December 1, 2018

Financial Planning Advice for Women

The path for women is a little like two steps forward, one step back. For example, almost 40 percent of all privately held firms in the United States today are owned by women. Furthermore, the 2018 midterm elections yielded 23 female senators and more than 100 in the House of Representatives.

And yet, despite the fact that women comprise 51 percent of the U.S. population, their ranks account for less than one-quarter of Congress. And women hold only 10 percent of chief executive and chief financial officer positions in S&P 1500 companies.

What is most unfortunate about the lack of women in powerful positions is that they continue to trail men in terms of income and investment assets. When it comes to managing money, this means women are at a disadvantage because they tend to live longer than men, often are financially responsible caregivers – both as single moms of dependent children and elderly parents – and tend to have higher health and long-term care expenses as they age.

Earning Discrepancy

While younger, well-educated professional women are starting to level the playing field when it comes to earning salaries on par with male counterparts, this does nothing to help the mid-career, near-retirement or retiree with long-term financial security. Women still earn an average of 20 percent less than men in the same positions despite the fact that women have earned the majority of master’s degrees in the United States since as far back as 1981.

To add insult to injury, women’s earnings tend to peak at an earlier age and their income level drops at a faster rate than men as they grow older.

The income component of the financial picture has far-reaching impacts, such as:

  • Less disposable income than men
  • Less savings
  • Less money invested
  • Lower Social Security benefits during retirement

One of the oft-cited reasons for women earning less is because they tend leave the workforce for extended periods of time to raise children. Not only does career interruption leave them with fewer opportunities for promotion, but it reinforces the perception that women are less reliable and easily distracted by home-life responsibilities. However, the opposite is true of men. Employer surveys have revealed that when a man starts a family, he is perceived as more reliable and dedicated.

Lifestyle Benefits

While the financial scenario appears bleak for women, there are ways that they can take advantage of inherent lifestyle benefits to improve long-term security. Consider the following tips:

  • Firsthand knowledge – Because women are often in charge of the household budget, they are in a position to know where and how to cut costs.
  • Diligent – When it comes to saving money, studies show that at every salary level women consistently save a higher percentage of their income than men.
  • Communication skills – women tend to ask lots of questions, especially about things they don’t understand. When working with a financial advisor, they are more likely than men to ask about fees and expenses.
  • Practical – Women tend to value money in terms of what it can provide, thus they are not just interested in accruing money for the sake of wealth – and less inclined to chase investment performance.
  • Conservative – Women tend to be more conservative investors than men. They prefer lower-risk, conservative growth and are more focused on asset preservation.
  • Longevity – Women tend to have a longer time period for their investments to grow because, demographically speaking, they live longer than men. This means women benefit from their conservative style of investing slow and steady for the long game.
  • Outperformance – Despite their penchant for lower-risk investing, on average women’s investments have performed better than men by 0.4 percent, according to research by Fidelity Investments. While the variance is small, it can have a substantial impact over their longer lifespan.

By utilizing inherent lifestyle, disposition and life expectancy advantages, women can work toward long-term financial savings and investment earnings to help secure their future.