Women’s participation in the workforce is at an all-time high. However, there is still quite a disparity between men and women, especially when it comes to finances. Financial planning is about 4 things, budgeting, saving, investing, and insuring. Coming to women, it is often proved that financial planning is different compared to men's.
There are a few underlying factors that need to be addressed before diving into tips on how to plan. A study showed that only 33% of women report making independent financial decisions compared to 64% of men. Let us see the causes of these stats and discuss ways to make things better for everyone.
a. Life Stages:
Even ignoring the gender wage gap, women have a big disadvantage in terms of lost earnings and promotions because of the disproportionately large role they play in raising a family.
Women often take career breaks to handle situations in their families. Taking the most common example, a few years break after giving birth to a child. Along with affecting their salary, savings, and their SIPs, it pulls them back a couple of steps in their career. This is because they have to catch up to the workflow and adjust to the new routine of balancing work as well as home.
Financial planning for women needs to account for both the hit on cash flow and growth of long-term income.
b. different personalities:
Warren Buffett has often been described as investing like a woman, more future-oriented than the competitive investing seen by other hedge funds. Personality-wise, women in finance have been shown to make decisions that are less risky, more diversified, and more social, i.e, investing back into society for growth.
A survey by the Motley Fool also found that men and women have different priorities in terms of savings. Most men in the survey have their savings keeping vacation as the number one priority followed by paying off credit card debt. Most women, on the other hand, have savings, by keeping payment of their debt as the first priority before vacationing.
c. Entrepreneurial or Investing acumen:
Women entrepreneurs dominate many industries like clothing, beauty, education because of one simple fact, they understand women better than men do. In any industry where women are the major consumers, this insight and knowledge become a huge advantage that makes women far likelier to succeed in providing the best products and services. This holds whether it is starting a business, or investing in attractive opportunities.
There are avenues to grow one's wealth where women will be far better at analyzing, identifying, and backing, with great profits to be made.
Men tend to show more risk-taking ability in investments leading to higher behavioral blunder. On the other hand, the risk-averse nature of women makes them more balanced investors resulting in risk-adjusted returns.
d. Conventional impediments:
Most financial services, platforms, and literacy modules are dominated by men. This makes financial planning for women not only more difficult but also more important, i.e., women have to arm themselves with the information, tools, and knowledge just to be comfortable dealing with such male-dominated decision spheres. It has to be targeted to change the beliefs in the roots for both genders.
Out of 144 countries, the World Economic Forum Gender Gap has studied that India stood at 140th position in economic participation as of 2021. Although there is progress, the majority of women are still not motivated to have a career of their own and have financial literacy.
On a positive note, women are fighting all kinds of stereotypes and pushing themselves to become the best, professionally and financially. Even if there is a well-versed partner or mentor who can help with money management, it is not wrong to know options and test them once in a while.
A Few Tips To Follow
Now, let us see how you can design a constructive financial plan for yourself as a woman and how you can wisely use the resources available to you.
Budget: See Where You Are And Where You Want To Be
Traditionally, household budgeting has always been the responsibility of the woman, as part of gender-specific roles. And, women still predominantly make decisions when it comes to household purchases or buying jewelry. However, men dominate the conversation when it comes to investment or long-term financial planning such as buying a house or vehicle. At the end of the day, a man of the house is assigned the responsibility of crucial financial planning even in the case of both spouses being earning members.
As a woman, it is important to be aware of the options you have and budgeting is the best place to start. Whether you are a salaried woman or self-employed, it is important to have essential financial education and relative goals. This helps you in planning how much you need to save and how to increase your income.
First, you need to analyze your income and your bank account, then plan out the budget based on your expenses and goals. The best way to do it is to use personal finance rules such as 50/30/20 or 70/30. In the 50/30/20 rule, you consolidate 50% of your income into paying for important expenses or things that you need to live, 30% for stuff that you want, and 20% for savings and investments. On the other hand, in the 70/30 rule, 70% of your money is used for monthly expenses, things you need, and your wants. 30% is subdivided into 20% and 10% which are used for savings and investments respectively.
If taking an accounting book and calculator for the monthly budget is not your cup of tea, then you can check out several budgeting apps available on the app store. A few good apps like Acorn, use your spare amount in investments that build equity for you.
