I remember meeting a reticent, petite Pushpa three years ago. She had come along with her husband Arun to consult with me for a financial plan. It looked like Arun had coerced her to this meeting, since she showed no interest in engaging in the two-hour conversation that ensued, and excused herself several times to take calls from her driver, maid, and children.
Why Do Women Disengage?
I met Pushpa separately a few days later. I explained the ramifications of the plan and the need for her to understand the personal finance roadmap we were creating. As I probed deeper into the cause of her reluctance, Pushpa revealed her insecurities. She did not want to meet an advisor along with her husband because her lack of financial knowledge would become obvious to both. She was afraid she would ask silly questions. She worried that I would ask for records of investments, transactions or spends, which she was not aware of, or had not kept track of. Pushpa worried her husband would blame the lack of family savings on these spends.
Having understood Pushpa’s anxiety, I went through the financial plan with her, explaining scenarios and outcomes. We spent time understanding the pros and cons of the investments we would be using. I sent her some basic reading material that would enhance her comprehension of these instruments.
Many women find managing money a mountain too high to climb. Lack of knowledge creates stress, which leads them to avoid engaging with money, even though they know that doing so is vital. However, when financial information is presented in plain English, they are much more receptive to money management.
Why Do Women Need To Engage?
A woman is truly empowered when she is financially empowered. Unlike the previous generation, where the menfolk managed the family’s money, today’s woman cannot absolve herself of this responsibility. The odds are heavily stacked against her. Women often take career breaks for childbirth and family-related issues. They often retire early to spend more time with the children, stopping even forced savings such as provident fund. There may be separation or divorce issues, where she needs to suddenly figure out assets and liabilities to determine an equitable settlement.
The average life expectancy of a woman is three years more than a man’s. Old age may force them to manage money then. Higher longevity also translates into higher healthcare costs. Hence, their money needs to stretch more during retirement. Without proper financial planning, women may find themselves running out of money midway through retirement or become dependent on their children. Delegating the responsibility to other family members would only increase vulnerability and dependence.
Women should overcome their discomfort of managing money because being in control of money gives choices in life—to walk away from an unsatisfying job, to bid goodbye to an abusive relationship, or to rid themselves of a life of frugality. Instead, they can walk into a life where choices and options open up.
How Can Women Engage Actively?
Take stock of the family’s finances: The greatest investment for a homemaker is commitment to understanding her family’s finances. She must be aware of the family’s assets, liabilities, insurance policies, outflows towards investments, and be actively involved in the financial planning process.
Access investments: The homemaker must know how to access portfolios, bank accounts, insurance policies, provident fund, National Pension System accounts, etc. She should make a list of all login IDs and passwords and keep these IDs and passwords safe and accessible. She must know where all the financial documents of the house are kept, and file them neatly. She must keep a record of taxes paid, and know how to access the income tax portal.
Check for nominations, modes of holding: For existing and ongoing investments, including insurance policies, she must determine the nominees and check the mode of holding. Bank, demat, and provident fund accounts must have a nominee. Mutual fund holdings should preferably be in ‘Either or Survivor’ mode, so both spouses can transact on the portfolio.
Create a financial plan: Before deciding on where to invest, it is important for a homemaker to determine what she needs to save and invest for meeting future goals, be it long or short term. These could be towards retirement, children’s education, buying an asset such as a car or house, repaying loans, etc. These goals must take priority over immediate expenses. Typically, investing towards future goals should constitute about 30 per cent of the family’s disposable income. Automating these investments ensures a disciplined approach.
Budget the family’s expenses: The best way to exercise control over routine expenses is to automate fixed and/or regular expenses. Doing so will ensure that the family pays rent, utility bills, insurance premiums, credit cards bills, subscription accounts, etc., on time. The remaining amount can then be split between essential expenses that cannot be automated and non-essential expenses.
Create separate accounts for discretionary spends: With the necessary investments and spends out of the way, the homemaker can now have a better view of the remaining surplus, which she can spend without guilt. It is advisable for the spouses to maintain a common bank account for joint family investments and expenses, and separate accounts for discretionary expenses, so the accountability and guilt associated with spending is dispensed with, which in turn can lead to a more harmonious relationship.
Ensure family has adequate insurance: A homemaker must ensure that the spouse is covered by adequate life insurance, so she is not financially vulnerable in case of the spouse’s demise. Statistics indicate that one in four people become bankrupt when an emergency strikes. Very often, these emergencies are related to death or medical conditions. Life insurance must cover liabilities as well as provide an income for the family after the main breadwinner’s passing away. Similarly, the homemaker must ensure that family has a health cover of at least `25 lakh.
Make a Will: Both partners must make a legally binding Will at the earliest. A Will determines how each family member would like their assets to be distributed after their lifetime. In its absence, assets will be divided according to Indian succession laws.
At their next review meeting, Pushpa led the planning discussion, asked relevant questions without any trepidation, and surpassed Arun with her knowledge of financial instruments. She had maintained meticulous notes of the family’s expenses, had pored through the account statements, and brought to my notice old investments that even Arun had not known existed. I wasn’t surprised. Once the knowledge barrier was broken, I was convinced Pushpa’s engagement would be a 100 per cent. And it was.
Arun marvelled at Pushpa’s transformation. He often quipped that Pushpa stayed true to her name because he had to keep ‘push’ing her to involve herself in money conversations. Not anymore. A self-assured Pushpa immediately rebutted with a dialogue from the latest multilingual blockbuster Pushpa:The Rise, “Pushpa naam sunkar flower samjha kya? Fire hai mein!” And we all burst out laughing!
The author is Director, PeakAlpha Investment Services