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Financial planning and investment activities have long been considered the domain of men, with a majority of the women depending on either their parents or husbands to manage finances. This is despite the number of women who contribute to household finances having increased manifold in the last decade. Also, women face specific challenges when it comes to financial planning . There is a need to address these challenges so that they can lead a stress-free financially independent life.

Women earn less, live longer than men

India slipped 28 places to rank 140th among 156 countries in the World Economic Forum’s Global Gender Gap Report, 2021. As per the report, women’s estimated earned income in India is only one-fifth of men’s, which puts the country among the bottom 10 globally on this indicator. It implies that women earn significantly less for the same earning years as men, while they need to save a lot to ensure they meet their long-term needs.

As per the Economic Survey 2021-22 tabled in Parliament, females are expected to live longer (70.7 years) than males (68.2 years). It implies that women need a bigger financial reservoir to ensure their financial security in their old age. Plus, they need to factor in additional healthcare expenses due to their longevity.

Therefore, women need to save more than men and start investing early. The thumb rule is to have a savings rate equal to one’s age, but adding 5% will benefit women. But, just saving will not give the desired result and they have to make sure they are investing in the right products aligned to 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 ageing parents. Spending less time in the workforce can have far-reaching financial implication, and in some cases prevent their participation in company-sponsored retirement plans or disrupt their smooth career trajectory and thereby affect any pay increases that come with it. Given the above challenge, they need to invest in women-specific goals and plan for the unexpected. While women need to participate in family goals like buying a house, children’s education, etc., it is equally important for them to identify women-specific goals like the corpus required for an emergency fund to tide over their maternity and career breaks or even a job loss, and start a separate retirement fund taking into account their longevity and additional healthcare expenses, etc., and define the period to achieve them. 

Investments and risk profile

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

To help overcome this challenge, women should identify their risk profile and look to diversify their investments among equity, fixed-income, and gold. Investing in equity is crucial as data has proven that equity has been the most rewarding asset from a long-term perspective. If required, they can also seek financial advice from professional investment advisors to design their portfolios to align with their risk profile and goals.

Financial literacy

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

Anshul Sharan is co-founder and CEO of Elever

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