Staffing your startup: Why financial literacy among millennials is important

With millennials accounting for a quarter of the Middle East’s population, and a vast majority of entrepreneurs under the age of 35, the region is fast becoming a global hotspot for youthful startups.

And while the UAE in particular offers a wealth of opportunity for fledging businesses, the lack of financial literacy among millennials threatens to hold back them back.

In this article, I outline the importance of money management and why you should address financial literacy for millennials when staffing your startup.

Setting business goals

Financial literacy is essential for career success, helping employees and business owners set strong, realistic and achievable goals, both personally and professionally.

If you’ve no idea about finances, it’s almost impossible to achieve your business goals. According to research, poor financial management is one of the top reasons why startups fail.

Global studies also reveal that only 38% of the UAE adult population is financially literate. Considering that 36% of the population is made up of millennials, it’s a problem that could directly affect the country’s future economic growth.

Concerns with millennials and financial literacy is not just a regional problem; it’s a global one. Experts believe this lack of core money skills in the millennial generation is mainly due to existing education systems which fail to teach money management from an early age. This coupled with a complex modern world, increasingly disrupted by emerging technologies is resulting in school leavers and graduates who are digitally savvy, but financially na?ve.

Benefits of a financially literate workforce:

If more millennials were financially literate, they would understand how to set measurable financial goals in their career, as well as how to measure profits and losses and evaluate new business opportunities.

What financial literacy means for your business?

• The ability to translate a business model into numbers
• Better cashflow and debt management
• An understanding of the various financing options available
• The ability to spot good investment opportunities
• Greater employee autonomy and responsibility

Being able to manage their personal finances can also improve employee workplace wellbeing and productivity levels, which in turn, can have a direct impact on your bottom line.

Greater financial literacy among employees will not only benefit your company, but also boost the overall UAE economy as millennials move up through the ranks and become company founders themselves.

Understanding passive and active income

A fundamental part of financial literacy is knowing how to make your money work for you. In other words, understanding the difference between passive and active income.

The ‘gig’ economy and digitisation are giving millennials greater choice when it comes to flexible working and expectations of a better work/life balance. Never before has there been greater opportunity to make a passive income to supplement your active earnings.

Ways to make a passive income include:

• Earning dividends from stock investments
• Interest earned from a high-yield savings accounts
• Affiliate marketing
• Rental yields from property investments

However, reaping the benefits of a passive income is a long game which requires, initial investment, good money management, astute financial planning and an understanding of risk.

Encourage investment of earnings

The reliance on social media, ecommerce sites and online shopping has made spending money easier than ever. Millennials have grown up in a commercialised, digitally-enabled environment where disposable incomes are more attractive than savings or investments.

A study by HSBC reports that the majority of millennials in the UAE are unprepared for later life and as many as 41% have not started saving for their retirement.

How millennials can be encouraged to invest:

• Sustainable investment – millennials are more likely to invest in socially and environmentally responsible investments that are aligned with their personal values, such as healthcare, healthtech and smart energy technology.
• Property – millennials in the UAE are increasingly looking at property investment. Recent government initiatives such as lease-to-own systems and partial title deeds for several partners under the Real Estate Investment Opportunities (REIOs) initiative make buying a property a more attractive prospect than renting.
• Employee savings scheme – the new Employee Workplace Savings scheme (DEWS) recently launched by the Dubai International Financial Centre (DIFC) offers a low-cost, secure investment platform for mandatory end-of-service contributions by employers. Employees will have the opportunity to earn a return on their employer’s monthly contributions while making their own voluntary contributions without the risk of losing out if their employer goes out of business.

Financial education

Experts across the globe agree that the lack of financial awareness in the emerging workforce lies in the education system, and that basic financial literacy should be taught in schools and universities.

In that respect, the UAE is actively addressing the financial skills gap.

Since 2017, personal finance education is being taught at every school, making the UAE the first country in the world to include financial literacy as part of the school curriculum.

But what can be done to improve financial literacy for millennials who are already part of the workforce?

The good news for both employers and employees, is that there are numerous initiatives, training programmes and digital tools to help improve financial literacy in the UAE.

• The UAE Banks Federation (UBF) financial literacy handbook for SMEs highlights essential aspects of business finance such as cash flow management, borrowing, governance and debt management. The UBF has also launched a ‘modus operandi’ rescue initiative to sustain and guide indebted SMEs who are under financial stress, while providing a co-ordination service between banks and lenders.
• A vital aspect of financial planning and management is tracking your credit rating. The AI Etihad Credit Bureau holds credit data of UAE residents’ financial activities such as loans, mortgages and credit card payments. Residents can access their personal credit records and keep track of their credit rating to help them build and maintain a positive credit score.
• Leading regional bank, Emirates NBD offers financial education through its financial literacy platform, #moneywise.
• The Commercial Bank of Dubai offers a ‘Budget and Track’ financial management tool as part of its online banking service. The tool enables customers to track and monitor their saving and spending habits, while learning how to manage their finances.

As an employer you can promote financial literacy within your company by providing employees with financial wellness programmes, financial education tools, workshops and seminars. Financial training will not only help millennial employees with their own financial goals but will also empower them to make a positive impact on your business and the overall economic growth of the UAE.

Setting up your own business has never been easier. Virtuzone takes care of it all so you can focus on what matters – building your business. For more information about company formation in the UAE mainland or free zones, please call us on +971 4 457 8200, send an email to [email protected], or click here.