Are you
Financially Aware?
Don’t be
dependent only on the men in your lives to manage your money.
Find out why and how
to upgrade your financial skills for a more secure future.
Women and money twirl in a curious tango. The woman
pirouettes around moolah much like any rational, materialistic person. Yet, in
a baffling bout of irrationality, she spins herself away from it, refusing to
manage it herself. She lets the men in her life—husband, father or brother—take
charge of her finances in a regressive display of reluctance. Why would an
educated, working woman refuse to take control of her money? “It’s
conditioning. For years, the society hasn’t allowed her to do it. She has been
told that she doesn’t understand money and should stay away from it,” says financial
planner Kartik Jhaveri. “Besides, finance is perceived by them as a very boring
and difficult subject,” says Swati Kulkarni, executive vice-president, UTI
Mutual Fund.
So, even though the income level of the urban Indian
woman doubled during 2001-10 from 4,492 per month to 9,457 (according to a 2011
IMRB survey), financial literacy among women continues to be among the lowest
in the world. India
ranked 11th out of 14 countries, as per the Mastercard Financial Literacy Index
2011. This lack of awareness creates financial insecurity, which translates
into a discernably disturbing social fallout—women suffer abuse, find
themselves stranded if they are divorced or widowed, are cheated out of their
rightful legacies, and are rabidly missold financial instruments.
The financial insecurity stems from two reasons. One,
despite the fact that a lot of women handle their household finances, they
depute the investment of money to their spouses. If they are working, they
don’t regard themselves as primary providers and relegate themselves to passive
roles. Two, they do not proactively seek information that can be critical to
the financial well-being in later life, especially for non-working women. They
don’t know if they are nominees in investments, if their husbands are insured,
how they will fend during retirement, even where the important documents are
stored. This, despite the rising incidence of divorce and a higher life
expectancy for women; they live 5-7 years longer than men.
Does this apathy also spring from the notion that men
are better than women when it comes to financial dealings? Perhaps, but this
belief is not backed by any scientific study. On the contrary, several studies
prove that women earn better results in market investing as they take fewer
risks and churn less frequently (see page 17). Is this enough to spur women
into spunk? Unfortunately, no.
So, what we attempt in the following pages may seem as
puny a propulsion in the desired direction, but it’s necessary. We shall take
you women through seven simple steps towards financial empowerment. It doesn’t
matter how old you are, whether you are single or married, working or a
homemaker. All you need to know is that personal finance is not astrophysics
and all you need to do is believe in yourself. “After all, you are the best
judge of your needs and it’s better to work towards satisfying these rather
than expect someone else to do it for you,” says Kulkarni.
Follow this advice and we assure you that you shall
jive your way to riches, not financial insecurity.
1 GET A LITTLE BLACK BOOK
Budgeting & banking
Simplistic as it may seem, getting a diary or an online planner is your first
step towards empowerment. Start recording in this diary the inflow and outflow
of money over a period of 2-3 months. Dismayingly, only 27% of Indian women
solely manage the household budget, according to the HSBC Future of Retirement
report 2011. So, if you are not a part of the lowly figure, undertake this
crucial exercise. You can take heart from the fact that Indian women scored the
best in financial planning and basic money management among 14 nations,
according to the Mastercard Financial Literacy Index 2011.
Budgeting will give you an idea about the money you
save and the amount you can invest. If you are working, squirrel away 10% of
your income, and if you get a fixed amount from your spouse, well, do exactly
the same.
The next crucial step is to imbibe the basics of
banking. Though most women do this on a regular basis, as Jayant Pai,
vice-president, Parag Parikh Financial Advisory Services, says, “I’ve seen
well-educated women, who don’t know how to fill up a form for opening a bank
account.” So, if you fall in the latter category, figure out how to fill it and
open a savings account, which is preferably linked to a fixed deposit. This
will ensure a high rate of interest and offer liquidity. Having an account is
critical since you can use your money to invest as per your will while making
it grow at a nominal rate.
