There are a host of stereotypes surrounding females’ spending habits. To debunk the myth that women lack financial acumen, it is up to us Millennials to lay the foundation of healthy financial decisions and growth, which may ultimately lead to financial freedom. Below, Economics Researcher and Analyst, Khethiwe Mavundla, discusses sound financial decisions women in their 20’s should make…
Take a look at articles dealing with women and their finances, and the information you will find tends to be quite degrading. There are a host of stereotypes around labelling females as ‘spenders’, or claiming they have no clue about making sound financial decisions. So how do we address these stereotypes, apart from having an open discussion to empower females on the subject of making these smart financial choices? It has become increasingly imperative that we as women take charge of our financial planning, and educate ourselves on following a smart investment strategy – particularly from the moment we start earning an income.
One cannot take it for granted that everyone is well-versed in the topic of savings and investments. Whilst some people make use of the two terms synonymously, there is in fact a stark difference. However, given the economic principle that savings equals investment (based on Keynesian’s neoclassical theory of saving and investment), perhaps one could understand where the confusion lies. Ultimately, when talking finance it is important to distinguish between the two terms: Saving is the practice of placing your money in a ‘safe and liquid’ account mostly for precautionary purposes, while the process of Investing involves the use of money (or savings) to acquire an asset that would yield you returns over time. This is where the value of compounding interest usually comes in. Simply put, Saving: putting money away for a rainy day; Investment: buying an instrument (asset) that will generate capital growth.
It therefore goes without saying that this is where the need to apportion your money between saving and investing becomes important. Most financiers would advise a higher proportion of your investments to savings ratio – for instance 80/20. However, how you apportion your funds to savings and investments should ultimately be determined by your lifestyle. And like the story in the old book goes, draw up a budget ladies! How else would you know how to allocate towards your savings and investment pool? It’s easy to make excuses as to why you cannot commence the saving exercise, when in reality, it is steps such as these that lead us to the path of financial freedom.
The second question stems from what instruments to place your money in. Technically, what informs your decision as to where you’d like to place your hard-earned money hinges on your disposable income and your risk appetite. These two variables are a function of time – and depending on how you look at it, both can be negatively correlated with time. While most people put off saving and investing until much later in their lives, your 20’s are in actual fact the best time to start. Unlike your 30’s (where most women settle down), and your 40’s (where you spend most of it creating a solid platform for your children’s future), and your 50’s (where you are planning for retirement), women in their 20’s have fewer financial obligations, and therefore have a larger propensity towards risk. This puts us in good stead to adopt a capital growth strategy over a longer horizon. When undertaking financial planning, 3 important factors must be considered:
1.How much risk you are willing (and able) to absorb
2.Time frame- beginning in your 20’s offers greater advantages in terms of compound interest
3.Your personal circumstances and budget
Once these three factors have been carefully considered, one may start to consider a host of attractive wealth building instruments such as the ones discussed below:
- Shares and Equity have long established themselves as one of the most pivotal instruments to be used as a yardstick for measuring wealth. As a woman in her 20’s, with assumingly fewer responsibilities and debts, therefore, what better instrument is there to expose us to the ‘High risk, high return’ environment apart from Equity? We could take this to debate, but equity is best known to have price appreciation that beats inflation – thus exposing you to positive real interest rates, unlike a plain savings account which exposes you to negative real interest rates.
- In terms of options, Unit Trusts offer an attractive proposal for those whose pockets are not entirely deep. Unit Trusts pool together funds of multiple investors, and then use these funds to invest in diversified portfolios. This is a less expensive and onerous way of gaining exposure to investments, as costs are distributed evenly through multiple portfolios and schemes. Unit Trusts also offer a safer option in that you have a group of dedicated professionals who are tasked with managing this portfolio on your behalf. These professionals continuously research the market and select stocks which are considered to offer the best value. You thus have the benefit of professional expertise coupled with general ease of mind. Reputable unit trust funds worth considering and investing in include Coronation, Stanlib, Allan Gray and Momentum amongst others. These offer access to low barrier investments instruments where the minimum investment amount tends to be about R5000. One also has the option of augmenting this with monthly instalments (starting from R500 a month), which may increase annually should you choose.
Exchange Traded Funds
- Other attractive options are Exchange Traded Funds, which are in essence funds which track the performance of other funds. One can invest on the Satrix with a minimum lump sum of R1000 or a R300 monthly debit order. The importance of equity exposure cannot be emphasised enough! A benefit of The Satrix 40 is the continuous tracking of the performance of the JSE Top 40 (the top 40 shares by market capitalization i.e. the biggest companies on the stock exchange). Thus, investing in the Satrix 40 would allow you to assess the performance of top players such as the Big 4 banks (Absa, Standard Bank, First Rand and Nedbank), Mining Companies (Anglo, BHP) and the Telecommunications industry (Naspers, MTN). To invest on the Satrix 40 you’ll need a monthly debit order of R300 or a lump sum of R1000.
Creating sound financial portals and options are simpler with the right education, attitude and preparation. No school education can truly prepare you for gaining financial IQ – it takes plenty of practise and even intuition! Nevertheless, there is no better time than the present to hop onto the capital growth bandwagon. Never underestimate the power of saving and investment – even a monthly contribution of as little as R500 can go a long way. Be saving and investment savvy! That’s the new cool…
Occupation: Junior Africa FX & FI Strategist
Credentials: BCom (Hons) Economics (University of Cape Town)