South African women are still not taking responsibility for their financial planning.
Jenny Gordon, Senior Legal Advisor, Legal Services Department, Alexander Forbes Financial Services calls this the Prince Charming syndrome in which many “smart, sophisticated and often high earning South African women believe that somehow the men in their lives, either now or in the future, will take care of the family’s financial needs.”
Unfortunately, most women only realise that they should have taken planning for the future more seriously when a life crisis like unemployment or a divorce jolts them into a full appreciation of how much money needs to be put aside to handle crises and, eventually, retirement.
As such, Gordon advises all women, regardless of who their spouse is or what they earn, to build up their own nest egg by making their own financial plans.
Since women live longer, retirement could last 20 or 30 years. “Since women live about one third of their lives in retirement they actually need to make better provision for retirement than men”, explains Gordon. While many expenses fall away in retirement, medical expenses actually increase. In fact, since most medical expenditure is incurred in the last 5 years of life it is one of the biggest expenditure items in a retiree’s basket of goods.
Most South Africans endanger their retirement by failing to preserve their retirement polices when they move from one job to another, choosing instead to cash them in. “The average South African has more than 7 jobs over a lifetime providing ample opportunities to cash in between jobs, consistently reducing pension accumulation over a lifetime” explains Gordon. As such, women should not rely exclusively on their employer-sponsored retirement funds. Company contributed pensions might be a good spring board to building a retirement nest egg but will seldom be enough on their own. Instead, women should build their own private savings and investments over their whole lifetime.
Also, due to childbirth and family care obligations women spend fewer years at work than men, reducing the period over which they can save and prepare for retirement.
Since women tend to put everyone else’s needs before their own, Gordon believes that South African women “need to learn to pay themselves first.” This means that Women should adopt the habit of first paying off debt and grudge purchases, and thereafter pay themselves in savings or investment while learning to live on the balance.
Central to changing the mindset of South African women is understanding debt. Credit card debt is the most expensive and this should be avoided or paid off first. Impulse items such as that new pair of shoes or outfit should never come first. After all, it is “far more emotionally satisfying to know that you and your family’s future is financially secured and you are prepared to manage life’s knocks than the short term gratification which impulse purchases provide” says Gordon.
In a nutshell, Gordon explains, there are two sides to financial planning; a savings side, and a protection side. Women need to understand and manage both.
On the savings side women should:
· Understand the effect of inflation on the purchasing power of money. The Rule of 72, which is 72 divided by the current inflation rate, illustrates how long will it take for R1 to have the purchasing power of 50 cents. At the current inflation rate of about 6% this will occur after only 12 years. If ones’ retirement lasts 24 years or longer, the income in the 24th year of retirement will have a quarter of the purchasing power that it had on the first day of retirement. Understanding this “brings home the importance of saving as much money as possible for as long as possible in investments which potentially beat inflation” explains Gordon.
· Build their own nest eggs over a lifetime. People lose their jobs, businesses fail and financial stress is almost inevitable. When this happens having a fund which can temporarily keep the family afloat during a crisis will keep families intact until the storm subsides. “And even if you are one of the lucky ones who manage to avoid major financial crises in your life, your nest egg will come in useful during retirement - for those well-earned treats which you promised yourself in your golden years” adds Gordon.
On the protection side:
· Gordon believes that life cover is one of the wonders of the modern world, and one that women often don’t fully appreciate. A relatively inexpensive life policy can save a family from ruin. So “don’t rely on your partner’s assurance that policies are in place. Take out a policy on the life of your co- breadwinner” advises Gordon. In times of financial crisis fathers and husbands often reluctantly stop paying premiums and allow policies to fall away. Complete peace of mind lies in knowing that while you pay the premiums protection is in place. Having life cover on your own life is also necessary if women are co-breadwinners. “Surviving on two salaries is hard enough these days. Imagine trying to survive on one while bringing up a family” says Gordon. As such, both the people involved in supporting your family need to be covered.
· Disability and dread disease cover are also essential components of a family protection plan. In first world societies longevity is increasing. If one lives past 70 the likelihood of experiencing a dread disease increases dramatically. The incidence of younger women experiencing cancer is also prevalent. Developments in medical science will ensure that one can survive a disease which one would have succumbed to in the past. While medical schemes might cover the direct medical costs, the indirect financial cost associated with rehabilitation, lower income earning potential, alternative therapies and potential lifestyle adjustments can cripple one financially. A dread disease policy, preferably taken out at a young age when premium payments are low is a priority for women since they pay out a lump sum in the event.
To get the savings and as well as the protection side of financial planning right Gordon believes “women need to take their choice and appointment of a financial adviser as seriously as they do their doctor, gynaecologist or therapist.”
Thankfully, most women these days would never consider going through a year without a proper medical check-up. Yet considering that survival is equally dependent on how much money you have managed to set aside for old age or unexpected set-backs, “it is frightening to think how many women go through their whole lives without ever having a financial check up with a qualified and trusted financial adviser” concludes Gordon.