Age of femme finance

Money management and being a smart investor are still not given due recognition as being feminine traits. But products, portfolios and communication strategies are beginning to change the rules of personal finance for women

By Anil Padmanabhan

Published: Sat 4 Dec 2021, 8:17 PM

Towards the middle of 2011, LouAnn Lofton mailed a galley copy of her upcoming book, a DIY on personal finance, to legendary investor Warren Buffet. She was nervous. Not because she was uncertain as to how Buffet would react. It was because of the audacious title of the book: Warren Buffet Invests Like A Girl…And Why You Should Too.

Within 12 hours of receiving a copy of the book, Lofton got an email and a call from Buffet’s office. The email had a quaint attachment: a scanned handwritten note from Buffet saying he looked forward to reading the book and that Lofton should join a brunch he was hosting at his residence in Omaha.

Next day, she received another email and, yes, that too included a scanned handwritten note from Buffet: “I read your book last night. I really liked it. Looking forward to meeting you at brunch. Come up and say hello,” with an added, “I will be the guy with white hair.”

Relating her anecdotal story at an event, Lofton said that when she went up to the Sage of Omaha’s table and introduced herself, Buffet’s reaction left her overwhelmed. He greeted her warmly with a hug and then went on to introduce Lofton to other guests as the author of the book describing Buffet as an investor with female instincts.

So, here’s what we know about Buffet’s investment instincts. Unlike a typical Wall Street male investment banker, he is in it for the long haul. His standout traits are patience (not impulsiveness); prudence (not recklessness); viewing investments as a means to an end (not a scoring game to flaunt); being risk aware (not take risky odds for short-term gains). All of these, coincidentally, are characteristics defining women when they plan their finances.

This is a trend that has been playing out in the US where academic research confirm that women fund managers are netting better returns than their male counterparts. Now, this is beginning to play out in markets like India too. What makes the India case study interesting is the fact that the sector is unfolding in a completely different set of circumstances. Unlike the US, India is a developing country contending with basic challenges of ‘underdevelopment’, huge income disparities and way more challenging gender gaps. Only the top 1 per cent in the country mirror their global counterparts in income and consumption.

Despite the prevailing ambience, there’s been an big uptick in the dynamics of women’s personal finance — making the matter worth a deep dive.

What Women Want

The disruption being caused by the rapid adoption of FinTech together with growing aspirations — especially among educated and financially independent women — is acting as an incubator for the business of personal finance for women.

What is being challenged is the prevailing notion of one-size-fits-all in personal finance; a demand is being created for a new set of products designed specifically for the financial needs of women, aligned more closely with their rather unique career trajectories, wherein often they end up taking sabbaticals. And catering to this unique and new investment demand is beginning to make a good business case.

“It’s very encouraging that as independence and disposable income of women increases, we will see more products and services targeting women and solving their pain points,” says Arundhati Menon, an investment professional who closely tracks this space. If indeed this trend does pan out, then a collateral gain will be the addition of a new cohort to India’s rapidly growing class of retail investors.

The X Factor

A recent survey conducted by LXME, a financial planning platform for women, discovered that two out of three women in India do not take their own financial decisions; 28 per cent lean on their fathers to guide them. Further, after marriage, the proportion of women taking their own financial decisions is even lower. The key takeaway, as the survey points out, is that the dependency cycle worsens as a woman, conventionally, transitions from being a daughter to a wife and later to becoming a mother.

Priti Rathi Gupta, founder of LXME and the Managing Director and promoter at AnandRathi Group, argues that the shortest route to gender equality is through women taking charge of their personal finance plans. “We women need to invest our money even more. There is so much said about it: our careers close down at every stage of our life; our career peaks are much earlier; and we live longer than men. So the need to manage money is far more for women,” she says.

Gupta is right. Women are now outliving men. Yes, lifespan, for both genders have increased all around the world. But in India, tellingly, in the 1980s, it was 51 years for men compared to 49 years for women. According to the recent Sample Registration System put out by the Census of India, this has gone up to 67 years for men and 70 years for women.

The fact that women should be on top of finances was made evident during the vicious Covid outbreak and the consequent fatalities. Those women who lost male members in their family to the pandemic, and hadn’t been included in investment matters, had to grapple with financial planning while mourning the loss of loved ones.

The Tipping Point

Some guesstimates peg the proportion of Indian women investing in equity markets at 1 per cent. The potential, clearly, is staggering — but it will require considerable heavy lifting. The existing strategy of selling one-size-fits-all products is not working for women. Like Lofton argues in her book, women have a fundamentally different approach. The fact that this does not reflect in the business of personal finance, as most analysts point out, is almost entirely a legacy issue more than gender prejudice.