Now, familiarise yourself with tasks like the working
of an ATM card, writing a cheque, knowing the difference between a demand draft
and a cheque, and reading the account statement. A simple way to curtail
dependency on your spouse and expunge intimidating trips to the bank is to tame
your tech phobia (if you have one) and register for Net banking. This will help
you view your account statements, pay utility and credit card bills, transfer
funds, recharge your phone, even pay loan EMIs. Yes, you are already on your
way to financial freedom ....
2 YOU COME FIRST Specify goals
Identify your goals. Thinking about them is not enough. Pen them down:
short-term (buying a car, going on a vacation), mediumterm (buying a house,
saving for your kids’ education) and long-term goals (retirement), and the
amounts you are likely to need for these. “A lot of young women indulge in the
present, assuming that the future will take care of itself,” says Monica
Agrawal, director, strategies, Aviva Life Insurance. “They should chalk out
clear, realistic financial goals at an early stage,” she says.
At the top of this priority pile should be retirement.
But what about kids? Yes, they are important, but saving for retirement is an
imperative. Don’t forget that women live 5-7 years longer than men on an
average, work for fewer years due to child caring responsibilities, and earn
lesser—in India,
they make 64% of what men do in the same occupation and at the same level of
qualification, according to the Wage Indicator report on gender gaps for 2010 .
These three factors can amount to a huge shortfall in savings (see graph). “Due
to the difference in earning patterns and priorities women set for themselves,
they need to handle their finances differently from men,” says Kanchana TK,
executive director, Vantage Insurance Brokers & Risk Advisors.
So start saving for retirement the minute you start
working. If you don’t earn, keep aside a small amount from household expenses
for this goal. After all, you need to tap the power of compounding. “First
protect and provide for yourself and your spouse, then the kids,” says PV
Subramanyam, financial trainer at Iris.
This should be an important learning for women like
35-year-old Shikha Khullar, who runs her own placement agency in Delhi, and has an
extremely high financial acumen when it comes to her insurance needs, emergency
preparation and investments. Yet, she is giving retirement the short shrift.
“At this point,” she says, “kids’ studies are more important.” No, your kids
can take an education loan, you can’t take a loan for retirement. “Everything
else can be compromised, but you cannot scale down on your retirement savings,”
says Subramanyam.
3 MAKE YOUR MONEY GROW What is asset allocation?
Asset allocation is the biggest deterrent for women when it comes to financial
planning. Now that you have a bank account and have started saving, don’t you
want it to grow to a large corpus? So don’t let alliteration scare you into
submission or sneak out of financial planning. Asset allocation simply means
putting your money in different investment avenues. This will depend on your
goals, time horizon and risk appetite. You can put the money in asset classes,
such as equity (stocks, mutual funds), debt (fixed deposits, bonds, debt
funds), gold or real estate. If you are still dumbstruck by germanely geeky
terms like mutual funds and bonds, approach the Internet; it is a one-stop shop
for dispelling ignorance. It will be worth putting in the effort to educate
yourself if you seriously crave financial independence.
“The investing strategy for both men and women is
essentially the same. However, it may differ for the latter since they have to
think about easy liquidity of investments and preservation of capital, given
the fact that they may be homemakers or may not have the certainty of
continuous employment,” says Kulkarni.
“What they really need to be concerned about is that
the world has changed a lot and many good investment vehicles have been
defeated,” says Jhaveri. Does this make choosing the right avenue more
difficult now? The best way to get around this dilemma is to not put all your
eggs in one basket. So, even though a stock-heavy portfolio has delivered
stellar returns in the past 10 years, as the visual below shows, it is safer to
adopt a balanced approach and spread your money in a mix of equity, debt, gold
and real estate.
Most women, out of fear or ignorance, stick to just
one. Take 54-year-old Bandana Kalita from Delhi
or 39-year-old Anagha Kulkarni, an entrepreneur from Hyderabad, (see pictures), both of whom have
focused on property. In doing so, they may have compromised on the cost
opportunity of their savings. Anagha has started trading in stocks in the past
five years, and has even benefited from it. However, Pai is disapproving:
“Stock trading is for more evolved people. At the most, women should allocate
5% of their portfolio to it. They should treat it as a stepping stone to
learning about finances, not as a serious investment avenue.”
