International Women’s Day: Starting Steps Towards Financial Independence

The author is Satish Prabhu, head–content development, India, Franklin Templeton. 

One of my aunts (a homemaker) called me post demonetisation in 2016, and said, “I had saved money from my household expenses over the years but in cash. I don’t know how to convert it to the new currency. I can’t tell your uncle because then he won’t allow me to save money like this in the future.” Another relative called me during the Covid pandemic last April saying that her husband was hospitalised, and she did not know how to access money in the bank or use their mediclaim policy as the details of both were only known to her husband. In the third instance, the husband, who was in his 50s, used to run a business but was now suffering from dementia. His wife, a homemaker, is left to fend for herself and their two children without knowing much about the business or the finances. All three instances are pressing reminders why money management skills are a ‘must learn’ for women. 

Words fall short in describing the multiple roles women play: from managing families and homes to leading companies and even lead nations. Yet, they are often discouraged from managing money. Stereotypically, the men take the lead in financial and investment decisions, say, a father for his earning daughter or the husband on behalf of his wife. In most cases, women sign on the dotted line as asked, mainly due to lack of awareness. 

A common reason cited is that men are better investors than women. This is not at all true. There are several behavioural traits that are needed to be a successful investor such as discipline, patience, resilience, focus and diligence, all of which women have and therefore, have the potential to prove themselves in investing as well. 

The biggest reason why women need to be financially independent is to be ready for any unforeseen financial situations like untimely demise of spouse, divorce, or a medical emergency in the family. Another reason is that most women are now earners and should have an idea about how their money is being managed. Having investments, home loans etc. jointly with the spouse is also a reason why women must be in the loop on money matters.  

Last but not the least, statistics show that women generally outlive men owing to which they need to have a large enough post-retirement wealth kitty.  

From Small To Big 

To become financially independent, women can start with baby steps before taking a big leap. Begin with some basic tasks like making a budget for family income and expenses. Split the expenses between needs (must have) and wants (good to have). The lesser the wants, the more you can invest. Visit your bank for depositing cheques or cash, passbook update or accessing your locker. Be a joint holder or nominee in the bank and investment accounts and transact online using passwords. Ensure that your family is insured for life and health. Know your financial advisor, who is like your ‘family doctor’ for investments, and get involved in key investment decisions. Keep learning and updating yourself from various types of investor education content, a lot of which is online and multi-lingual. 

Coming back to my aunt; she is a great saver but she needs to invest and not just save because inflation shrinks the value of money over time. It is imperative for her and other homemakers to invest and generate higher-than-inflation returns to maintain or grow their purchasing power. 

What are the investments one can look at? Different products cater to different needs. While traditional assured returns products from banks or post offices come with a lower risk, they also come with lower returns. For higher returns, gold and real estate are popular avenues but a key drawback with real estate is affordability and lower liquidity while physical gold comes with purity issues.  

Mutual funds are an option as they have products across the risk and returns spectrum, along with variety, convenience and diversification. They are affordable, professionally managed, well-regulated and provide liquidity. Systematic investment plans (SIPs) are the most popular mode to invest in mutual funds to create wealth in the long run. They facilitate discipline and regular savings.  

The variety of products includes equity funds, debt funds and hybrid schemes (mainly a mix of equity and debt). Equity funds have a higher risk-return potential followed by hybrid funds and debt funds. Accordingly, equity funds are for long-term goals while debt funds are for short-term goals. One can invest in mutual funds from a few days to a few months to a few years or decades depending on the goal horizon and one’s risk appetite. 

If women can go to space as well as fight the enemy on the border, they can certainly work towards financial independence.  

Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly. Mutual fund investments are subject to market risks. Read all scheme related documents carefully.