledge about financial services provided by the formal banking system. 

What did I find?

Through my research, I found that almost 90% of the women did not have a bank account. This was worrisome as having a basic transactional account for ourselves (especially for adults) is a basic necessity these days. The respondents’ reasons for not opening a bank account included lack of family support, lack of initial funds, not being able to manage money properly, and illiteracy which prevented them from reading and signing banking documents. Some of the women (interviewees) added that their family members thought it was not at all necessary for them to open a bank account as their husband or a family member already had one. This highlights the crucial need for and the importance of financial literacy for women. 

On further interviewing them a woman replied that since she does not have a proper registered house she is not able to take loans from the formal sector due to lack of proper documentation. Additionally, the interviews also showed that opening a bank account seemed to be an uphill task for these women as some of them felt that it was too far from their house while others were unable to convince their family members. While a lot of people resort to taking loans for different reasons, accessing such a service is almost out of reach for these women due to various reasons. These reasons include lack of necessary documentation, lack of awareness, branches being far off from their residence, etc. Some of them also mentioned having been ill-treated by bank staff in the staff and being called “illiterate”, “belonging to a lower caste”, “poor” and other derogatory statements like these. 

My primary research thus clearly showed that there is still a lack of financial literacy especially among women who are not encouraged to be financially literate or independent. Interviewing these women revealed that they are all genuinely interested in learning about banking services such as recurring deposits, chit funds, saving and assets, welfare schemes and budgeting or managing their money, all of which form a crucial part of financial literacy. We as a society should take steps to encourage and empower such marginalized women such that they are no longer dependent on their partners/family members for money-related matters. For working towards the same, we can start off with helping our own domestic staff in planning out a budget and explaining the benefits of various financial services to them, organizing meetings in a community area to spread awareness, and helping them if they are facing issues with documentation due to language barriers.

From the insights I gained from my research, I attempted to increase the financial literacy of women, through sessions on budgeting.

      “Beware of the little expenses ; a small leak will sink a great ship.”

What is budgeting ?

Most of the people are confused on how to plan on expenditure without neglecting the savings for the future. Let us imagine you are earning about rupees 20,000 a month and still confused on how to manage your expenses, budgeting is the best solution to this problem. Budgeting in simple terms is a basic plan which helps you to manage between your income and expenses.

At its most basic, a budget is really just a plan for your money. A well-thought-out budget can help you take control of your finances and use your money with purpose, so you have enough to pay your bills, grow your savings, and still enjoy life today. 

What is the current problem or why is there a need for budgeting ?

If we talk about the recent problem, people living in the rural areas and particularly most of the women belonging to low income families are not independent when it comes to the management of their own money. Now, a question arises that why are women not able to gain this independence? The biggest reason for this is the dependency of women on their spouse for money related matters. Money when it comes to, people usually have a mindset that it’s something which the woman is not capable of. The process of budgeting provides this independence to the women and makes them feel more confident when it comes to such issues. This important tool forces you to map out your goals, save your money, track your progress and most importantly turn your dreams and aspirations into reality.

How to promote budgeting?

• Inclusion of topics like finance in schools at elementary level.
• Government and various other organizations should promote topics like budgeting, microfinance,etc.
• Organization of workshops or awareness campaigns at a meeting place like the panchayat.
• Showing practically how budgeting can help a person to grow in their life.

How to plan a budget to help yourself

Most people accumulate piles of cash at their homes, rather than using it on investments. Thus, the value of the accumulated money never increases. Such decisions are a testimony to the lack of financial planning. This gives rise to the most important part of finance, budgeting. 

i) Needs vs Wants 

Here comes the most important part of preparing a budget wherein we classify the expenses and prioritize them.

Building a budget that balances your needs and wants is the key to supporting yourself while accomplishing financial goals. Although differentiating between your needs and wants appears to be a simple task, these distinctions might be difficult to take.

Some of the needs are pretty simple in life like- you will need a place to live in , access to safe drinking water and food, and clothing to wear, as these are the basic necessities of life. You may argue that the rest isn’t necessary, but this is when the lines begin to blur. The truth is that we make many of our shopping decisions based on emotion rather than logic. Purchases can technically be categorized as a need, even though most would consider them a want. Is it necessary to have an expensive lunch at a high-end restaurant? What about the clothes? Do you have to buy generic sneakers, or can you afford a pair of high-end Adidas? It’s all about perspective and how you choose to manage your money in the end. If a person is able to afford things well within his pocket these things can be easily classified as needs. A person should start dividing his income into high priority needs – one which are really necessary in life, low priority needs- things which are important but doesn’t affect the life of a human being, high priority wants – wants which are at utmost important, low priority wants- which are at present not really urgent for survival.

ii) Golden rule of Saving:

Well, the Golden rule of saving is the second most important tool when it comes to budget planning. The golden rule of saving is also known as the 50/30/20 rule. According to this rule 50% of your income should be dedicated to needs, 30% of income should be dedicated to your wants and 20% of income for the savings part. This effective tool by taking into consideration savings for the future helps you to have a secure future without compromising on the present needs and wants.

One of the most important steps in budgeting involves breaking down your regular expenses into budget categories to get a clear picture of your spending patterns (including areas where you tend to overspend). Once you’ve identified your basic budget categories, you can start allocating your spending based on your unique financial situation. 

A sample budgeting template has been provided which helps you to track your expenses within a given frame of time.

iii)The Final Goal:

 Firstly, our goal is to classify the given expenses into needs and wants according to your final income and then dividing the income into the respective fields . Secondly, keep in mind to give 50% to needs, 30% to wants and 20% to your savings. This simple budget will cover most of your expenses and be the best tool to plan out your expenses. 

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About the Author

Divyaansh Verma is an 11th Grade student of Delhi Public School, R.K. Puram and a TribesforGOOD student working on improving financial literacy through Global Challenges & Social Justice program.