A good alternative to avoiding direct exposure to the
risky equity is mutual funds. These buy a bunch of stocks according to the
investing mandate and are managed by experts. So you can easily pass on your
worries to the fund manager and hedge your bets. “Regularly investing through
systematic investment plans (SIPs) of diversified equity mutual funds helps
build a large corpus with less hardship. Treat SIPs as a monthly outgo in
budgeting and look for a 10-15-year time horizon to reap benefits,” says
Kulkarni.
Gurgaon-based Alka Vishnu, 39, does just this. “I was
encouraged by my husband to invest in mutual funds and now have a portfolio of
5-6 funds,” says the homemaker, who not only does her own research, but also
monitors it regularly and has her husband, Virendra, depending on her
completely.
The next googly? How do you know which particular stock
or fund to pick? The Internet will again dribble out the answers. You will find
the returns of mutual funds, stocks, gold, etc, on the company, mutual fund or
fund analysis sites like Value Research, and can scan finance newspapers and TV
programmes. It is critical to conduct your own research if you do not want to
be saddled with a loser.
If no amount of self-help works, it could be time to
employ a financial adviser. He will not only assist you in formulating a plan
and deciding the asset allocation that suits you, but also suggest products and
monitor your portfolio. This could be money well spent.
4 BE IN THE KNOW Not
all paperwork is boring
Documentation is not a dirty word, especially when it spells security for you.
A lot of women are rendered dependent and destitute because they are not aware
of the investments, their nominee status or the redemption procedures. How can
you make sure you never land in such a situation?
Even if you are not investing actively, constrained
either by time, circumstance, or faith in your own ability, it doesn’t have to
be the end of your financial freedom. As important as investing is the
knowledge and awareness about investments. “It takes 20-30 minutes in a year to
get this information,” says Jhaveri. So, find out about the following from your
spouse/father: How many and where have the investments been made? Are you or your
kids joint holders/nominees for bank accounts and other investments? What are
the EMI size, tenure and size of loans? Is your husband adequately insured if
he is the only earning member? (The insurance amount should not only be able to
cover your expenses but also liabilities like loans.) Has your spouse/father
made a will in which you/kids are beneficiaries? Most importantly, do you know
the procedure of processing these documents in case he is not there.
If your answer to any of these questions is a ‘no’, you
face grave risk. “What good does it do to sit on crores of rupees if you can’t
access it? Establishing the ownership of assets is critical for women,” says
Jhaveri.
Get your little planner out and note down all these
details. You will need the diary even if you are working and investing
proactively. What’s valid for the spouse holds for you if you have dependants.
So, ensure all your documents are in order and draw up a will if you have
assets, no matter how old you are.
Reading
up on documents is also essential if you do not want to be cheated or missold
products. “I make it a point to read all documents before buying a product. If
I don’t have time, I scan the broader points and even try to read fund
newsletters,” says Khullar, mother of two toddlers, whose documents are
well-organised.
5 SECURE YOUR DEPENDANTS Are you insured enough?
This is another pitfall that stares most women in the face even though it holds
the key to their financial security. At its worst, women don’t know the
difference between life and medical insurance. At its best, there is Vidisha
Gupta. The 41-year-old software professional from Bangalore has a term insurance plan worth 2
crore for the next 24 years. The cover is much more than five times her annual
salary, the ideal amount you should consider as life cover. However, she also
has two unpaid loans—a home loan worth 60 lakh and a car loan worth 9 lakh.
It’s a wise move as it will ensure her two kids do not suffer financial pangs
if she were to pass away suddenly.
If all this has winged past your cognitive faculties,
do not panic. Most women have no clue about insurance. They don’t really need
to know about every insurance policy in the market, but it should be mandatory
for them to distinguish their term plans from endowment and Ulips from medical
plans.
