BUSINESS MAVERICK 168
Money tips to help women improve their financial security
In 2019, 41.8% of households in South Africa were headed by women. So, roughly 7.2 million South African women were either the sole or the main income earners in their families. As the country celebrates Mother’s Day on 9 May, DM168 takes a closer look at the intricacies of financial planning for women.
First published in the Daily Maverick 168 weekly newspaper.
The National Income Dynamics Study Coronavirus Rapid Mobile Survey revealed that of the three million South Africans who lost their jobs between February and April 2020, two million were women. Pat Magadla, senior business development manager at Old Mutual Investment Group, says this is particularly a risk for single-income families in South Africa, who are most likely headed by a single mom. “Not only are women at a serious economic disadvantage to start with; single mothers in particular also shoulder enormous responsibility for the wellbeing and financial security of their families – with little or no help,” says Magadla.
According to the 2020 Old Mutual Savings & Investment Monitor Covid-19 Special Report, 41% of women with children consider themselves single moms, and 60% of them receive no financial contribution at all from the fathers of their children. This is up from 47% in 2019.
Single mothers already show remarkable resilience in so many aspects of their lives that it’s understandable that some areas face neglect. Magadla says financial planning tends to fall by the wayside as women concentrate on juggling their finances to support their families, with little thought for themselves.
Kerry Sutherland, a senior financial planning consultant at Alexander Forbes, echoes this sentiment, noting that many single moms rely on maintenance payments from their child or children’s father. “Maintenance orders are legally enforceable court orders, but if a father loses his job or has his income cut, he can approach the court to reduce maintenance payments owing to loss of income beyond his control. As this reduction is likely to be granted – you can’t get blood out of a stone – single moms are likely to be in an even more precarious position,” she says.
Start saving: Magadla says part of building financial resilience means being prepared for any eventuality. Increasing your savings as much as possible is the first place to start. Even a saving of just R50 a month can get your savings plan started. Magadla suggests using any financial windfall you get, such as a tax refund, to seed your savings.
Reduce debt: If less of your income goes to servicing debt, you will be the more financially resilient. Magadla points out that bad debt, such as credit and store cards, usually carries the highest interest rates. Although credit providers are limited in terms of how much interest they can charge you under the National Credit Act, these interest rates are linked to the repo rate and effectively translate to borrowing from your future self:
Home loans: 12.7%
Credit and store cards: 17.7%
Personal loans: 27.7%.
Diversify your income: A recent report by Henley Business School shows that as many as 27% of working South Africans have side hustles. Magadla says this can create a valuable buffer. “By securing your financial independence, you can mitigate income gaps and ensure that, regardless of economic scenarios, your children’s future is still secured,” she says.
Start your own business: If you have lost your job, this could be an opportunity for you to start your own small business. The government and private enterprises have programmes and funds in place, aimed at providing access and funding to women-owned businesses. Relevant funds include:
Enablis Acceleration Fund;
Business Partners Women in Business Fund;
NEF Women Empowerment Fund;
Isivande Women’s Fund;
I’M IN Accelerator Programme; and
Alitheia Identity Fund.
Protect your income-earning capability: Sanlam product development actuary Karen Bongers says the company’s claim statistics reflect that between March and August last year, 89% of claims for income and sickness protection were for people younger than 50. “Imagine if you are a 28-year-old primary breadwinner and you are suddenly unable to work owing to illness. The knock-on financial effect [is likely to be] immense,” she says.
Bongers says that although the terms ‘income protection’ and ‘disability cover’ are often used interchangeably, income protection usually refers to products that pay a monthly amount if you are unable to work, either temporarily or permanently, owing to illness or injury.
“Disability cover generally refers to benefits that pay out a lump sum amount if an illness or injury renders you permanently unable to work. A combination of both could help you cover certain one-off lump-sum expenses, with the income payout providing a long-term replacement for your monthly income,” she says.
Invest more and start sooner: On average, women work fewer years, earn less , and tend to live longer, than men. The Stats SA Inequality Trends in South Africa report released last year showed that South African women earn, on average, 30% less than men in the same jobs. Conversations with your boss about a salary increase are bound to be difficult, but if you go in prepared the outcome could be positive. And it means more money in your pocket to start investing.
This example from Eden Wealth Management demonstrates the potential impact of increasing your income by just under R420 a month: an additional R5,000 invested at a 7% return over 20 years will give you a return of R205,000, which could be added to your retirement savings.
Medical cover: Make sure you have medical scheme coverage in place. This cover can prove invaluable, particularly if you end up in hospital or have a dread disease diagnosis. Discovery Health Medical Scheme (DHMS) says the number of members diagnosed with breast cancer each year has increased by 20% since 2011.
The CEO of DHMS, Dr Ryan Noach, says breast cancer costs R207,561, on average, to treat during the first 12 months after diagnosis. “The total cost paid by the scheme for breast cancer-related treatment has also increased by 107% from 2011 to 2018. A total of R738-million was paid towards treatment of breast cancer in 2018 alone,” he says.
If you join a medical scheme for the first time after the age of 35, you will be liable to pay a late joiner’s penalty fee. This is not a one-off fee but a fee that is added to your monthly contribution and it could be anything from 5% to 75% of your contribution. DM168
This story first appeared in our weekly Daily Maverick 168 newspaper which is available for free to Pick n Pay Smart Shoppers at these Pick n Pay stores.