Women’s financial planning needs are unique in many ways – and as the shape and pace of their career trajectory is somewhat different from men’s, so are their money management strategies.
In this article, we explore the many ways women’s financial situations and needs can differ from those of men, and how women can strategically plan their finances to protect their financial future.
Carriers of children and family caregivers
The interruption of women’s careers following childbirth and child-rearing can have long-term financial implications for women. Besides the actual loss of income during maternity leave and the child-rearing years, it is important to consider the financial repercussions. For example, missing out on a promotion and pay raise may mean lower group life and disability coverage, reduced bonuses and/or commissions, loss of future earnings, pension fund contributions weaker ones, as well as a less powerful bargaining position when negotiating the next pay raise or job offer. Additionally, it is important to understand the long-term effects of discontinuing compound interest when a woman is required to suspend her savings and/or access her invested capital while on maternity leave. In addition to caring for children, women typically spend more time caring for other family members such as aging parents or siblings with special needs, often requiring time off. work or income-generating activity, which again can have longer-term financial implications. often overlooked consequences.
The longer-term impact of the lack of pay equity
Although gender pay parity is improving, the process is slow and, on average, women still earn less than men. Again, the effect of earning a lower income ripples through all aspects of a woman’s portfolio: less group risk coverage, lower investment contributions, reduced bonuses, commissions or incentives. , a weaker position to negotiate, less access to credit and finance, lower ability to build wealth, and lower net asset value over time – compounded, of course, by the fact that women generally live longer than men and therefore have to save for a longer – potentially more expensive – retirement.
The risks associated with living longer
According to the US Census Bureau, in 2017 the life expectancy for men was 76.1 years while that for women was 81.1 years, and the longevity gap is expected to continue to grow. The longevity risk facing women has a number of key implications for their financial planning that should be addressed as soon as possible. First, while women generally have a longer investment horizon, investment growth is often thwarted by career breaks. Second, although women need to save more than men due to longer retirement, income disparity often makes this goal difficult to achieve. Additionally, while a longer investment horizon should allow women to take on more investment risk, research shows that women generally tend not to have enough growth assets in their portfolios. which, in turn, reduces the purchasing power of their capital over time. Outliving men also means women have to face the reality that they are likely to be solely responsible for managing finances later in retirement – while outliving longer also increases the likelihood that they will need fragile care or nursing home care, which can be prohibitively expensive.
The stakes of wealth creation for the stay-at-home spouse
Women who choose to stay home to raise their children face a huge challenge when it comes to generating wealth. Without income and associated tax benefits, investing is something many stay-at-home moms don’t do, putting them in a precarious financial position if the relationship ends. The economic value of a stay-at-home spouse remains grossly undervalued by society, and the inability of stay-at-home moms to create wealth is a problem that needs to be addressed. Although there are laws in place to protect the economically weaker spouse in the event of divorce, stay-at-home parents often end up in a weaker financial position after a divorce than the spouse who chose to remain economically active during the marriage. . As such, it is essential that women have mechanisms in place to protect their financial interests in the event of a marriage breakdown. Women should be especially careful when choosing a matrimonial regime and preparing a marriage contract.
Challenges facing single mothers
The challenges faced by many single mothers can have a profound effect on their ability to generate income and build wealth, particularly when it comes to obtaining child support and pursuing non-payment payments. payers. Non-payment of child support forces many single mothers to incur ongoing legal costs and enter a cycle of debt – exacerbated by the fact that they have to take time off work to attend child support court , which in turn leads to further loss of income and reduced employment opportunities. This conundrum leaves many single mothers heavily in debt, unable to reach their full earning potential, and unable to invest for the future.
Different investment style
Generally speaking, women’s investment style differs from men’s, and this is often not supported by the products or advice available in the market. Research shows that women are more likely to seek advice and stick to it, to have a more goal-oriented approach to investing and, due to lack of time, to need efficiency in terms of communications and administration. Although they are generally not as confident as their male counterparts when it comes to investing, women tend to take less investment risk which, given their longer investment horizons, often results in by insufficient yields. That said, female investors are less likely to succumb to market timing and overconfidence biases, and more likely to do extensive research before making investment decisions. When it comes to seeking advice, women want their goals heard and understood, and don’t want to feel pressured into buying a product.
Work-from-home regulations during the pandemic have placed a huge burden on many women to care for children, which, in turn, has impacted their ability to generate income and save for the future. coming. In response to the pandemic, however, many women have subsequently shown an increased interest in investing, have become more involved in managing household finances, and are more open to engaging in financial discussions with their partner and children. . Increased awareness of mortality has also increased their interest in estate planning, caring for minor children and loved ones, and creating a financial legacy in the event of death.
When it comes to planning for the future, the research is clear: those with a financial plan in place save more. With this in mind, women should be encouraged to take concrete steps early on to strategically manage their finances through their different life stages.
A positive first step is to find an independent, paid counselor who understands and appreciates the specific needs and challenges that women face, and who demonstrates a genuine understanding of your lifestyle goals. Together with your advisor, you should be able to develop a long-term strategy for financial independence that is flexible, robust, and tailored to your unique goals.