Source: The Economic Times
Author:
Ms. Uma Shashikant
Sometimes it
is unclear, especially to inheritors, whether the wealth they receive as
bequest is actually theirs to use as they wish. The lady I met last week was
somewhat prepared for her husband’s demise. He had been unwell for a long time,
and his failing liver did not offer much hope. Their children were grown up,
working and living elsewhere comfortably. She remained unclear what she should
be doing with her inherited wealth.
In this case,
the paperwork was in order. Her husband had listed every single asset they
owned, with all the details of ownership and nominations. He did not write a
will, but she was the joint owner of every asset they held and he had told her
that she was free to write a will and allocate the assets as per her wish. This
is a straight-forward case of comfort and agency, right? It did not seem so to
her.
Dilemma about
routine tasks
She had only
known spending when it came to money. She had no clue what needed to be done to
manage it. All her life, she had turned to her husband when money was required,
and he had made allocations after considering if the proposed spend was
reasonable. She told me that he rarely turned her down, but she did not know
what he had done to generate the money she asked for. Now that the assets were
all hers, she was perplexed about the simplest of questions.
For instance,
they receive rental income from another property they own. The lease of this
property is drawing to a close in a couple of months. She does not know how to
appoint a broker, negotiate the terms with prospective tenants, and close the
deal. She worries about the repairs and cost to be incurred; she is tense about
the lease agreement that she has to read and can’t simply sign off; and she is
not sure if a corporate lease is better than renting to individuals. She
receives conflicting advice on every aspect, and is frozen in indecision. They
don’t have a pension and she depends on the rental income for routine expenses.
The same anxiety prevails over simple decisions like
renewing a bank deposit, redeeming investments for cash needs, and selling
equity shares that are in the demat account. She is wary of advice from
outsiders and her children do not have the time to explain how all this works.
She asked me where she should begin and how she could learn personal finance so
that she knows how to take care of her inheritance. This is an otherwise smart
woman, who has managed her household efficiently. She just knew nothing about
money.
We began with
her list of assets. She had no liabilities or loans. I asked her to classify
each one; whether it was hers to use or she would just like to be a custodian
and pass it on. She found it difficult initially, choosing to be a custodian
for most part. As we went through the list of items, she began to relax and
understand why it was important to use the assets.
I explained to
her the ideas of growth and income; how she needs income from some of her
assets, and how she must let others grow in value over time. She grasped the
idea well, but worried about growth being volatile. Everyone understands
nominal values, but not the changing rate of growth. A negative rate or
depreciation in value is an absolute nono. She liked gold and property because
their nominal value only goes up. She was anxious about equity shares and
mutual funds as the value can go up or down. We decided to revisit this lesson
again in greater depth.
We then
identified where her income would come from. She quickly understood how her
assets must generate the income she needs. She was quick to understand
allocation of assets to income and growth because of her focus on income. We
worked on this idea and soon were able to put in place an allocation for a
five-year period, where her assets would generate the money she estimated she
would need. A combination of income-distributing funds, deposits, rental income
and a small periodic liquidation of financial growth assets was all that was
needed. We kept it simple and agreed to talk through all questions that would
arise along the way.
Move beyond
spending
My primary
concern at the end of this exercise is about the serious repercussions of
reducing the role of women in households to mere spenders. They need to learn
precious financial lessons about how wealth is built through assets; how assets
work for personal financial needs; what it takes to manage them —review,
reallocate, revise; why assets make sense even if they seem risky; what one
should know to manage returns and risk; and how one can order and understand
the hierarchy of assets for various personal financial uses.
Women may be dealing with money in terms of bargaining
for the best deal for what they buy. They may be allocating money for various
competing expenses, and they may be comfortable saving and hoarding money in
physical assets like gold, whose nominal value moves upward with time. Have we
somewhat normalised this association in many households, where women’s
efficiency is measured merely with respect to her spending decisions, or
perhaps a conscientious desire to save, which is also defined by spending
lesser or getting a better deal?
What about
investment decisions? What about asset allocation decisions? What about
strategic decisions with respect to growth and income? Are they making these
decisions with the information and involvement that they need? For many
independent women who know how to manage money and assets, are there also many
who haven’t moved beyond using money merely to spend? This thought leaves me
very worried.
