Personal Finance And The Gender Gap

An interesting article on Reuters caught my eye as it continued to explore the much-investigated “gender gap’ between males and females, this time on my pet subject of personal finance. According to Reuters:

“Men and women handle their personal finances much differently, research shows, with men more likely to keep a close eye on their spending and investments and to pay their bills on time. The data showed two-thirds of men but just one-third of women said they regularly pay their credit card balances in full, said Liz Davidson, chief executive of the company based in Manhattan Beach, California. Also, 90 percent of men said they pay their bills on time each month but only 74 percent of women said so, it said. It said 71 percent of men but 53 percent of women have a handle on their cash flow so they spend less than they earn each month. More than half of men but just a third of women said they have an emergency fund to pay their bills for a few months if they lose their job, it said. Forty percent of men but just 24 percent of women said they were confident their investments were allocated appropriately, while 73 percent of men but just 40 percent of women said they had a general knowledge of stocks, bonds and mutual funds.”

I would actually have said that women are more likely to pay off their credit card balances in full but obviously i was wrong. I find a lot of my female friends find money talk quite exasperating while men will talk about it for hours. Not to say however that the talk always ends up in wise financial decisions. However, lately a lot of women are becoming very keen on managing their finances and this can be evidenced by the large number of women-only investment groups. Impulse shopping i guess contributes a lot to spending more than you earn and this may afflict the womenfolk more than the men seeing as i can walk around an entire shop and actually find nothing worth buying..shoes and clothing included. I would be seriously tempted in an electronics shop but obviously you cant pick up anything worth Ksh. 1,500 like you would a shoe. I was also thrown a bit by the “Emergency Fund” findings. I could have sworn women are better are setting aside money for a rainy day!

According to Reuters, most of those answering the questionnaires earned between $60,000 and $75,000 and were assessing their own financial situations from January through April 2009. Do you think the findings would have been similar if the survey was conducted in Kenya?

What Is The Right Age To Start Saving?

If like me you are an avid reader of all matters to do with personal finance, the cartoon (see below) of a toddler fretting over his lack of savings is a hoot. I simply loved it! But beneath the humour lies a deeper question that all of us ask ourselves at some time or other: “When is the best time to start saving money?”

Usually the typical Kenyan goes through his/her twenties thinking “Am too young to worry too much over the lack of savings” and then find themselves in their mid-thirties, kids and mortgage to boot, and thinking “My paycheck is too stretched to be able to save anything”. Then on to the fifties when the kids are through with school and retirement looming large then the thinking changes to “I wonder how long my pension savings will last me before i have to depend on my kids”. Now this obviously is not the case for all Kenyans but describes a general path travelled by many especially those who depend on a paycheck all their lives.

In my own case I hardly gave a thought to savings through my twenties on the basis that I really couldnt be expected to save anything on the kind of money i was getting from my employer. Although the money was indeed not anything to write home about, I had few fixed expenses (rent and food) and I even managed to buy my first car on the same meagre paycheck. As i moved jobs my pay kept on rising but i saw no urgency in getting started on savings. Soon enough the big three-Oh came and passed and yet i still had no savings and no worries. However, it was beginning to dawn on me that my dream of being rich had a very real chance of going up in smoke unless i hit on a big business idea fast. Although i had no problems with a middle class lifestyle, i wanted a life of financial freedom. Thankfully, in my thirties i realised that, big business idea or not, i could still attain a life of financial abundance thanks to the time-tested concept of “getting rich slowly”. The more i read up on the subject the more convinced i got that indeed this was not only viable but could also be attained before i was too old to enjoy my money. Obviously, the key plank in the “get rich slowly’ school of thought is the idea of saving and investing regularly and i embraced the saving culture with zeal. Looking back, i wish i had started earlier but the question is, when is the right time to start saving?

An interesting piece on CNN Money shows a chart depicting the difference in networth between someone who starts socking away money at 25 and one who starts ten years later at 35. Each of the individuals saved a $400 monthly except that the guy who started at 25 saves the money upto age 35 then stops and leaves the money earning a 7% return till the age of 65. The other starts at age 34 and saves the same amount of money from age 35 to age 65, same 7% return. The first guy (lets call him “Early Start”) amazingly has a higher networth of USD 602,559 at age 65 compared to the other fellow (“Late Start”) who has USD 528,222 at the same age. Considering that Early Start only saved for 9 years and then let the power of compound interest do the rest, it is a very strong case for starting early.

Now in Kenya, most 25 year olds are just out of college and earning minimum wage. Add to this the fact that the priority for most at this age is to acquire some sort of “life” for themselves meaning purchasing a car, buying some furniture, paying back their HELB loans and for others supporting their parents and siblings. I found that it was easier to save when i had acquired most of the furnishings and furniture for my house plus a car as it reduced the pressure on me to “spend spend spend”. However, it would still be a good idea to contribute fully to one’s pension scheme at whatever age as the money is deducted directly before one receives their pay. In addition, one should try and save even the littlest amounts starting from the day they receive their first payslip.

I find the chart so inspiring. Is there a better time time to start than now? After all, they say that “Where there is a mountain to climb, dont think that waiting will make it smaller“

Early Start

Trashing A Million Dollars

A story about an Israeli woman who threw away a mattress containing a cool one million dollars belonging to her mom really brought home the age-old “money under your mattress” form of banking that was a favorite of many in days gone by.

According to CNN.com:

A woman in Tel Aviv, Israel, gave her elderly mother a new mattress as a surprise gift, throwing out the old tattered bed her mother had slept on for decades. The gesture ended up bankrupting Annat’s mother, who had stuffed her savings of nearly $1 million inside her old bed for decades, Annat told Israel Army Radio.

Apparently the mom had had some nasty experiences with the banks and hence had a healthy distrust of them ever since, preferring instead to provide her own banking services. I am sure the guys queing outside the offices of Nyaga Stockbrokers and Discount Securities will think twice about handing over their lifesavings to a stockbroker ever agin. But still it shows that you have to temper your fears with a heavy dose of reality otherwise your losses may be bigger than you ever imagined. Did she even ever think of the risk of fire?

As stated in the news story:

Annat fell asleep that night, exhausted after lugging up the new mattress and hauling down the old one to be taken out with the trash. When her mother realized the next day what her daughter had done, she told her that she had been using the mattress to stash away her life savings and had nearly $1 million padding the inside of the worn-out mattress. Annat ran downstairs, but it was too late. The garbage truck had already taken away the money-stuffed mattress. Annat alerted the two major dump sites in the Israeli city in an effort to locate the bed, but so far she has had no luck.

One always imagined that it is only the poor who stuff money under their mattresses, having being locked out by the high bank charges. Alas, the rich also have their little quirks

I guess this brings a whole new meaning to trashing your life’s savings!