It’s equally important not to confuse insurance with
investment. Insurance is an instrument that allows you to secure your
dependants, health or property, while investment helps your money grow. The two
are often mixed up because of the several products in the market that combine
the two. Take a look at the above chart to distinguish between the basic types
of life insurance policies. So, if you just want to secure your life, go for a
term plan and expect no returns on maturity. It’s simply meant to ensure that
if you are an earning member, your family doesn’t suffer financially if you
pass away during the plan’s tenure. The other types offer insurance and invest
your money, but are either too expensive (Ulips) or offer low returns
(money-back).
If, however, you are a homemaker, make sure your
husband is adequately covered. “Insurance is the most critical aspect of
financial planning and it is advisable to invest in a simple term insurance early
enough to ensure financial continuity for dependants,” says Agrawal of Aviva
Life Insurance.
What about medical or health insurance? It’s taken to
make sure that if you or any other family member is hospitalised, the expense
is covered. You can either go for an individual plan or a family floater, which
will cover your husband and kids as well. If you are not employed, prod your
husband into buying a plan for the family or check if he’s being offered one by
his employer.
6 PREPARE FOR THE WORST Have a contingency fund
So you are in a sweet spot. You have secured your financial freedom to a large
extent. You are a Net-savvy, well-insured, proactive investor, who won’t have
to depend on anyone if faced with a crisis during your retirement. But what
about now? What if you are in your 30s and left stranded by an adulterous
husband? What if your medical bill overshoots the insurance amount by a wide
mark or your spouse loses his job unexpectedly? Do you have enough provisions
to take care of the immediate financial upheaval?
Most women don’t have funds that are clearly earmarked
for such a contingency. They assume that one or the other investment will stand
in good stead at such times without considering the instrument’s liquidity. So
if you are banking on real estate, or one of the fixed deposits, even PPF,
don’t. Real estate is not easily disposed of, FDs have inflexible limits and
PPF should ideally be slotted as a retirement corpus and not dipped into
prematurely. Besides, you will incur a penalty or tax if you withdraw these
funds. While Anagha is depending on her property in Hyderabad
to bail her out of any crisis, 31-year-old Sumedha Kang of Chandigarh is sanguinely falling back on some
of her fixed deposits with varying maturities. No financial planner would
recommend they do this.
There are two options that you can consider. Keep
reserve cash that is equal to 4-6 months of your expenses in a sweep-in savings
account. This combines the benefits of liquidity with higher interest rates. The
other option is short-term liquid funds, which invest in low-risk instruments
and can be redeemed within 24 hours. They also offer higher rates of interest
than a savings account. So, go ahead and park your money in one of these
options and ensure protection against unexpected events.
7 DON’T REST ON
YOUR LAURELS Keep tabs, keep learning
You have reached the end of your financial learning, but ‘end’ may well be a
misnomer. Don’t shunt out your planner, lapse into lethargy, or refuse to
upgrade your knowledge in every aspect of personal finance. It’s a sure recipe
for risking your long-term security.
Every investment requires periodic and careful
monitoring. If your investment, be it stocks, mutual fund or property, is not
performing well, it needs to be weeded out and replaced with one that is doing
better. It is essential to have a disciplined portfolio by sticking to an asset
allocation plan. You will need to alter your debt and equity components as you
grow older and with changing circumstances, which is why it’s essential to be
proactive at all times.
Keep tabs on changes in rules and regulation in the
stock market, insurance, banking or taxation, as all these will impact your
finances. It’s not important that you personally file your taxes (you can hire
a CA), but know your tax slabs, when you should file your returns and how the
calculations have been made. Taxation is also innate to any product you
purchase or sell, for the tax levied will chip into your returns. Know how much
tax you will need to pay at what stage of a product’s life, be it a house,
mutual funds, fixed deposits or bonds.
Finally, remember to pass on your learning to your
children, especially daughters. Financially savvy girls will shape up into
independent and secure women, who will not have to depend on the men in their
lives. You can do this only if you are one yourself. It’s time you took the
first step towards empowerment. After all, you need to pirouette around money
for the rest of your life.
—with inputs from Sameer Bhardwaj
-- RIJU
MEHTA ETW 120305