Money Smart Mom: Why you need better Financial Management and how to be involved

This is the first of three articles in the 'Money Smart Mom' series. Find the second article here and the third article here.

Savita is a software engineer working for a top IT company in Bangalore. A mother of two young children, she is aspirational and geared up to fulfil all her responsibilities - professional and personal. However, there is one area she avoids - she has no clue about financial management. She has left this department entirely to her husband. Not only does he take care of family financial planning, he also decides where she should invest her savings and files her tax returns. He is well-versed in personal finance. She wishes that she was too. She knows that finance is not rocket science. Yet, there is this tiny voice in her head that tells her that money matters are not her forte...

While women are often the ones making day-to-day spending decisions and are adept at balancing the monthly budget, many like Savita hesitate to venture into the realm of financial planning. Financial planning includes investment decisions, saving for post-retirement years, insurance policies, planning large expenditures like buying a house or a car, and provision for expected (children's education) and unexpected (medical emergency) eventualities. Financial planning is still considered a male domain.
Women may be working in key positions in the financial and management sectors and earning well. They may take strategic decisions for the company they work for or an enterprise they run themselves. And yet, when it comes to personal finance decisions - investment and long-term financial planning for themselves and their family - most women depend on their partner to do the thinking.

Data is an eye-opener
The Visa Millennial Research Study 2019 surveyed over 2200 millennial (22 to 37 years) men and women in USA. According to its findings, millennial women feel they lack the same financial confidence as men because men were socialized to pursue financial knowledge and success growing up, while they were encouraged to pursue more traditionally feminine interests such as beauty, fashion, romantic relationships, and home-related activities. They feel they were left out of the money conversation and instead were raised on "girl talk".
The survey found that millennial women understand the importance of investing, but there is a confidence gap. Data from the survey revealed that:

• 2 in 3 women feel anxious about investing
• 3 in 5 are scared of losing money by investing and don't want to risk it
• 3 in 4 say investing is difficult and confusing
• 3 in 4 are not confident enough to make their own investment decisions and are more comfortable if others decide for them
• 2 in 4 feel men are more confident about investing in the stock market

Closer home, the Nielson and DSP BlackRock survey (2013) revealed that only 23% of Indian working women (aged between 21-60 years across tier I and II cities) are sole decision-makers as far as investments are concerned - 77% of women are influenced by their spouse's investment decisions.

Why do women keep away from financial planning?

Do women voluntarily take a back seat in matters of finance or is it a socio-cultural compulsion? Or, do the just find dealing with money stressful and overwhelming? Here are some observations:

• Working women are busy juggling career, child care responsibilities, and household chores. Managing money in the midst of life's other priorities is tough. So, they may leave the financial planning to their partners.
• It could be a result of a patriarchal mindset in the family that men should take financial decisions. Also, there is the stereotypical notion that women do not have a head for money matters.
• It has been noticed that there is a gender gap in financial literacy even in developed countries. The Organization for Economic Co-operation and Development (OECD) has defined financial literacy as "a combination of awareness, knowledge, skill, attitude, and behaviour necessary to make sound financial decisions and ultimately achieve individual well-being". This gap could be due to difference is attitudes, skills, and opportunities. As a result of this gap, women tend to be less confident in their ability to manage money.
• Having a partner more educated in financial matters is common reason for a woman to accept or ignore her own financial education gaps. Or worse, women in these partnerships may disengage completely.

Gender gap in financial literacy
According to a Standard & Poor survey in 2014, 76% of Indian adults do not adequately understand key financial concepts, including risk diversification, inflation, and compound interest. This is lower than the worldwide average of financial literacy.
Worldwide, there is a five-point gender gap, with 65% of men not being financially literate compared with 70% of women. In India, the gap is wider with 73% of men and 80% of women not being financially literate, as per the survey. The percentage of financial literate women in India is 20% as compared to 52% in the US and 68% in the UK.
A study titled 'How financially literate are women? An overview and new insights' (2014), published in the Journal of Consumer Affairs, revealed that both young and old women showed low levels of financial literacy across the world. Even women in favourable economic conditions were less financially knowledgeable than men. Moreover, women for whom financial knowledge is likely to be very important - widows or single women - knew little about concepts relevant for day-to-day financial decisions.
So, it is clear that while there are signs of improvement, the gender gaps in financial and investment literacy persist even among millennials.

