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What is financial health and why is it important

Published on 02 September 2019
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7 minutes

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It’s important to remember that money is a tool, not a means in itself. But too often, it’s a tool that we don’t know how to wield or one that makes us feel self-conscious and confused. This is particularly problematic for women, who have long been shut out of the finance world and taught to be cautious savers, not savvy investors.

In this module you will learn

  • what financial health means
  • to think about it in similar ways you think about your physical fitness
  • how the financial health between men and women differs

You may feel a step or two behind right now, but the fact that you’re reading about financial planning is a great sign that you’re serious about being a financially healthy person.

When we talk about “financial health,” we’re talking about someone’s personal financial situation. This includes their savings, their retirement accounts and their spending. Everyone has slightly different gauges when it comes to understanding their financial health because we each have different financial needs. It’s just like a weightlifter and a runner can look so different, but be equally healthy as they flex their muscles in different ways.

So put your financial health in the context of physical health. People approach to exercise in ways that make sense to them, slowly building and maintaining strength. You should keep your finances as fit as you would your body, think about what goals you have for yourself and how you can best meet them.
We will talk you through defining your life goals and the money you need to achieve them later on. 

Women, in particular, need to think about how their financial health will fare over the years.

Women tend to live longer than men, and today’s young women can expect to work until they are 70. But women are often penalized for taking time out of work to have children or to care for elderly or sick family. If women ask for a flexible work schedule to meet demands at home, they may be seen as less essential to their teams, something that can manifest itself through a lack of bonuses or stagnant wages. These “breaks” that women take in their careers contribute to the gender pay gap, something that will not close until 2050.

Getting comfortable with your financial health will allow you to help your friends, family and colleagues through important discussions and thought-provoking questions. This will eventually help your daughter’s generation have even greater economic independence as well.

The increasing economic contribution of women globally allows for so many opportunities for society and the economy. Empowering women and creating more financial equality benefits everyone because gender parity is essential for economies and societies to thrive. Over the years gender equality has meant equal education and more of a say in governance, with voting rights. Today, it means economic freedom and the ability for women to have control over their lives.

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Why financial health is important, especially for women

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Women are additionally left behind in their investments because of different attitudes about risk.

Women tend to invest more conservatively than men, as they have long been taught to be cautious savers, not risky investors. Something that feels small, like the difference of a 1% investment return to a 3% return, will make a massive difference in the long run, leaving a cautious investor well behind in her retirement account.

Comparing the finances of an illustrative man and woman during their lifetimes

UBS calculated a powerful simulation showing how certain events and issues can affect a woman's wealth.

  • A 10% pay gap can lead to a 38% wealth gap
  • A one year career break widens the gap by further 5%
  • Part time work slows down wealth creation dramatically
  • Choosing an investment that is less 'risky' (lower volatility) leads to a wealth that does not grow as fast

(Source: UBS)

Key takeaways and what comes next

Think about your financial health like you think about your physical fitness - both are personal, both require regular attention and both only improve if you start doing something about them! The typical life paths of women and men lead to significant and widening wealth gaps between them over the lifetime.

With that in mind, review your mental stances towards money, investing and risk and try to discern what's holding you back from tackling these areas.

If you want something you’ve never had, you must be willing to do something you’ve never done.

Author
Thomas Jefferson

In our next module, we will take a closer look at Key moments in life and how they impact us financially and how growing financial confidence will help in effectively addressing the related challenges.

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