By: Penelope Gregoriou
Money is a complex and layered thing that is interwoven in every part of our lives. Strengthening our financial position can be as difficult as it is important. For some of us, saving and investing can be a luxury or viewed as too complicated a pursuit that we are not ready for.
At this time, women hold more money and wealth than they ever have, considering that they have more opportunities in the workplace and in the economy than women before them. We are playing a more eminent role in building wealth - and our economic influence is increasing.
Knowing how to manage your money can be more important than how much money you make
Are we managing our finances as best as we could be? Women are not a homogenous group as we all have our unique circumstances, but the need to secure financial independence and stability is a universal common denominator. Are we giving our finances the attention they deserve?
Witnessing the personal and economic chaos of Covid-19 and seeing the social knock-on effects of financial distress and retrenchments, was a rude awakening for many. We’ve seen what can happen overnight across all aspects of our lives. It has given me a new perspective on the adage ‘saving for a rainy day’ – because that rainy day might not be too far off.
Use a money app to keep track of where every rand goes
“Don’t look at your bank account – you don’t need that kind of negativity in your life.” Have you heard this saying? As true as this may sometimes be, tracking how much you are spending can be a good first step in getting to grips with how to get the most out of your rands and cents. Imagine if younger people decide to check their financial statements as often as they check their social media!
Saving money can be challenging, but fortunately technology has afforded us the luxury to manage our money anywhere, at any time. Numerous money management apps with user-friendly interfaces can help you get closer to your financial goals with as few mistakes as possible – a personal, digital money coach at your fingertips and on your side.
Researchers in Scotland conducted a study using 13 000 people who have used a personal finance app. One of the researchers and assistant professor of finance at Edinburgh’s Heriot-Watt University – Marcel Lukas – concluded that people who had used the app reduced their spending substantially. Reduced spending means more rands and cents left over to put to work in other aspects of your life. That’s financial freedom – having the ability to direct your money where you need it to go and still have some aside to decide where you want it to go.
Cultivate financial discipline
The worst time to start saving is tomorrow. I find myself performing this painful mental exercise where I think back on all the times I could have saved money and how much I could have accumulated by now. Being young gives the financial advantage of using the benefit of time in long-term investing and the earlier you start, the better off you will be. Time is a non-renewable resource, and it is a huge asset if you have it when it comes to the savings journey.
Saving requires discipline and it isn’t always as easy as just putting money away. Everyone’s financial situation is different and not everyone has extra money to save – a fact that has been exacerbated with the recent pandemic. However, if you can save, the best time to do it was yesterday and the second-best time to do it is today.
Saving doesn’t just happen – you need to make it happen. To ensure that I am disciplined enough to save, I opened a savings account that has a lock-in period so that don’t get tempted to withdraw money from it on my banking app. In turn, it has given me confidence in knowing that I have funds available whenever I might need them.
The gender investing gap
There’s a convention that says that “men invest and women save” – hopefully this will not be true for much longer! This adage finds its roots in the financial behavioural truth that women are more likely to save their money than invest it. Saving is not a bad thing if you are aiming to save towards a goal, but if you want to establish and build wealth in the long term, saving money alone will not suffice as investing relies on earning interest on interest. This is the difference between the management of money and the saving of it.
The Wisdom Council, a financial insights firm in London, had published a ‘Yes, She Can’ report in 2019 where they found that women don’t actively make the choice to not invest; it’s just something they haven’t considered. In response to the report, Smera Ashraf, head of group distribution at HSBC Global Asset Management UK, stated that contrary to popular beliefs that women lack confidence in investing and aren’t as successful as their male counterparts, they are just as effective in achieving investment returns.
To demonstrate this, Warwick Business School in the UK found that women do have the ability to outperform men. In a study conducted with 2 800 investors, they discovered that female investors outperformed the FTSE 100 and male investors over a 3-year period. This is because women showed more resolve in sticking to their investment plan and maintaining this investment focus over the period analysed.
Investing is gender neutral and other than personal, limiting circumstances, there is no legitimate reason for women to invest less than men. According to the World Economic Forum report, We’ll Live to 100 – How Can We Afford It? “, retirement balances of women are typically 30%- 40% lower than those of men, globally. On average, women also have longer life expectancies and will have to spread their savings across more years in retirement”. If your financial independence and financial stability are a priority for you, this statistic alone should make you sit upright and take notice.
Note that several socio-economic factors contribute to the above statistic such as women earning lower incomes and heading single parent households. However, where investing can mitigate this, it should.
Prioritise your future financial well-being today
With a similar situation in South Africa, it comes as no surprise that our country is in a retirement crisis. Retirement does sound like a long time into the future and something that probably doesn’t need to be a priority right now. But, here’s another perspective on the word “retirement”; it’s about building your wealth. This is something that doesn’t happen overnight and requires dedication and effort, day in and day out. Not taking advantage of time and the investment vehicles that we have now will turn what isn’t a priority now into a financial problem when you are older.
Working in the financial sector has given me more insight into the harmful investor behaviours that often get the best of us and how it can jeopardise the financial well-being of many South Africans. One doesn’t only display harmful investor behaviour when one is already invested. Not investing enough or not investing at all is a prime example of damaging investor behaviour because of how it defeats the purposes that investing aims to achieve – purposes that younger women cannot afford to neglect!
I am certain that the economic upheaval of the Covid-19 pandemic has caused many of us to be more aware on the importance of saving and investing. Get more engaged with your finances. You need to start getting comfortable with being uncomfortable. Whether this discomfort is looking at your bank statements or increasing your pension fund contributions, it will be worth it. Getting through the discomfort now will lay the foundations from which to start building your wealth and allow you to achieve a comfortable financial future.
The next generation of investors will be a younger and more diverse investor demographic that have a key role to play in our economies. It is essential that our generation takes advantage of the opportunities that generations before us did not have.
Penelope Gregoriou is the Technical Investment Analyst at Alexander Forbes Investments
PERSONAL FINANCE