• Shaeera Essop

What a weekly family feast meal and women’s financial health have in common

Phenomenal women have achieved incredible success across all disciplines in the last few decades. Yet opportunities for women in respect of financial education and employment remain unequal. This Women’s month and in the months ahead, women need to empower themselves and take ownership of their financial destinies says Shaeera Essop, Strategic Client Engagement Manager at Momentum Corporate, as she shares some practical steps to achieve this.

“There is still a persistent gap between what men and women are paid. According to the 2020 World Economic Global Gender Gap Report, the global gender gap stands at 68.6%. So, if you are a woman, on average, you’re earning up to 32% less than your male counterparts. It’s estimated that it’ll take close to 100 years still to achieve gender parity,” says Essop.

She explains that local women face some specific challenges. “According to the Human Sciences Research Council, 40% of mothers are single parents and only about 25% of children are part of a nuclear family. This means many South African women have the challenge of prioritising finances and financial planning while continuously juggling a myriad of other daunting responsibilities as a single parent.”

When men are present, research for the 2018 Momentum Science of Success report suggests that in many households, women have little control over their income and many women tend to leave the finances to their partners.

Essop says that one of the areas where women are falling behind badly is planning for retirement. This is particularly concerning because, on average, women tend to live longer than men. “Just over 40% of the members on Momentum Corporate’s FundsAtWork Umbrella Funds are women, however 88% of these women have an average retirement replacement ratio of 21.3%, if we only consider the retirement savings they have through their employer sponsored employee benefits offering. This places them in what we classify as the danger zone when it comes to the level of income they can expect in retirement,” she explains.

The retirement replacement ratio is the percentage of your final monthly salary, just prior to retirement that you’ll be able to translate into an income in retirement. Essop says a healthy financial situation is being able to expect between 70 – 75% of your final salary to be paid as a retirement income. “This highlights the bleak retirement prospects these women face if, on average, they can only expect 21.3% of their pre-retirement income as a retirement income. Will retirement be dining on fillet steak or tinned beans, caviar or cat food?

Sadly few women take any immediate actions to improve their situation. Essop says their data shows only 7% of women made additional voluntary contributions to their retirement fund in June 2020.

The Momentum Corporate data also highlights high levels of underinsurance across women in their base, with 78% of women having an average life cover replacement ratio of only 24.16% and in the danger zone. “This means that unless they have life cover from other sources, the families of these income earners are likely to face serious financial challenges should they pass away,” says Essop.

“As women, we work really hard for our money but we often fail to make our money work hard for us. In the midst of our busy lives, we find a host of excuses for why we can’t find money to save and often forget that retirement fund contributions are tax deductible, which means that up to certain limits, the more you pay to retirement, the more tax you save. We also tend to overlook the magic of compound interest and how small, regular savings can grow into a much larger amount over time.

“Just as it takes discipline to follow a healthy lifestyle, it takes a lot of discipline to sit down, prioritise needs over wants, and draw up a monthly budget and financial plan. But your future self will thank you for doing this,” says Essop.

Essop uses a simple example. “Imagine that, instead of allocating R1 000 a month to your paid channel TV package payment or spending money on a weekly fast food family feast, you choose to invest it when your child starts grade 1. Just by increasing your investment by 5% each year and earning an average return over the long-term, your investment should grow to over R300 000 at the end of the 12 years. What a great kick-start to your child’s tertiary education fees or boost your retirement savings.”

She shares some practical steps all women should take to make their money work harder.

  • Create a financial plan. It’s the bedrock of your financial health and is of utmost importance, particularly in these times of uncertainty. Think about what you expect at retirement, in emergencies or in the event of death or disability. Then test if you are on the right path.

  • It is never too early, or too late, to start saving more. Most employer-sponsored retirement funds allow you to increase your retirement contributions.

  • Consult the experts. Talk to your fund’s benefit counsellors to understand your group benefits. When it comes to big financial decisions, make sure you also talk to your company’s group benefits financial adviser or your own personal adviser. They can help you to understand where you will end up at retirement and help you adapt what you are doing to meet your goals.

  • Know your money personality – spender, saver or somewhere in between