No matter what kind of rule you follow, it is obvious that the money you allocate for fixed expenses like EMI/rent, health insurance, etc, will be spent before you know it. You can go with prepaying the loan or find a cheaper living space to tone down these fixed expenses.
If you are having long-term goals like buying a house or becoming an entrepreneur, you need to regulate small expenses. You don’t have to stop them for good but plan to spend less.
Men, more often than women, fall into credit default. Research conducted by United Nations Population Fund showed that women often tend to lean on their savings than taking out a loan to accomplish a task. On the other hand, men tend to explore their credit options, more than women. It goes back to the risk-taking and risk-averse nature of men and women respectively.
If you are not aware of your debt situation, it is about time to understand what it is. Having debt is not bad but being in total debt is bad. You need to make sure that before you take a new loan, you can clear all or most of your other debts. One proven way to avoid immersion into debt is to pay off the debts whenever you come in handy with surplus cash. Having a debt to pay is not bad in regards to how much you have to pay and how well you are planning to pay. The way you handle your debts reflects your credit score, which is something you need if you wish to take a new loan.
In 2019, DSP Winvestor Pulse 2019 survey found out that husbands play a major role in introducing women to investing than fathers. The study showed that 39% of women plan to invest first and then plan their monthly expenses accordingly. Interestingly, the study also found that only 42% of women consulted a professional financial advisor, lower than men, 46%. While 42% of men and 50% 0f women said they are gender-neutral while considering a financial advisor, 55% of men and 31% of women prefer a male advisor. Coming to female advisors, 19% of women preferred them while only 3% of men were open to working with them.
It is quite endearing to learn that 65% of the women said that they started investing before the age of 25. However, the segment found that only 12% of women took 100% responsibility for their investment strategy which is 2.6 times lower than men who stand at 31%. The problem seems to be not knowing where to start.
If you are having money laying in your account, you can put them to good use. You can start investing your extra money so that you can gain decent equity with good returns. Investing in the stock market or crypto is a sound option that requires good research and alertness as asset allocation is something you need but demands your good attention. Several banks are offering higher interest Fixed Deposit (FD) options which again give you decent returns from time to time.
Women tend to live longer than men. This can become an advantage for women. If begun early, investment can help you build equity quite impressively by the time of retirement. That too only if you understand the beauty of compounding. Unlike linear growth, compounding is exponential earnings from the initial principal and accumulated interest. Check out here, to understand compounding even better.
To understand this better, let us assume you deposited Rs. 10,000 with 5% interest payable to you. So, after the first year, along with the interest accumulated, you have Rs. 10,500 in your account. Now, the principal invested has 5% growth from the previous year, so there is a gain of Rs.525 resulting in Rs. 11,025 as balance. Higher the principal, the higher the compound interest. And, as you can see, the consistent growth in principal results in high equity in the long term. Mutual funds are proven to be the best way to put compounding to good use with warranted careful research.
Insurance is Important!
Insurance providers offer special insurance plans supporting women and their financial goals. They offer policies with less premium for women compared to men. The fact that women tend to live longer than men influences insurers to make these fruitful offers to women. The longer life expectancy reduces the risk of the claim so women are given a 3-year setback on premiums on average. This means a 43-year-old woman and a 40-year-old man have the same insurance premium.
If you are a working Indian woman and sole caretaker of your family then obviously you might be worried about the future of your family in your absence. Life insurance is something that takes care of your family when you are not around. It is proper financial security for kids as well as dependent elders.
Along with Life Insurance, an emergency fund is something that is also vital. You need to save a portion of your income to deal with unanticipated emergencies that might come knocking on your door.
46.6% of women in India faced poverty post-childbirth according to a study conducted in the year 2016. Out of this, 36.6% were women who are educated. Thanks to group coverage companies offer to their employees these days, there are changes to these conditions. However, the increase in healthcare costs is demanding more money for maternity care. It is wise to have options such as above mentioned emergency fund or personal insurance that covers pregnancy in particular.
However, insurance providers usually charge higher premiums for women who are of childbearing age. This is generally called Gender Rating. This is because, in medical conditions, the likelihood of a person needing to bill the policy is affected by gender differences.
Investor Or Entrepreneur: There Are Options For You To Choose
A survey by ETMoney studied that women are more determined than men to keep their investment track intact. Once they start a SIP, women tend to keep it running more often than men. The survey also showed that in the year 2020, in the time of Covid, women saw 14% returns compared to men who saw just about 12%.
