Women and the financial crisis

There is a financial crisis on, and with all crises there are effects and fallouts. SAPA reported that the Gauteng MEC for health and social development, Qedani Mahlangu, recently stated that women were feeling the worst of the crisis, with a higher unemployment rate than men. A recent MasterCard report on Socionomic inequality also found that women were in a worse off position than previously. So what are the facts?

• Fewer women are employed than men
• Women hold fewer management positions
• Yet 52.3% of women make the major financial decisions

Now if women's equality is declining, yet a majority of women are responsible for the major financial decisions in the household then there is something seriously out of kilter. The fact is we live in a highly patriarchal society where women are still considered second class citizens although in reality more women take care of the finances than men. There are things, however, that women (and men) can do in order to be able to better handle their finances in tough economic times like these.

Planning a budget is the first and most important thing to do, after that you can know what you need to spend in order to survive and then you will know how much money you need to set aside to protect yourself and your family from any unforeseen upsets. A rule of thumb suggests that putting aside at least three months worth of expenses will help you weather any sudden shocks to your financial situation, like losing your job. Planning now for the future will help ensure a better tomorrow. Setting aside savings today is essential to growing in the future.

The crisis and your cash

Global recession, doom and gloom, wadda wadda. It all gets a bit samey after a while. Yes there is a crisis on, yes it is the biggest financial news for fifty years, yes it does tend to drag on a bit. However as boring as it may be now is an opportune time to get yourself financially fit so when the market comes back up again you will be ready to take advantage. So what can you do?

• Use a budget planner
• Get a savings account
• Invest in real things

There may be scope for change in the way the financial system works given the crisis but at the end of the day real change is unlikely and even though this is a massive crash it is part of a cycle that has been going on for years. This is not likely to change and what is most probable is that the financial system will stay much the way it is and continue to work the way it does. So it becomes imperative to understand what your money does.

Planning a budget enables you to know exactly what you can afford, a savings account is a way for you to trap value for later. A savings account may not pay the best interest but it is a hedge against inflation and pays better than money under the mattress. Savings accounts also allow you to harness the power of compound interest. Real things, are in a nutshell, real things so rather than put all the spare value you can scrape together into a paper based instrument (which caused this crisis) rather buy something real, like gold or diamonds. Real things last forever and are much less dependent on market vagaries.

Why would anyone save?

Save? Save you say? Why save when inflation is higher than what a savings account will pay you. Well that kinda misses the point of what savings are really all about. For the average consumer feeling the pressure of the global credit crunch it may seem like saving is unattainable or just a plain waste of time. This is not the case and saving now will help you be in a better position when the economy improves. So how do you go about saving?

• Plan a budget
• Find a savings account
• Set up an automated payment

The South African Savings Institute has declared July 2009 to be Savings month. They rightly point out that South Africans do not save enough. We have a rampantly materialist and consumerist culture here which impulse buys on credit to look good for other people encouraging flash cars but only staple foods to eat at night. This kinda materialism is not conducive to building a developmental economy. The surging new economies of the world like China and India both have massively more saved as a percentage of their incomes than we do.

So what really is the point of saving? Savings provide an economic buffer against the uncertainty of life in a capital system. You should really keep at least three months of expenses saved up to act as a buffer. You could keep that money under your bed but as low as the interest rates offered by savings accounts are they still offset the inflation effect on your cash. You should use a budget planner and then allocate an amount to save every month, even R50 is worth it, then set up an automated payment to your savings account so you never even miss that money, but its waiting there for you when you need it.

What is in a statistic?

There is that old adage about lies and statistics, and it seems to be bearing out again. A statistic can be used to measure anything, but what you are actually measuring and what that really tells you may not be the same things. There have been two consumer confidence reports released recently, one positive the other negative, so who to believe?

• The FNB/BER index is up 3 points
• The MasterCard index is down 11.4 points
• You the consumer...how do you feel?

The thing with consumer confidence indices is that they have a major effect on the psychology of the markets and Socionomics tells us that the invisible hand is often the prevailing mood or sentiment in the market and this mood will frequently be influenced by vested interests. There will always be bulls and bears, optimists and pessimists and depending on who is dominant at any one time will determine the direction of the market, rather than the underlying fundamentals. Economics works cetereris paribus but nothing stays the same and in the flux the invisible hand may direct the market rather than any notion of equilibrium.

Sentiment can create self reinforcing feedback loops that make the market perform as the mood dictates it to, rather than on actual value. So in an uncertain environment the best thing that you can do is be aware of tangible things like how much money you actually have in your savings account, and make certain that you use a budget planner. Then the market will continue to go up and down on a whim but you can choose to stay where you want to be.

Is it time to get saving?

Phillip Matlakala who is the CEO of Metropolitan Retail has recently commented on creating a culture of savings in South Africa. We have a comparatively low rate of savings compared to the rest of the world and we don't care much for saving here. There is also a perception that the banks are overpriced. However many folk get confused between saving and investing. Now to put your cash in a savings account that pays less interest than inflation takes value away is not an investment decision, but it is a way of storing up money that will hold value longer than cash under the bed.

• Plan a budget
• Get a savings account
• Save now for the future

The comments referred to above have sparked a discussion about the relevance of savings. A Fin24 article noted that in developing countries those countries with the highest rates of savings tend to do well. Remember savings is not investment. An investment is designed to grow capital or to hedge it against the steadily eroding values in a growth model economy. Savings are sums that are put aside for later, it is that proportion of your income that is not spent, and if you keep it in cash under your bed you will lose value quicker to inflation than if you put it in a bank savings account, even if that account only pays low rates of interest.

Savings accounts act as a buffer against uncertainty. Just for general living a buffer of three months income should be able to see you through any unexpected shocks, the bigger your buffer gets that longer you can hold out if things go wrong. Fast developing countries, like India and China, know this. They use the government to encourage savings and we should be doing the same thing here in South Africa if we are serious about a development economy being developed here. So get a savings account today and start planning that budget to buffer you against the future and smooth your ride while you go there.