30 January, 2014

What women need to know about managing money

What women need to know about managing money

There are many problems that women face today due to their aversion for finances. They need acknowledge their problems, take charge & get counted. 

Men are from Mars and women are from Venus, they say. When it comes to money, the martians seem to have an edge. The beautiful beings from Venus seem to want nothing to do with money.  There seems to be a revulsion about things to do with finances, for those from the shining planet.

A lot of things could be to do with the roles men and women are expected to play in society. There are conscious and subconscious messages which get passed on from birth, that we internalize them and start acting them out.

For instance, the message that women receive is that they are nurturers and their primary role is to maintain a good home and raise children. This infact has been the traditional role. But women have transcended this role and are actively participating in the workforce, in a major way. They have made inroads in most fields and are earning good incomes. When they are now earning well and have become a force to reckon, it is surprising that they do not take much interest in managing their money.

Their vulnerabilities  -  We don’t realize it but the imprinting that women receive from childhood upwards regarding money, creates a barrier, which they find difficult to surmount in later life. They tend to feel that finances are a man’s domain and tend to switch off, when it comes to money.

Due to this, their finances are managed by their father, husband, friend, brother etc., which further puts some distance between them and their money. Since they do not want to know about finances and products in which to invest, they would have to trust the person taking care of their finances, implicitly. That can create problems lots of times. Many times, women sign papers which they have not read, based on trust. Trust is fine, but such blind faith can sometimes lead to malpractices, using the money, siphoning of money etc.

Also, money may not be managed the way it should ideally be and will instead be managed based on someone else’s thinking. Also, this other person may not be an expert on finances himself, which complicates matters further. All this can be traced to the message that money is man’s domain and women need not bother with it.

Specific problems women face -  Apart from the demons that they need to exorcise, they have other problems to contend with. Women pursuing careers find that there are interruptions/ discontinuities there due to marriage, child birth & upbringing, transfer of spouse, care for elders in the family and other reasons. This leads to women leaving the workforce from time to time. Discontinuities in their career impact their career progression, growth & promotions and the time they are able to devote to their jobs itself. To keep up their home commitments, women tend to seek a job rather than a career. They look for flexible work or part-time work, which are near their home and compromise on their earnings if these criteria are met. Hence, their earnings don’t match their potential.  It is safe to say that women earn less in their lifetimes due to the reasons mentioned above.

Also, women who invest themselves, tend to make a beeline for the traditional investments options like FD, RD, Post office investments, Gold, property etc. Due to their lack of knowledge in the personal finance domain, they tend to ignore the newer asset classes like Mutual funds. Also, there seems to be major risk aversion in case of women as a whole as compared to men. Due to this, their participation in equity & Mutual funds is muted. This means that their corpus would be invested in traditional asset classes, which may not be able to beat inflation. The only exception could be property.

So the problem they face is that they tend to earn less and invest in a manner that would yield lower returns. But, women are living longer than men. This is a statistically proven fact. Hence, there is a good chance that they may be underfunded in retirement.

What they need to do -  Firstly, women need to acknowledge the problem. The discontinuities in their career and their earning less due to the flexibility they seek is a fact of life. But, they can address other areas. They need to acknowledge that ceding control over their finances, is a major problem area. They need to get over their aversion for finances, which does not have any logical reason in the first place. Basic knowledge on finances is easy to acquire.

The next thing that they need to do is to seek to understand the products they are investing into and seek out other investment options that may fit their profile.  They need to start looking at products outside of what they are investing today and evaluate for themselves, if that makes sense. They need to understand the basics of planning for their future, which is quite easy. Once they do this, things will start falling in place. They need to have a full compilation of all their investments and should look at it atleast once a year, if not more frequently.

They should look at deploying their surplus amounts in proper instruments, rather than letting it lie around for months on end in the savings accounts.

Risk aversion is another aspect they need to work on. They would need to educate themselves on the risk- reward aspects and understand the need to assume certain amount of risk in the appropriate products, for getting higher portfolio returns.

Conclusion -  The problems that women face are of two categories. Discontinuities in their career and lower earnings etc. cannot really be changed due to their personal situation. What can be changed is their active interest and participation in managing their own finances and ensuring that their future is well funded. An effort is certainly required on their part to start off on this. Most of them should be able to manage on their own. Involve a good financial advisor, if needed, who would be willing to assist and educate you rather than another version of your father or husband. They need to understand these even more today as they would be well prepared even if there are devastating events like death of the spouse or separation, which can otherwise take a very high toll on the person.

Venusians can and should be able to manage their finances competently. There are so many woman CEOs today who manage big financial institutions. Putting their own house in order would be child’s play by comparison. 

Article published in Business Standard on Jan 12, 2014; Author : Suresh Sadagopan ; www.ladder7.co.in

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