The number of high net-worth female investors has increased by about 38% over the past decade, showing that this generation of women is more financially independent than past generations.
It is also interesting to note that a massive transfer of wealth labelled The Great Wealth Transfer is set to take place over the next decade, which will see millennials becoming possibly the wealthiest generation in history. It is therefore important to highlight the opportunities that this shift will present to South African women.
The transfer of generational wealth is often a complex and emotional affair. It is therefore crucial that a wealth transfer plan is put in place to provide structure and guidance, along with a comprehensive financial plan that will assist and guide younger generations to build on what they have inherited, in a responsible way.
Financial planning is an essential practice that transcends generations and plays a pivotal role, ensuring the economic well-being and stability for families.
With the ever-changing financial landscape, it is important to understand how effectively to transfer wealth across generations, manage responsibilities towards parents and children, and encourage younger generations to become financially independent, thereby ensuring that the next generation of women is even more financially secure than the current one.
Estate planning: a foundation for women’s financial legacy
Estate planning is the cornerstone of intergenerational wealth transfer and includes drafting a will, a living will (a document that specifies your preferences for medical treatment in critical situations when you cannot make those decisions yourself), setting up a trust if it will be beneficial to your specific circumstances, and designating a trusted individual to be assigned power of attorney in event of incapacitation.
More than 80% of women globally are comfortable leading short-term financial planning activities for their families. However, the World Economic Forum reports that only 23% are comfortable with long-term financial planning, such as investing and insurance.
This lack of confidence affects wealth creation and hinders taking the next step in investment plans. A comprehensive estate and financial plan ensure that hard-earned wealth that has been accumulated over time is distributed according to your wishes, manages expectations, minimises disputes within a family, and provides tax benefits.
Proper designation of beneficiaries for your assets is a critical step in estate planning. This process ensures that your assets are transferred smoothly and efficiently to your loved ones, according to your wishes. These designations should be reviewed and updated regularly, after major life events such as marriage, divorce, or the birth of a child.
Empowering future generations of women for financial freedom
A recent study by Fidelity Investments in the United States found that women are doing away with misconceptions that prevent them from feeling confident financially, and more than a third of women have “unlearned” the stereotype that men are better at managing finances.
A positive starting point is adopting intelligent financial habits and strategies, which include creating and maintaining a budget, building an emergency fund to cover unexpected costs, and the discipline of saving and investing early in a diversified portfolio with the help of a trusted financial adviser, to take advantage of compound growth over time.
A case in point is the example of a client and her sister who each inherited a diversified portfolio of quality stocks from their father, who purchased these stocks 30 years before and traded only upon the recommendation of his financial adviser. The growth that compounded exponentially over the years resulted in the portfolios that each of his daughters inherited and ensured their comfortable retirement without financial concerns today.
Gen Z, growing up in a digital world, can leverage technology to enhance their financial literacy and investment strategies by using online platforms, digital financial tools and apps, and courses to learn about personal finance and investing. With a deep desire for financial independence, 44% of Gen Z women have been reported as eager to overcome financial insecurity as reported in the Fidelity Investments study.
Research by US company Cerulli Associates concluded that regular meetings between financial advisers and their clients’ families, as well as educational support and organised succession planning, are the most important contributing factors to a successful wealth transfer strategy.
By understanding the essentials of estate planning, properly designating beneficiaries, managing financial obligations, and empowering the younger generations with financial literacy and investment strategies, female investors can secure a prosperous future and smooth transfer of wealth that has been built over a lifetime.
Carina van Rooyen is a wealth manager at PSG.
Disclaimer: The views expressed in this article are those of the writer and are not necessarily shared by Moonstone Information Refinery or its sister companies. The information in this article does not constitute financial planning, estate planning, or investment planning advice that is appropriate for every individual’s needs and circumstances.
