Last month the Wealth-Management Cross-Functional team had visited 15 households in Thanjavur to pilot the Wealth Management process. A week ago we revisited some of these households with a draft of the Financial Wellbeing Report to see how we could engage in a constructive dialogue with the household on various aspects of their financial lives. One such family was that of Jaya (name changed), a customer enrolled at Andipatti branch of Pudhuaaru KGFS.
The Family – Jaya (40) and her husband Rajan (42) live in a thatched house in Karukkadipatti village. The couple has three children Neetha (16), Vinodini (18) and Pramod (20). While the daughters Neetha (1st Year BSc) and Vinodini (10th Std) are still studying, the eldest son Pramod has just started working in Qatar as a driver. The daughters stay at Jaya’s sister’s house in a nearby village.
Their Activities – Till about 5 years back, Rajan worked in a hotel in Singapore. When he returned, he decided to manage the tea shop business that his father used to run. Rajan manages to make about Rs.1,20,000 a year from the shop. Apart from this the family owns about 1.3 acres of agricultural land and manages a net income of about Rs.35,000 by growing paddy for two seasons and black gram for one. The two cows they have fetch them a net income of Rs.4,000 a year. The family spends about Rs.39,000 a year on routine household expenses. Picture: Rajan (right) interacting with the team.
Goals – Among the list of goals that the household wishes to fulfil, Neetha and Vinodini’s education over the next five years alone will cost the family Rs. 3.6 lakhs (1 lakh = 1,00,000). Other priorities include their marriage (Rs. 5 lakhs each) and expansion of the shop (Rs 20,000).
With this and other information about the household, we set about preparing a Financial Wellbeing Report for them. The report talks about four pathways (Plan-Grow-Protect-Diversify) towards financial wellbeing – all of which try to answer the central question for the customer “How can Wealth Management help improve my financial wellbeing?”
The Advice – The specific advice around protection includes Life Insurance for Jaya (Rs.50,000), Pramod (Rs.5,00,000), Vinodini (Rs.4,20,000) and Neetha (Rs.3,80,000); Accident Insurance for Jaya (Rs.2,00,000), Rajan (Rs.1,75,000), Pramod, Vinodini & Neetha (Rs.5,50,000 each). Insurance for the cow and shop is also suggested upto their current market values. Life Insurance decisions are linked to human capital (Present Value of Lifetime Income net of Own Expenses) of each member.
As regards the surplus generated by the household, the advice was to allocate it in the following proportion: Index Fund – 20%, Gold – 18% and MMMF – 62%. This advice is consistent with the desired features of high returns, diversification from local assets and diversification in assets uncorrelated with human capital. Jaya should also maintain a separate balance of about Rs. 10,000 in the MMMF account to take care of liquidity needs.
The shop being a high TIP (Total Income Potential) asset, the advice is to borrow for its renovation. For all other medium to long-term goals that are 3 to 8 years away, a combination of savings and borrowing is advised.
For a full explanation of Jaya’s Financial wellbeing report please click here.
We would urge all those reading this to share their comments and suggestions on the process and the recommendations in the comments section below. What are we missing?
Shilpa Sathe of InnerWorlds and Amit Shah of Rural Finance contributed to this post.