On a recent flight to Chennai, I was seated next to a bright young lady who has been working in the banking sector for the last five years. She credited her father, a retired banker, for her keen interest in banking. Upon learning I am a fellow BFSI colleague, we spent our travel time conversing about my experience with insurance and financial planning in general.
As we were parting though, she said something that utterly stumped me—her father handles financial planning for her. It seemed completely uncharacteristic that this individual who is well-versed in the basics of finance is and quite obviously comfortable handling money would leave something as significant as financial planning to her father. Come to think of it, a majority of women I know do relegate financial matters to their fathers or their husbands despite being well-educated and smart.
From the household to the boardroom, the women in my circle are some of the sharpest thinkers I have come across. There is more than enough anecdotal reference and statistics available to show that women have broken the proverbial glass ceiling and then some. So why is it that women so easily and happily cede control of their finances to the men in their lives? When I try to understand the psychology behind it, I come up short.
Women and savings
Defined gender roles, fear of losing money and several other factors keep women away from taking charge of their own finances. Traditionally, we have all grown up watching our fathers manage finances for the entire household and we unconsciously follow these gender norms while growing up. Interestingly enough, several people model their savings behaviour after their mothers. Most of us, at least in my generation, were introduced to the idea of savings through our mothers who stashed money in utensils for a rainy day. This savings behaviour seems to also translate to financial planning.
The Women and Money Power Report 2022 published by LXME shows that only 16 percent of women are diversifying their investments into varied instruments. As many as 65 percent of women prefer putting their funds into a savings bank account, and 37 percent keep it at home for emergencies. Some of the key drivers for women are children’s education and family security; only a small percentage are preparing for their own retirement or financial independence.
Preferring savings over market-linked investment in itself isn’t a faulty approach. However, it is becoming critical for money to earn money so that its value doesn’t erode over time due to factors like inflation. This is where market-linked instruments come into the picture. It is also a fallacy that all market-linked instruments are by default a high-risk play. For instance, you buy guaranteed insurance plans that can help you lock in your investments at the current high interest rate and prevent the risk of reinvestment in the future.
ALSO READ: Five reasons why it is important for women to take charge of their finances
What felt intimidating to me in my early years as an investor was the lack of awareness or understanding regarding the investment landscape and the fear of losing money. Both these factors, for a man or a woman, are an unavoidable part of your financial journey. Self-learning can help you understand any number of instruments in the marketplace, and failure is absolutely essential to know what not to do.
Here are some tips to start you on your financial journey:
1. Seek guidance: Taking charge of your finances doesn’t mean doing it alone. Seek guidance and leverage the financial expertise that your father or partner or friend may have.
2. Diversification is critical: Saving is important, but you need to diversify your financial portfolio. Start by identifying your family and personal goals, determine your risk appetite and then decide the financial products that suit those parameters. Build your confidence and take more risks if you are comfortable.
3. Avoid impulse spending: Perhaps the biggest enemy for anyone looking to adopt financial discipline is impulse spending. Especially in the social media age, where we are bombarded with advertising, we have all become trigger-happy with spending. Adopting the 50:30:20 rule of budgeting may help in reigning in such habits—spend 50 percent of your income on needs, 30 percent on wants and 20 percent towards investments or savings.
4. Insurance and retirement planning: A backup plan is mandatory, not optional. Term insurance and health insurance are musts. Have a basic retirement plan ready and start implementing it slowly. Starting late can leave you financially unstable in your non-working years.
Men also must play an active role in pushing the women in their lives to take charge of their finances. Don’t simply take over financial planning for them. Instead, insist on a joint decision-making process to begin with and slowly encourage them to start individually planning their own financial portfolio. From households and boardrooms to becoming world leaders, women are already running the world.
It is about time they broke the proverbial financial glass ceiling too!
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