I'm passionate about financial literacy...It's crucial that people understand the importance of financial literacy, because it's actually life-saving.
-Mellody Hobson, American businesswoman

WHY WOMEN SHOULD GET INVOLVED IN FINANCIAL MANAGEMENT

Women live longer than men: Generally, women get lower average incomes (though they may be moving towards pay parity) and have career interruptions due to child rearing. Due to their role as the main caregiver, many women work only part-time. For all these reasons they accumulate less savings over their working years. That's why they have less money to contribute to retirement plans and for investment, which can grow their savings.
However, they live longer than men. According to World Health Organization (WHO) figures, global life expectancy at birth in 2016 was 72.0 years (74.2 years for females and 69.8 years for males). Women need financial knowledge to build a secure future for themselves. They have to particularly factor in high health costs in old age.

To deal with distress situations: Women may be faced with situations like widowhood, separation or divorce, or their spouse falling ill and becoming incapacitated. They would feel extremely helpless if they have no knowledge of financial matters. Not just knowledge, it's important for women to also create a basket of savings and investments in their own name to cater for contingencies.
The death of a spouse could push a woman into poverty. If a woman is unaware of the family's investments or retirement savings, she becomes completely dependent on her children or extended family in such a situation. The financial impact of divorce is also more severe on women. Apart from the legal costs, they are generally granted child custody and the father may default on maintenance payments.
Financial expert David Bach says in his book Smart Women Finish Rich that no matter what their age, status, or situation - whether they are in the twenties or eighties; whether they are single, married, divorced, or widowed; whether they are career women or homemakers - women are more than capable of taking charge of their finances and financial future, and they should.

It is empowering: Knowledge is power - knowing about money matters boosts confidence. Participating in financial decisions gives one a better standing in the family. It is empowering to make one's own decisions regarding one's hard-earned money (for instance, how much to contribute to EPF - Employees' Provident Fund). It is empowering to put aside one's own money to care for aged parents.
Nuclear families increase the individual's responsibility in terms of spending, saving, and investing. Taking joint financial decisions also fosters an equal partnership. Both partners should have access to all joint accounts and be aware of all investments and large expenditures.
Jean Chatzky, is the founder and CEO of HerMoney, a multimedia company that is changing the relationships women have with money. In her book Women and Money...she gives readers tactical, empowering solutions to get paid what they deserve, become inspired to start businesses, invest for tomorrow, make their money last, raise independent and confident children, send those kids to college, care for their aging parents, leave a legacy, and find joy.

It's a move from saving to investment planning: In the family, it is usually the woman who does the monthly budgeting and keeps track of daily spending. They allocate funds under various heads - groceries, children's education, home improvement, transport, entertainment, and others. Women are known to be oriented towards saving. It is but a step forward to partner with her spouse in making investment decisions.

Differing approaches to money matters: Women bring a more stable and long-term approach to investing. They are known to be more patient and also more risk-averse as compared to men. So, if they partner in family financial decisions, they can balance the situation if their spouse tends to make more aggressive investment decisions.
With regard to spending, it has been noticed that household resources in women's hands are more likely spent on improving family well-being, particularly that of children. For instance, women are more likely to give due importance to children's education needs. For all these reasons, it is very important to involve women in money management.

It promotes healthy financial behaviour: Research has shown that financial literacy among women is positively correlated with formal saving habits (saving in a financial institution), including saving for retirement. There is also a strong and positive correlation between their financial literacy rates and use of formal credit and the ease with which they can come up with emergency funds.

To become role models for children: Only if she is knowledgeable about money management can a mother educate her children on financial matters. And, model financial responsibility to them. Equipping children and youngsters with age-appropriate knowledge, skills and confidence to build a more secure future for themselves is very important.

