Why financial planning for women is crucial

Financial planning and investing activities have long been considered the domain of men, with the majority of women depending on their parents or husband to manage their finances. This is despite the fact that the number of women contributing to household finances has increased dramatically over the past decade. In addition, women face particular challenges when it comes to financial planning. It is necessary to meet these challenges so that they can lead a financially independent life without stress.

Women earn less and live longer than men

India fell 28 places to rank 140th out of 156 countries in the World Economic Forum’s Global Gender Gap Report 2021. According to the report, the estimated income of women in India is only a fifth of that of men, which places the country among the bottom 10 in the world. on this indicator. This implies that women earn much less for the same years of income as men, while they must save a lot to meet their long-term needs.

According to the 2021-22 economic study tabled in Parliament, women are expected to live longer (70.7 years) than men (68.2 years). This implies that women need a larger financial pool to ensure their financial security in their old age. In addition, they have to take into account the additional health expenses due to their longevity.

Therefore, women need to save more than men and start investing early. The rule of thumb is to have a savings rate equal to her age, but adding 5% will benefit women. But simply saving will not yield the desired result and they need to ensure that they are investing in the right products aligned with their risk profile.

Financial impact of caregiving and career breaks

It is very common to see women put their careers on hold or reduce their working hours to care for children and aging parents. Spending less time in the workforce can have significant financial implications and, in some cases, prevent their participation in company pension plans or disrupt their smooth career trajectory and thus affect subsequent salary increases. Given the challenge above, they need to invest in women-specific goals and plan for the unexpected. While women should participate in family goals like buying a house, raising children, etc., it is equally important for them to identify women-specific goals like the corpus needed for a fund. urgency to deal with their maternity and career breaks or even job loss, and set up a separate pension fund taking into account their longevity and additional health expenses, etc., and define the period to achieve them .

Investments and risk profile

According to global reports from Wells Fargo (Women and Investing, 2022) and Fidelity Investments (2021 Women and Investing Study), women are more cautious about their investments. They tend to invest in very low-risk or no-risk products such as gold, fixed deposits and public provident funds, while staying away from mutual funds and stock markets. There has been some level of equity market participation, but there is still a long way to go.

To help overcome this challenge, women should identify their risk profile and seek to diversify their investments between equities, fixed income securities and gold. Investing in stocks is crucial because data has proven that stocks have been the most rewarding asset from a long-term perspective. If necessary, they can also seek financial advice from professional investment advisers to design their portfolios according to their risk profile and objectives.

Financial Literacy

India is home to nearly 20% of the world’s population with a literacy rate of almost 80%. Unfortunately, only 27% of its residents are financially literate, according to the National Center for Financial Education’s 2020-21 annual report. This number is around 21% for women. It is time for women to become financially literate and actively involved in household financial planning. To this end, they can also take courses from credible social media managers and websites.

Anshul Sharan is co-founder and CEO of Elevate

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