What women want in personal finance

It is a globally observed phenomenon that women have been less active in managing personal finance than men.

This statistic is even more stark in India, where less than 25% of active investors in any form of money management — mutual funds, stocks and insurance — are women. 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 mindset issue that women prefer not to get actively involved? After all, of the five largest banks in India, three 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, other the other hand, tend to think in terms of absolute performance of investments. Second, men tend to excessively trade/churn their money.

What does this mean for women managing their money?

First, financial security is an integral part of a woman’s independence, irrespective of her age and family status. Thus, for women reading this, here’s the verdict — your 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 and mutual funds — 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.

Finally, when women are also actively involved in managing money, everyone in the family understands the overall family financial context. Thus, no one tends to overspend. Everyone stays within the budget and leads a lifestyle that is sustainable.

(The writer is the co-founder of fisdom.com)