However, the deep-rooted beliefs in the societal mores that men are the providers and women are the nurturers still prevail in India. In urban households, in most cases, even women who are equal or high earners, reportedly rely on men when it comes to investing. It is about time to raise awareness among women, help them start at the earliest, and also educate men about the role they have to play.
Using the Systematic Investment Plan (SIP), women can invest money regularly and equally in mutual funds, trading accounts, or retirement planning. This way, instead of running around to invest large amounts, you can choose to deposit smaller accounts over long periods. You can choose the SIPs from weekly, monthly, or quarterly to your convenience.
The SIPs are quite favorable to working Indian women who are also caretakers of children and elders. These plans allow you to invest more in one year which balances out the years in which your payments are irregular or missing. The key factor here is that you need to plan for increasing your investment each year as your salary increases. Which results in uncompromised equity increment. Understand savings even better here.
An entrepreneurial woman would know the hardship of arranging the finance, let alone generating steady revenue. For loans, you will look at your closer circles to find the right finance that would support you in your establishment.
However, you shouldn’t take the government out of the picture for aid. For instance, the Indian government has introduced Trade-Related Entrepreneurship Assistance and Development (TREAD) exclusively for women and finance. This act allows enthusiastic women entrepreneurs to launch their dream startups with proper financial aid. The government grants 30% of the total project cost which is decided by certain respectful lenders who also finance the other 70% of the project cost as a loan.
The Bharatiya Mahila Bank Business Loan offers women applicants up to Rs. 20 crores as a loan for manufacturing companies with an interest rate of around 10.15%. There are other acts like Mudra Yojana Scheme, Udyogini Scheme, Sukanya Samridhi Yojna, etc, that encourage women to pursue their entrepreneurial spirit and become financially sound.
Banking For Women
A study conducted by Women’s World Banking’s Country Strategy showed that out of 77 percent of Indian women with a bank account, around 50% never use it or use it in a limited manner. The study stated that women are not being a part of financial inclusion by not taking the advantage of basic banking services such as savings. The fact that only 51% of women are literate against 77% of men, contributes to the gender disparity.
Fortunately, this doesn’t have to be this way for long now. The Indian government has and has been introducing financial programs that are women-focused.
Banks in India allow women to have more secure earnings through a special savings account that regulates the financial and investment needs of women. Those who use these accounts for their regular transactions can often obtain discounts, rewards, cash back, and more. The government also allows women to open another account for their child called ‘Junior Account’, so they can save for their little one’s future. Furthermore, these accounts do not require to have a minimum balance if they are associated with either SIP or Recurring Deposit (RD).
The interest rate for women applicants on a loan is usually low compared to men applicants. If a couple has applied for a joint home loan, they have a good chance of getting better interest rates if the first applicant is female. There is almost a 0.05% interest rate difference on average. Many lenders are positive about offering discounted car loans as well for women compared to men.
The income tax department of India is gender-neutral, principally. Tax charged on income is equal for both men and women. But women can still avail a few deductions and increase their income by exploring their options and building a steady tax planning.
For a working Indian woman, there is a chance of saving Rs. 1.5 lakhs in a financial year in terms of tax deductions. We agree, handling tax is a little difficult, but learning how to do it from the basics is essential and opening accounts in Public Provident Fund (PPF) and National Pension System (NPS), or investing in Equity-Linked Savings Scheme (ELSS), would make you eligible for tax benefits under section 80C. A homeowner can gain additional tax deductions and if you are an entrepreneur, the tax department offers you saving options when you show expenses like travel, accommodation, meals, etc.
Real estate is also in favor of savings for women. Governments of different states in India offer lower to zero transfer and stamp duties in case of gift deeds, conveyance deeds, and sale deeds. Some municipal corporations are even exempting property taxes if the property is under a woman’s name.
Women in India, no matter their educational background, have proven to be pretty good at money handling. Even if you look at the domestic level, women who are housewives tend to save as much as they can with the money their husbands bring home along with running the household.
So, it is just that you as a woman need to expand your wings for becoming an able decision-maker regarding long-term financial planning.
It is true that the said long-term financial planning such as a mortgage, investment, etc, has been the domain of men from the beginning. For men, it is important to let themselves understand the worth of independence and encourage delegations of women and their personal finance. As for women, it is vital to push themselves to break barriers, demystify their financial turmoils, and create a sturdy financial plan.