The story this week is how have the women in India manage their savings, and what rule of thumb investing can teach us either to learn or be wary. Read on.

Do you think piggy banks have gone obsolete? With the rise of cashless transactions and digital currency, it's true that piggy banks may not be as common as they once were. However, don't make the mistake of thinking that they're entirely irrelevant. When I was a child, it was customary to put spare change in a piggy bank to save money. This practice isn't unique to me - women throughout Asia have traditionally hidden their savings in unusual places like mattresses, kitchen jars, and even the underground. While I may have moved on from a piggy bank to more sophisticated forms of banking and more women use gold as another form of saving, informal savings mechanisms still play an important role in the financial lives of many women in India and other parts of Asia.
Presently, women account for slightly more than 50% of Jan Dhan account holders; however, having access to financial services alone does not ensure financial inclusion. Research suggests that many women do not utilize their Jan Dhan accounts actively. One reason behind this could be the challenges women encounter when attempting to participate in formal economic activities, which forces them to rely on alternative methods of saving money. However, the use of informal savings mechanisms is not limited to physical piggy banks or hiding cash at home. Indeed, there are various forms of informal savings mechanisms that women use, such as rotating savings and credit associations, or "chit funds" in India, where a group of individuals pool their money and take turns receiving the lump sum. These informal savings mechanisms have proven to be a vital means of financial inclusion for women in India.
But why do women in Asia continue to rely on these informal savings mechanisms despite the rise of technology and access to formal financial institutions?
Perhaps, the solution can be found in how women take their economic decision-making.
Keynes's theory of liquidity preference explains that people save money to have access to liquid assets for future needs or emergencies. This is exactly what informal savings mechanisms like piggy banks and chit funds offer to women. But it is Weber's theory of social norms that may explain why women continue to use these informal savings mechanisms. Weber's theory highlights the role of social norms and values in influencing individuals' behaviour, which is particularly relevant to women who are at higher risk of economic and social exclusion. Moreover, the rise of technology and formal financial institutions has not completely eliminated the barriers that women face in accessing financial services. Women may feel uncomfortable with the formal financial system due to cultural and social norms that prevent them from taking economic risks, while informal savings mechanisms are seen as a safer and more familiar option. By keeping a secret, women can retain greater authority over their finances than men who tend to make decisions about allocating resources that do not always correspond with the priorities and interests of women. The numerous accounts of Indian women's concealed savings during demonetisation exemplify how informal saving methods enable them to manage economic crises while maintaining control over their finances. In fact, my own mother also possessed a covert stash that she had amassed without anyone's awareness for many years.
The savings habits of women can be interpreted through economic theories, namely the life cycle hypothesis and the precautionary savings model. The life cycle theory proposes that individuals save and spend based on their projected lifetime earnings. This may explain why women often prioritize saving because they perceive fewer opportunities for increased income over time. Additionally, the precautionary savings model implies that people save money to safeguard themselves against unforeseen events which could impact their financial stability negatively; this is especially relevant for Indian women given their exposure to economic vulnerabilities such as lower incomes and lack of access to social safety nets.
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The use of secret stashes and chit funds sheds light on the difficulties women face in accessing formal financial services. Informal savings methods are commonly relied upon due to a gap in trust and knowledge within traditional financial systems that hinder women from managing their finances effectively. This is partly because many lack sufficient education about finance or view formal institutions as complicated or exclusive. As an alternative, informal mechanisms like piggy banks and chit funds offer a strong sense of community and confidence not found with typical banking options, making them more convenient for numerous women seeking accessibility.
In addition to the trust and knowledge gap, women's risk aversion also plays a significant role in their preference for informal savings mechanisms. Research has shown that women tend to be more risk-averse than men, preferring safer investment options. Informal savings mechanisms provide a sense of security and control that formal financial institutions may not offer, making them a popular choice among women.
Moreover, the persistent dependence on informal savings mechanisms can be attributed to inadequate digital literacy and limited access to technology. Women may lack proficiency in navigating financial services or require support from family members or male associates to access formal financial institutions. Furthermore, women may prefer informal saving methods due to their desire for privacy concerning their finances and the fear of immediate consumption by others. Cognitive dissonance along with mental accounting could also play a significant role in determining women's saving habits. Negative experiences with traditional banking systems can lead them towards discomfort and subsequently choose informal options instead that provide more control over withdrawals while prioritising specific goals such as emergency funds or education savings.
Women's financial decision-making processes are also shaped by deeply ingrained social norms and the impact of personal relationships. Balancing competing priorities such as societal expectations, power dynamics, household responsibilities, and individual aspirations can be a challenging task for women seeking to make sound financial choices. There remains multiple questions how and why women from different socio-economic backgrounds decide to allocate their funds and navigate the complex financial landscape. understanding the biases, social context, and cultural factors that shape women's financial decision-making is essential to creating gender-inclusive policies and programs that meet the unique needs of women.
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Reviewed by Aurko
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