Women have financial issues for good reason. Here’s why, what to do about it, and how to make the most of what you have.
The wealth gap between men and women starts early; boys get twice as much allowance as girls, on average, according to recent studies. Unfortunately, it doesn’t stop there. Women hold 71% of their assets in cash, versus 60% for men, so women are less likely to invest than men. Women also need more money in retirement since they usually live longer than men and are more likely to need long-term care.
Women also fare worse than men after a divorce and struggle more financially when they are single. They are more often the caretakers of children or older family members and get paid less than men when they do work. They are less likely than men to make investment decisions when they are married.
All of these women have one thing in common: they are risk-averse and often afraid to put their money to work (even though the real risk is to avoid investing and watch that cash lose money every year as inflation lowers its value). As a recent study found, lower levels of earnings and workforce attachment could not explain the extent of the wealth differential; a contributing factor seemed to be “a lack of adequate financial literacy.”
So ladies, what can we do about it? Plenty, as it turns out.
Increasing Pay and Financial Literacy
Women in the workforce can ask for raises more often or switch to another employer (where they will likely get increased wages). They can advocate for payment for caregiving within their family, and/or take advantage of the law. For example, they can live with the parent they care for in order to eventually inherit the house (instead of having to sell it) when Mom or Dad runs out of money (check with Medicaid or see an attorney first). They can buy long-term care insurance (which covers a portion of non-medical care) when they are healthier and more likely to qualify.
Women can educate themselves about personal finance. Expert Suze Orman wrote a book entitled Women & Money, or check out finance guru Dave Ramsey for his plan on paying off debt and getting back control of your money.
Myriad financial bloggers and podcasters in the financial independence (FI) community offer great tips for frugality, debt payoff and saving. Start with the iconic Mr. Money Mustache or try one of dozens of female bloggers in the space. The FI community may be generally much younger than many of us, but tips for great money management (paying off debt, saving and investing) do not change much with age.
If You Have Money To Invest ($5 Is Enough)
If you don’t know anything about stocks, well, you don’t really have to. Invest in an exchange traded index fund (an index ETF) that follows the S&P. To learn what an ETF is and what stocks make up the S&P, read the free J. Collins Stock Series online, where he uses layman’s terms fit for beginners, or read his book, The Simple Path to Wealth.
Most 401(k)s have some target date funds that gradually change over the portfolio from a heavier weighting of stocks to a heavier weighting in bonds as the account holder nears retirement. This gives many women peace of mind since they can invest and never think about rebalancing.
If you work in the gig economy and don’t have a savings plan, most brokerages (such as Vanguard, Fidelity, Charles Schwab and TD Ameritrade) offer free services, including buying and selling stock, and all of them offer online services. Choose one that has an office in your community and make an appointment to talk to a representative, or call if it’s more convenient. Ask for a woman if it makes you more comfortable. You are the client, and you’re in charge.
You may be starting with a very small amount of money, and that’s OK. All of the major brokerages offer stock slices, so if the stock you want costs more than what you have (and you can literally start with $5), you get as much of a share as your money will buy. Feel proud of your decision to invest, whether it is $5 or $5,000.
New York Times bestselling author Jean Chatzky has spent much of her life covering money issues. Her book, Women With Money, answers “questions women should be asking about their money at every age.” You could even bring a group of friends together to play Chatzky's HerMoney Happy Hour game that is a discussion about money for women only.
Older Women Making Financial Decisions
Many women in or near retirement find that it is too late to course correct; there is no time to increase savings. But they don’t have to live every day afraid that their money will run out. While some very conservative planners suggest a 2% to 3% withdrawal rate, the 4% rule is a time-tested formula for safe withdrawal from a retirement fund. Historically, a person could withdraw 4% of their nest egg each year and allow for about 2% inflation annually, and expect the account to last at least 33 years, even in the worst of times.
Women shouldn’t fear putting their money in the market, especially when today’s low interest rates mean bonds are very low yielders. Even if you only earn 5% annually (while nothing is guaranteed, stocks generally go up an average of 7% to 10% per year), you are beating inflation and getting a much better return than having your money sit in the bank.
Women in the Silent Generation may be better off financially than younger cohorts but struggle with finances after the death of a spouse. These women will often opt to leave money for their children, even to their own detriment. They may have a large, expensive house to maintain and risk having health care eat up their remaining nest egg. One female financial adviser noted wryly that her women clients “just won’t spend money on themselves as they age;” she never sees that problem in men.
Another issue women are more likely to encounter is dementia. Both sexes drop in financial literacy after age 60 (take the financial literacy quiz here to see how you’re doing). But women should have someone designated to take over their finances when they are no longer able to call the shots. It’s better to have chosen someone to act with a durable power of attorney (POA) ahead of time than to have to make the decision in an emergency, or after cognition has slowed.
Tax and Estate Planning
For women fortunate enough to need tax and estate planning — and that may well mean you, because taxes eat more of our budget than anything except housing — consider someone who charges a flat fee and acts as a fiduciary. The XY Planning Network one such group that guarantees “no commissions, no sales, no minimums” and has a huge network of planners to pick from. You may want to talk to planner Ellen who specializes in divorced women, women in transition, and widow/widowers, “assisting you through cumbersome paperwork and educating you without the industry jargon. The nuances, rules and types of accounts are explained by how they fit your needs, risks, tax structure and earning capabilities.” Or, call planner Breanna who “decided to build a firm in order to create an inviting environment where women are encouraged to discuss their money without judgment, to learn about their investments in a way they enjoy, and to become more comfortable managing their money with confidence.” Their credentials are clearly listed on the site, and in today’s world, a planner based on the other side of your state can serve you just as easily as one in your hometown.
Even people who went to school for this stuff have often struggled with debt and doubt. Women who reach out for guidance will find others who are happy to help, or who will point them to someone who can. The first step is both the hardest and the most important.
