Family and finance: Woman, demand or be denied

To recapitulate here are the 4 primary risks that women face;

1. Financial Dependence
2. Lower share of assets
3. Failure of marriage
4. Unequal division of inheritance

Before we get to understand how each of these risks could be managed let us note that the above risks are not age specific and could happen at any time of life. Hence, it is best to be prepared for all of them.

In this Part 3 of the series of articles on Women and Money, we shall understand strategies for the 1^st and 2^nd risk i.e. for mitigating the risk of financial dependence & lower share of assets.

Situation A - If you are earning

If you are earning obviously you are in a double income household. What you must do is between your spouse and yourself is to plan out your household cash outflows. Both of you must spend for the household and both of you must have assets in your name as well. Decide on what items you will spend your money and likewise what all will your husband pay for. If your incomes are equal, this is straight forward.  If the income levels are unequal the planning must be done proportionately. As an example say, if the husband earns Rs. 30000 and wife earns Rs. 20000 then the ratio for sharing of expenses needs to be 60% and 40%. As a result, both are likely to have savings and hence, both have possibilities to build long-term assets. If you belong to a household where one spouse is doing all the investments and the other is doing all the spending; such arrangement can prove fatal to the person who is spending all his or her money if anything went wrong in future. Why? The person spending has little or no assets whatsoever.

The other thing the earning women must do is to provide their family with the benefit of life insurance to the extent of the expense contribution from her income. The exact amount of insurance each woman may require is different and hence, difficult to estimate in this article. However, as a rule of thumb say, if your contribution to household expenses is Rs. 8000 per month i.e. Rs. 1 lac (approx) annually you need to be covered for 20 times this amount i.e. Rs. 20 lacs. This is a very approximate figure - this is worst case scenario, the actual requirement can be much lesser. For insurance do not look beyond term life assurance. Every other policy, however fancy is irrelevant.

Situation B - If you are not earning

In this case either you have chosen not to earn or cannot earn or have chosen to sacrifice earnings to take care of the home. In any case you are basically dependent and are quite likely to have lower share of assets. This tends to makes things a bit difficult. But there is scope. What ever you got from your parents at time of marriage please ensure that all of that is in your name. Ensure that all of that is invested properly in high wealth generating instruments i.e. to say do not simply park that money into bank deposits and other redundant instruments that give you very little. Remember that is all you have, you basically don't need that except in case of a severe contingency. Such contingencies happen once or twice in a lifetime. Hence you can look at aggressive investments having potential to earn you large rewards albeit at the cost of intermediate volatility. You can afford to be very long term here. Say if you never need it then you can always bequeath it to your children or whoever you like. Life insurance here is a terrible idea and you may not need any life insurance whatsoever. Hence do not place money towards life insurance policies.

Secondly whatever assets you and your spouse are creating be it mutual funds, shares, property etc insist on you being the joint holder for everything. The logic is simple; husband is earning the bread and you are protecting the home front, raising children and generally looking after things. Both these are full time responsibilities and need total involvement. Situations where both are working - managing home and children affairs do pose challenges.

In the next article we shall look at strategies for managing failure of marriage and unequal division of inheritance.

Kartik Jhaveri, an expert at Financial Planning, is a Certified Financial Planner and a Chartered Wealth Manager. He may be reached at kartik.jhaveri@transcend-india.com .

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