Information about saving
Why is it important to save?
- Jens Magnusson, Chief Economist, SEB
This information is provided from Jens Magnusson, chief economist at SEB. There are two sides to saving; the defensive perspective on one hand and the freedom and safety perspective on the other hand. The defensive perspective concerns creating safety against negative events, such as unemployment and illness. The other side aims to create economic freedom and safety, being able to fulfil oneself and have a smooth consumption over one's life. According to permanent income hypothesis, Magnusson argued, if saving in an optimal way creates return on capital which increase the income permanently, it enables individuals to increase their consumption over a lifetime.
The reason why saving is important is that it enables one to hedge against unexpected, necessary expenditures. Savings allow one to actualize things one wants to do for the future.
Since we are targeting young women of which some might be students, it may be difficult to save since all the income is used for necessary spending. However, the most important thing, according to Jens Magnusson, is that one tries to save a small amount each month in order to have some money on the account. For students, one should not prioritize pension saving, but rather saving to cover for the current cost of living and down payment for accommodation. The most important thing is that women get an insight into different ways of saving. Then, when they get older and earn more, they will be able to use this knowledge that they have created.
Why do women have lower financial freedom than men?
According to Jens Magnusson, SEB, the reason for why there has been differences in savings and ownership between men and women is due to old, ridgid traditions in the labor market where women have lower starting salaries. Regarding ownership differences, there is a poor tradition that women consume everyday goods, such as food and diapers, while men stand for investments, such as houses and cars. The combination of lower lifetime incomes and less ownership contributes to this severe problem regarding inequality and less economic freedom for women.
According to statistics presented by Avanzabloggen regarding female and male saving, men and women have different tendencies in their private savings:
The average woman gets started with her private savings 5 years later than the average man does.
The average woman saves 700 kr less each month than the average man does.
The fact that women save less each month will undeniably create a difference in future capital. The more an individual chooses to save each month, the bigger its savings will be in the future. Furthermore, men’s earlier savings result in their money having more time to grow and it will use a longer series of interest on interest. With these two factors in consideration, the average women will have a significantly lower capital saved for the future, resulting in less financial freedom. Magnusson expresses that the problem is worsened by the fact that men save on the stock market, while women save in savings accounts. As a result, men get return on their investments, while women get substantially lower returns in their savings account. This is an additional factor that will create further inequality in financial freedom.
How to overcome inequalities in ownership
Ownershift, a think tank aiming to create knowledge regarding for instance societal structures and individual behaviours in order to promote women’s ownership. From a composition of data, Ownershift has concluded that men owe about double the amount of Sweden than women. To increase women’s ownership and hence freedom, Ownershift highlights eight areas as crucial obstacles in order to achieve equal ownership. These areas are norms and stereotypes, gender-based discrimination, social networks and role models, pay gap, gender segregation in the labour market, financial literacy and numeracy influnce financial decision-making, lack of confidence in one’s own ability and behaviors that affect economic decision-making.
How we contribute to increased equality in ownership
Saving for Female Freedom will provide young women with information regarding consumption behavior, saving to improve future freedom and contribute tips to save in funds in order to receive interest. Our goal is hence to overcome the obstacles financial literacy and numeracy influence financial decision-making referring to women's average lower financial literacy leading to a significant difference in investment decisions and thereby wealth, ownership and freedom. We will hence contribute with concrete and straightforward tips about how to get started and save in for example funds. Moreover we strive to increase women’s confidence since high self-efficacy is correlated with participating in the stock market and not owning a lot of debt-related products. Lastly we want to affect behaviors when it comes to economic decision-making by increasing and visibilize how saving small amounts can have a large effect in the future.