When it comes to matters of money, the adage ‘what is good for the goose is good for the gander’ is not true. Men and women undergo different life experiences, differ in their knowledge and attitude towards risks; and as financial planning is a very personal exercise, there is a need to look at the course of action for women, differently.
More than men, women have a greater need to think hard and actively manage their finances, for at least four reasons. Unfortunately, they are less likely to consider investment as a priority. Here are four key factors why women should take an active role in money management.
It is a well-documented fact that for the same job, women earn 20% less than men on an average, globally. Their lifetime earnings are, hence, lower compared to men in similar careers. This reduces their savings and retirement kitty.
Women also tend to have career breaks to handle family situations.
For example, they may take a few years off after the birth of a child. These breaks may affect their earnings in at least two ways. One, there is loss of salary; they may stop any SIP or other regular savings, affecting investments early in the career. Two, they may fall behind slightly in their career when they re-enter after a break.
These losses may add up, especially if they take a different job profile to balance work and home.
Also, many women choose not to work due to various reasons, as data from the labour force participation rates for women show. For instance, the 2018 report by the World Economic Forum shows a 66% gender gap in India, in terms of economic participation.
Question of longevity
Women must also make their money stretch for many more years. Data from the WHO in 2018 for India showed that women have an average life expectancy of 70.3 years, compared to 67.4 years for men. Living longer requires having a larger retirement kitty to fund their expenses.
Also, women often cannot rely on property or other asset ownerships. While the law provides equal rights, the practical situation is that men tend to own assets and there are social and other impediments in implementing property rights of women. So, they end up having to relying on others to fund their old age.
They are saddled with more responsibilities and have to foot more expenses.
For instance, the financial consequences of divorce tend to affect women more adversely.
They are often the primary caregivers for children and are likely to be single parents. The alimony they get is often insufficient and the net effect of these is that women have less money to put away.
Lower savings and higher needs are also exacerbated by the lack of financial savviness. Data from the 2017 Global Financial Literacy Excellence Center study on gender gap in financial literacy showed that only 20% of women understood financial concepts (a lag of 8 percentage points over men). The gap was wider in more developed countries where the overall financial literacy was high. For example, 70% of women in Canada are financially literate but lag men by 17 percentage points.
Financially literate individuals do better at budgeting, saving money, controlling spending, handling debt, participating in financial markets, planning for retirement and successfully accumulating wealth.
However, there are possibly many reasons why women are not aware of finance. One, their peer group and social pressures may not enable them to hear about or participate in investment-related discussions.
Two, based on the role models they see, they tend to believe that money management is the domain of men.
Even when they are aware of financial products, women may not invest right. One reason for this is that they need a different style of approach. For instance, they may be more attuned to think about savings, rather than investing. Many also don’t trust information provided by financial institutions or feel confident about transactional services.
Two, the advice generally given is geared more towards men. For example, studies in developed countries such as the U.S. showed that the language used was more returns-focussed (which suits men) rather than addressing risk-mitigation.
Starting late, a challenge
Three, women may have a late start in investments and when they are vulnerable. For instance, the responsibility may be thrust on them when their spouse is unwell or there is a crisis. They are likely to be misguided by commission-based advisers who may fail to give the best advice that suits the woman’s financial knowledge and risk-taking ability.
Four, there may also be stereotypes at play which may lead to women being given ultra-conservative advice. As a result, they may stick to low-risk instruments that give low-returns, even if they had had the ability to take risks early in their career.
(The author is a Chartered Financial Analyst and an independent consultant)