Why women need different financial planning to men

Gaps in finance propel izimbokodo to be niftier, writes Mapalo Makhu.
Gaps in finance propel izimbokodo to be niftier, writes Mapalo Makhu.

The dynamics of the traditional family unit are changing worldwide. More and more households are being headed by women and South Africa is no exception.

According to this year’s Stats SA general household survey, women head almost four out of 10 South African households (37.9%). The majority of children (43.1%) live with their mothers only, in sharp contrast with the much smaller percentage (3.3%) who live with their fathers only, while one-third (33.8%) of children live with both parents.

Coupled with the persistent gender pay gap and the fact that women generally outlive men by at least five years, women’s financial needs are that much more complex than men’s.

So what can women do to navigate the road to financial freedom?

Protect your income: Your biggest asset is your ability to earn an income and if you do not protect that it can have dire consequences in your life. Most insurance companies have released their annual claim stats and there is a rising trend for living benefits compared with death benefits. This means that more people are likely to claim for a dread disease or disability than for death.

You need to know your employee benefits more thoroughly to ensure that you are sufficiently covered for the “big five” – cancer, cardiovascular disorders, respiratory disease, cerebrovascular disorders (strokes) and renal disorders (kidney diseases).

If you are self-employed it is that much more important to take out personal cover to ensure that you are not caught off guard should an illness or a disability arise.

Brigitte van Zyl, head of client value propositions at Momentum Corporate, believes that employers can help by providing women with holistic employee benefits to ensure income certainty.

“For single mothers, who would have no one to rely on financially if the unfortunate were to happen, the provision of holistic employee benefits that include disability and critical illness cover at the right level for their needs is crucial. This will ensure that they can get the care they need to get back to work without having to spend their personal savings kept for rainy days.”

Save for retirement: It can be overwhelming trying to tick off the seemingly long list of managing your money, but one of the easiest and convenient ways to save for retirement if you are employed is through your pension or provident fund.

Take advantage by contributing the maximum your budget allows. To find out how, discuss your options with your HR or benefits manager. If you leave your employer, don’t cash in your pension or provident fund. Although you have heard this before, I cannot stress enough just how much you lose by cashing in your fund.

Firstly, there is the heavy tax bill that you will incur. If you withdraw your pension or provident fund in cash, you will be taxed on a sliding scale (see table).

Pension Fund withdrawl

The larger the amount you take in cash, the more tax you pay. If you leave your employer and you opt not to take the funds in cash, you can transfer them into:

  • A preservation fund;
  • A retirement annuity; or
  • Your new employer’s pension/provident fund without incurring any tax.

Secondly, you will be losing out on the most important part of the wealth building equation – the compounding interest your money could have earned in the long run had you not withdrawn the funds.

If you are self-employed, a retirement annuity provides a solution to save towards your retirement.

Negotiate your salary: Studies reveal that women get paid at least 25% less than their male counterparts, meaning that in your current job you are probably getting paid 25% less than your male colleague for doing the same job. According to Vumile Msweli, CEO of Hesed Consulting, women can do the following to negotiate their salaries:

  • Find out what the role pays, especially if it was held by a man before. Do this by chatting to male colleagues, recruiters and HR professionals as women often make 17% to 23% less than their male counterparts.
  • Always ask for a dummy pay slip to see if your take-home salary is in fact higher than your current earnings and use this as a base for negotiating.
  • Always ask: “Is this the best I can do?”

It’s a negotiation not a dictatorship, so feel free to not accept the first offer and ask for more.

Start as early as you can: Even though women make better investors, studies show that they only tend to start investing later in life.

As difficult as it may be, begin investing with your very first pay cheque – even if you start with R300 per month.

Check your employment contract carefully in respect of maternity benefits to ensure that you can stick to your investment plan during your child-rearing years.

It is important for women to take charge of their finances by equipping and educating themselves about how money works and partnering with a trusted financial adviser who can look at their finances holistically, someone who will look at both their benefits at work and circumstances at home.

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