Awakening the female financial literacy in India
The persona of women has seen a paradigm shift from what it was 10 years back to what it is today. Today she is not only the creator but the foundation of a family both emotionally and economically. She is getting educated, and knows how to use her knowledge to emerge out as a winner during the times of adversity. She can handle situations maturely and that too from a very young stage of her life. This shift in her personality is apparent because of literacy and economic independence which was not so common with women decades back. However, there is still a huge gap when it comes to taking financial decisions specially related to investments. Most women, even after education, struggle to participate in taking investment decisions for a family. This article elaborates on awakening the female financial literacy which can greatly help in the well-being of a family.
The current scenario of female financial literacy in India
Few years back, most women in India depended on their father before marriage & on their husband after marriage. With increased education & societal change, women have entered the workforce and are financially contributing to raise a family. However as per Standard & Poor’s Ratings Services Global financial Literacy survey 2015, 80% of the women are financially illiterate. This is largely because traditionally men have managed money and women have managed household. This traditional trend has left her dependent even after having a job and she stands vulnerable in case of unexpected situations like divorce or death of the male counterparts.
Currently, most women have the habit of saving money whether in a bank saving account or keeping cash at home. However they hesitate while making both simple debt investments like Fixed Deposits, Recurring Deposits, PPF, PF as wells as investing in mutual funds, equity, p2p lending etc.
Most women do not understand the concept of investment planning which can substantially help in providing a better economic future for their family.
What can be done to make things better?
To start off with investment planning, it is important to acknowledge it as an essential activity just like saving. Here are some of the basic concepts to start with:-
1. Budgeting investments
Most women are already good at managing budgets whether it is for expenses or savings. The next step is to include investments as a part of your monthly budgets. This should ultimately tell you from where the money is coming and where the money is going. There are lot of mobile apps available for free on android as well as iOS which can be used. However a simple, excel file or your notebook itself can do the job.
2. Understanding the difference between saving and investments
Saving should be made a habit and the same applies to investing. However, saving is focused towards meeting short term financial requirements. For e.g. in your bank’s saving account, you should plan to keep a maximum amount up to six months of your expenses. You can create short term funds for paying all your utility bills and emergency requirement.
Beyond that, you should invest your money across different asset classes like debt, equity, mutual funds or alternative instruments like P2P lending. In order to be confident about investment options, you should start with debt and then graduate towards equity as well as alternatives. Some examples of your long term goals can be child education & marriage, retirement plan, higher education etc.
Read this article to know more about how you can start investing?
3. Understanding return on investment
When you save and keep in money in your bank account, you get interest for that. Typically, this rate is around 4% per annum. So on Rs 100 you get Rs 4 at the end of the year. Next year you get 4% interest on Rs 104 and this is referred to as compounding. The return on your investment here is 4%. Suppose you invested your money in a fixed deposit, in that case you would typically get a return of around 7%. Understanding the interest rates on savings, fixed deposits, PPF etc. is important as it helps you to make better financial decisions.
Here is a magical rule to get to know years to double your money – “Rule of 72 – If you divide the number 72 by the annual interest rate you will get to know years to double your money.
So a savings bank account takes 72/4 = 18 years to double your money.
A fixed deposit at 6% takes 72/6 = 12 years to double your money.
Similarly a mutual fund at 24% might take 72/24 = 3 years to double your money.
4. Understanding Credit Scores
Credit or loans should be used responsively as non-timely repayments affect your credit score. If you credit scores below a threshold limit, you would not be able to seek further loans from a bank or financial institution.
So when you are taking loans, plan your repayments, be aware of the interest rate & other charges, figure out any tax savings which can be done to leverage credit responsibly.
5. Understanding safety and theft issues
In this Digital era where everything is online and your financial information is more vulnerable to fraud. By understanding preventive measures like password protection and limiting the amount of information shared online, you can protect your money from fraudulent activities.
Here are top 10 investment options which you can learn about –
- Direct equity
- Mutual funds
- P2P lending
- National pension systems(NPS)
- Public Provident Fund(PPF)
- Bank Fixed Deposit(FD)
- Senior citizens’ savings scheme
- RBI taxable bonds
- Real estate
For starting to invest, you should first know the options to invest. Choose an option which is the simplest to begin with because that results in getting conscious about money. It brings in discipline, fun & self confidence that helps in unraveling all assets for building your wealth portfolio.
So stay tuned as we take you to our next part of the story and start exploring how can you leverage different asset classes for starting with investing.
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This article is authored by Nupur Verma. She is an active blogger and writes about topics such as financial planning, investments and wealth management.