My write up today has been prioritized and is being published out-of-turn (though definitely not out of place) since we have International Women’s day coming up on 8th March.
One would argue why does it need a dedicated separate section in personal finance. I think it does. About one-third of my clients are women and my observations are being provided with a big caveat. It has been gathered not just while interacting with people in the financial advisory business, but it also comes from my observations during the two decades of my corporate experience in finance.
Women & Personal Finance – what is differentiation
I can mainly categorize women into two categories: i) those who are not at all interested in personal finance and ii) those who get involved voluntarily or otherwise. There is also a third category those having a deep understanding of personal finances, but other than those working in this profession, unfortunately, I have not come across many in this category.
A. Not interested
Segregating roles: I have noticed that many of the homemakers (though not just limited to them) are very averse to personal finance. Women do not accept personal finance as their responsibility and feel that it is the man’s responsibility, just like cooking is considered to be a woman’s responsibility. Things are changing now in this age and while cooking is as much a guy’s job, personal finance should also be a girl’s job. Money is a very sensitive matter and is supposed to be the main issue behind marital discords. It is critical for both to be aware of all “secrets” regarding money.
Even own money is handled by others: In a typical girl’s family, it is the father who takes the role of managing finances at parent’s house which later shifts to husband after marriage. I think the pendulum needs to shift between the stereotype roles and needs to get into equilibrium with the sharing of all responsibilities.
My experience in interacting with the women who were enthusiastic towards personal finance has been very good. Here are some of the characteristics which I observed:
Big picture: In most of my conversations with women, I have found them to be questioning about personal finance avenues and not taking it at face value (which is very good). There is always a “big picture” in mind, whether it is retirement, taking care of parents, children’s education or just about anything. The conversation focus has not been on “how much returns?” for product X versus Y which I come across while talking to the other half of the population.
Extra cautious: In continuation to the above point, I have noticed women wanting to invest in “safe” assets even for long term goals. This could be a compromise on the goals and in fact can pose a bigger risk, losing money to inflation. Though I do observe women earning more also willing to take additional controlled risk (in most cases) by investing in inflation-beating products.
Keeping finances separate: This is a sensitive topic amongst women. Some spouses like to keep their finances separate whereas there are others who combine while there are some who do a combination. While there is a no right or wrong way, it is important for women to be financially independent, as this also works towards confidence building.
Staying away from loans: I have seen a lot of women uncomfortable with loans of any kind. While I am not in favour of too much leverage, however, there are two types of good debts, according to me, house loan and educational loan (if it adds value by way of a better job or a promotion). However, pre-payments could still be needed, but there needs to be a healthy balance between debt and investments. I have come across people, who are real estate rich – completely paid up loans but zero on investments. To fund most of our goals what we need is assets which have the greatest advantage of high liquidity, ease of transaction and transparency through banking channels and it is the financial assets which fit the bill perfectly.
Real estate obsession: I have noticed a behavioural bias and not letting go of the physical assets so easily. The rental yields are only between 2% and 4%, way short of the inflation numbers and therefore garnering too much of real estate can be detrimental to financial life.
Eagerness to learn: Many women get involved in discussions, are not afraid to ask any type of questions and can contribute immensely once they start taking an active interest in financial planning. They like to think over and do research on their own before signing on the dotted line. In fact, I have seen my number of calls/meetings towards converting into a client more in case of women as compared to men. But once convinced, then there is a complete trust in their financial advisor.
Why is it critical for Women to understand personal finance?
1. Sudden responsibilities
It is a known fact that women tend to live longer than men (by about 4 to 5 years on an average) and therefore need to plan for their finances during those additional years. It is also true that a lot of women do not learn about banking, insurance, finances etc throughout their life and when burdened with this emotional loss due to the death of the spouse, there is also need to learn about finances. Sometimes it gets hastened due to the sudden departure of their spouse due to an accident or a disease. Then, she has to start relying on the relatives, friends, greedy bankers or advisors, which could further worsen the situation.
2. Divorce rates increases
Divorce rates have been increasing and this means it becomes critically important for women to be self-independent. If relations do not work out, then women also do not need to put up with a bad marriage and can have the flexibility to walk out, if needed.
3. Live your dreams
Women are known to suppress their dreams, keeping family priorities important and sometimes even not speaking about their desires with anyone. If they want to buy jewellery, or go for a trip, or need money for their desires, they have to ask money within their family and are uncomfortable with it. They are generally known to be good savers, but not good investors. The money either lies in saving bank account earning minimal returns or worse, lying as cash (after it came out during the demonetization). They diligently save but do not let the money grow by itself, due to lack of sufficient knowledge, or even risk-taking ability.
Everyone ends up managing money in some form or the other. Children manage their pocket money, homemakers manage home finances within limited money provided to them, and retirees manage their golden years with a pension and other retiral income while others could be managing goals and aspirations of their families. But it is an irony that for such an important aspect in our life, there is no education provided in schools and colleges to prepare us for the same. Therefore, we should always look towards broadening our knowledge by extensive reading and interactions and working with the financial experts who can chart out a personal financial plan considering your goals, risk profile and time horizon.
In this digital age, there are dedicate women personal blogs. One such website is https://womenwhomoney.com. While I must admit, that I have not yet read them all, but the website is exhaustive having a listing of more than 560 women bloggers.
Thank you for reading my blog, a rather long one, by my standards. I know some of you would not agree with my thoughts and views. But, then as I started with my disclaimer right in the beginning, I have made a generic comparison between men and women based on my reading and interaction with both the sexes. Obviously, it does not apply to each and every person and that there have been and will always be exceptions. Comments, views, feedback, brickbats, all are welcome!