As Shinjini Kumar, co-founder of SALT (mysaltapp), a platform for women buying financial products, points out, all the underlying assumptions — monthly salaries, tenured jobs, cars to commute to work and owning a house — are up for a makeover. “Now we are living in times where people may prefer to take an Uber, live in an AirBnb and may not work long-term jobs. So it is not gender prejudice. Instead, it is a matter of legacy that has defined our credit models and other financial products. All these assumptions are up for disruption because those lifestyles have changed or have disappeared,” she says.

This means that selling finance in these fundamentally altered circumstances will need a reboot of practices. “We are approaching it from gender perspective because we see this as the largest cohort facing this problem,” Kumar explains.

Dipika Jaikishan, Co-founder & Chief Operating Officer at Basis, another financial services platform built for women and launched in 2019, too, believes the potential is immense. “Even if we are looking at vertical specific solutions — whether it is for teenagers, young adults, women or senior citizens — we are probably at a tipping point. There is lot of opportunity to create some kind of change in the investment ecosystem,” she says.

Basis, for instance, launched a tool which allowed women to do a simple calculation on the funds they would need when taking a career break. “This empowers women to know how to save or invest to tide over this phase. It was a simple solution, not rocket science,” says Jaikishan.

A Mindset Reset

Cracking the code will require a mindset reset. Not among women, but for those creating personal finance products. A beginning could be made by nixing a myth: women are risk averse.

As Kumar explains, in the normal course, the concept of risk should apply equally. The unfortunate truth is that it does not. In all probability if a male and a female drawn from the same cohort approached a bank for a loan, the former would get it in a snap. The woman, on the other hand, would have to jump through several hoops as she would rarely own collateral in her name — that is, if she is to get the loan at all. As a result, women rarely take out a loan and, in turn, this factoid perpetuates the myth that women are risk averse.

“Principally, the concept of risk should apply across the board in a similar manner. But it does not. Because, again, risk models are built on historic data and has fewer data points for women. So, it is very interesting to challenge the theory that women are risk averse,” says Kumar, while adding that tougher questions need to be posed in exploring the causes. “I am not sure whether it is the cause or the effect… because sales people are actively told not to sell risky products. We have to ask if the supply side has indeed done a good enough job of explaining risks and building models based on inclusive data. It is so much easier to simply segregate and discriminate,” she points out.

Radhika Gupta, Managing Director & Chief Executive Officer, Edelweiss Mutual Fund, believes this perception has a lot to do with legacy issues. “Finance is always made out to be an alpha male thing. This perception makes finance an ‘inaccessible’ thing for women. The big myth is that you need to be talking about stocks all the time. I suffered from this when I started out on my career in 2005,” she says.

According to her, women are far from risk averse. “They are risk aware. It is very simple: if you were risk averse, you won’t invest — you will only save. Women want to understand the risk and take what works for them.”

Arguing similarly, Jaikishen points to the scarcity of instruments aligned with the risk profile of women: “When these products were being created, they were for men, by men. As a result, even when they were understanding the nature of investors, women were isolated. I believe we are paying the price for that right now where a woman may have a certain risk profile and be looking for a certain kind of product that has not been either created or served to her.”

An Underserved Target Group

While concurring with the above observations, Srinivas Jain, Executive Director, SBI Mutual Fund, offers a solution: the supply side of savings instruments for women can be reinvented.

“Now with FinTech tools and social media coming into play, there is an opportunity to serve an underserved target group. We are already seeing [FinTech companies like] SALT, Basis and others trying to address this solution. Most of them are trying to do this not by altering the product, but by making the education part of personal finance understandable,” he explains, before adding, “The basic principle in terms of how you save and your risk profile do not change. But it’s the way you communicate that may differ across target groups.”

At the moment, SBI Mutual has no women-specific instruments on offer. While not ruling them out in the future, Jain says they, instead, choose from their existing bouquet of products to create a portfolio which aligns with the specific needs of women investors.

“We think it is easier to mix and match various products from our portfolio with their risk profile,” he feels, before adding, “So, instead of creating women-specific products, you are better off creating women-specific features in the product you offer a woman. So what you can do is to take these various products, with unique features and create an offering for various target groups of women.” For instance, they would factor in the likelihood of a woman taking a break post marriage or post pregnancy.

Either way, whether you create platforms dedicated for women or retool the portfolio of investment options to align with their unique risk profile, change is in the air.

Rightfully, Lofton has the last word. “For women, it is a means to an end. It is having a long-term point of view; having security for your family; savings for your child to go to college. Basically broad objectives that lets us (women) be patient.”

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