It's not that difficult to learn: While it may be confusing to choose among financial products, women can find the resources - books, articles, television shows - to help them. They could follow personal finance columns in print and digital media regularly. Women could also take a financial planning course, if time permits. If they don't have the time or are unable to cope, they could approach a financial advisor.

How going digital has helped: Digital financial services, which are increasingly becoming the norm today, have made it easier for busy women. They give the women privacy and greater control over their finances. For one thing, they allow a woman to conduct financial transactions from the convenience of her home on a computer or mobile phone instead of having to go to a bank. This saves time and energy (both in short supply for a working mother).
A working mom can transfer funds to beneficiaries easily and invest using automated payment routes. Also, since financial service providers are able to view digital transactions, she can build a credit history which gives her access to loans and insurance.

EXPERT TAKE
ParentCircle interacted with K. Satish, who heads the financial services firm Zen Money. This is what he had to say:

Q. Why do working moms leave investment decisions and financial planning to their partners?
A. I would list two main reasons. First, the perception that they don't have sufficient financial knowledge to take care of their own finances or get involved in family financial planning. They may have expertise in budgeting but lack confidence when it comes to investment. Second, the socio-cultural factor. They are used to depending on their spouse or some other male member (father or brother) when it comes to financial matters.

Q. Which are the many ways it would benefit their families if they get involved in these matters?
A. There are six benefits I can immediately think of:

• If women are involved in financial and investment decision-making, they will know the exact financial position of the family.
• As they get involved, they will get a better understanding of financial concepts and gain more confidence. Their husbands will also gradually develop faith in them. Going forward, they will be able to function independently
• If there is any emergency in the family - a financial emergency (crash in the market) or an emergency which requires financial resources (hospitalisation of the spouse) a woman who is financially literate will be in a better position to handle it. She will know where the resources are and what to do
• Two heads are better than one. Collaboration can bring to the table better ideas, more insights and superior solutions and outcomes
• If parents take joint financial decisions (apart from other decisions), their children realise the value of collaborative effort. When they grow up, they are likely to follow the same pattern
• Mothers become good role models for their daughters, who learn to be financially savvy as well. Sons will learn to respect the financial acumen of women

PARENT SPEAK
"I got interested in trading when the markets crashed and my husband did not have the time to track our stocks. We lost Rs. 2 lakhs even though our portfolio was not big. I contacted a broker and started watching business channels to gain knowledge about the stock market. Initially, I booked small losses, then moved to booking small profits. I learned three things: you cannot be greedy in the market; to spread investments in different sectors; and follow the 'stop loss' rule - do not hang on to loss-making stocks.
What I earn through trading is surplus income. Yet, it has given me confidence and boosted my morale. I feel free to spend the money on whatever I want - be it gifts for friends and family members, donations to a religious cause, or vacations. I also started investing in gold. When I bought a solid pair of bangles, I was elated. We even bought a flat, where I contributed a large portion of the funds. My daughter, who has just completed CA, has started investing in the stock market and I guide her."
-Kumud Verma, Hindi poet and author, and mother of two grown-up daughters

Being financially literate is not a choice for a woman today; it is a necessity. By participating in financial planning, women can strengthen their position in their family and in the world at large. By not relying on their partners to secure their financial future, they gain more clarity, confidence, and control over their lives. Empowered, wise choices will benefit them, their children, and the entire family.
As David Bach said in his book: "As a woman today, you've got to stop watching and start participating. Even more important, you've got to start calling the shots for yourself..."

The second article in this series talks about spending and saving. Read it here. 

In a nutshell

• Working moms tend to leave investment and financial planning to their partners
• There is a gender gap in financial literacy the world over. It is more in India
• It is beneficial for women and their families if they get involved in money management

What you could do right away...

• Pick up a business newspaper or switch on a business channel to get familiar with finance
• The next time a bank's wealth management official or financial advisor comes to meet your partner, be present at the meeting, listen and learn
• Take an interest in understanding how to best manage your taxes and investments