Personal finance: Know what women want
Personal Finance is something women are shifting focus to. Read on to know what exactly do they want.
This article has been published in “Deccan Herald” on 13th June, 2016
We have observed that less than a fourth of our customers are women. Even among the active account holders, it is common for women to have their father or husband manage their money for them. Is this a reflection of the fact that, in India, historically men have been the main earners and have also taken on the role of managing family finances? Or is it a mind-set issue that women prefer not to get actively involved? After all, of the 5 largest banks in India, 3 are headed by women!
Global studies on women versus men in finance have thrown some interesting findings*. Yes, women do seem to be more conservative (i.e. take less risk) than men on finance. But this seems to be because they profess to be less knowledgeable about finance than men. In other words, women self-report that they know less about money, while men appear to over-estimate their knowledge of finance. After adjusting for financial literacy, these differences disappear. In fact, women’s portfolios tend to perform as well or better than men’s over the long term.
There are two other interesting differences. First, women are better at saving with goals in mind – for instance, retirement or a child’s education. Men, on the other hand, tend to think in terms of absolute performance of investments. Second, men tend to excessively trade / churn their money.
What does personal finance mean for women managing their money?
First, financial security and the understanding of personal finance is an integral part of a woman’s independence, irrespective of her age and family status. Thus, her being interested and involved in basic personal finance is a necessity, not an option. A good starting point is to make sure all family assets – bank accounts, property, lockers, trading accounts, PPF, mutual funds, etc – are either in joint names or have proper nomination. In today’s digital age, it is important all passwords are known to both spouses and there is a spread-sheet containing list of all assets.
Second, all earning members of the family need to take life (term) insurance in their individual names. This obviously includes earning women, who, in fact, get policies cheaper than their male counterparts.
Third, given the above differences in attitude, it is useful for women and men to plan their investments jointly. Women can ensure important goals are identified and budgeted for. They can also curb any tendency in men to take excessive risk or trade. Given the time horizon of the goals, they can appropriately choose their products to get adequate returns.
* Studies on behavioral finance of women versus men by Prudential, Barclays and TD Bank