Women Fall Behind in Financial Literacy, Why This Is A Major Problem For Women and How To Close the Gap
In conversations I’ve had with clients, I noticed a concerning trend. Studies have proven that women fall behind men in financial literacy.
Women are not comfortable making investment and retirement decisions because they don’t feel equipped with knowledge. Yet these decisions will impact a good portion of our lives- those twenty to thirty years that we spend in retirement. Watch the video below.
What is the gender gap in financial literacy and why does it exist?
Women have long been skilled in money management. With advances women have made in the last century and the abundance of information available to us, one would expect there will be generational differences in financial literacy, where younger, unmarried, college-educated women might perform more similarly to men.
Yet that is not the case. The gender gap in financial literacy exists regardless of age, marital status, or education. In a research conducted by TIAA (Teachers Insurance and Annuity Association of America), women lag behind men in all areas included in the research, especially in investing and comprehending risk.
A Netherlands research confirmed this but attributed the reason to “ lower financial knowledge,” and confidence. Researchers wrote “In other words, women have lower financial literacy than men, but they know more than they think they know,”
This lack of knowledge and confidence has long-term implications for women’s finances and retirement.
“Women, on average, are expected to live 5 years longer than men, but accumulate over $100,000 less wealth.” Stanford Center on Longevity
Stanford Center on Longevity found that “confidence and involvement in making major financial decisions have been established as important contributors to the gender gap in financial literacy.”When it comes to ability, men and women are equally capable of learning, increasing their financial knowledge, and becoming good investors. Two very big factors that are against women, I believe, are lack of time and lack of interest in delayed gratification.
Women just have so much to do- the responsibilities of running the household, being a wife and mom, on top of a full-time job. When we have a little bit of downtime, we prefer to look at nice, pleasurable things that we end up buying. Who wants to look at charts and numbers when all you want to do is relax? Second, we want to experience immediate gratification from our purchases.
But…
Here are 3 Facts That Impact Retirement Savings
Fact 1: The gender wage gap, plus the caregiving role of women, put them in a position of lower lifetime earnings, and therefore lower retirement savings that they need to last for as long as they live.
There is an ongoing discussion about the wage gap. It is real. It is there. The consequences for women’s retirement readiness can be significant when you earn less than you should right from the beginning.
Name one woman who isn’t responsible for another, a child, a spouse, a parent, other family members, or even a pet. We often have to miss work in order to care for our children, and then later as our parents age, we sacrifice our work hours to provide care. We are always thinking of others first and putting their needs first. This holds true also when it comes to how we spend and save our money. Lower working hours translate to lower retirement savings.
Fact 2: Women survive their husbands by 15 years. Because women live longer than men, women will find themselves at some point in their lives, needing to manage their own finances.
When I was newly married, I ran across a newspaper advertisement for a book “Don’t Worry About A Thing Dear,” Why Women Need Financial Intimacy. My attention was caught because the author, Helga Hayes, wrote the book based on her personal experience when her husband passed away suddenly. She found herself grappling to put the puzzle pieces of their financial picture together while emotionally paralyzed by the loss of her love. Her husband was healthy and had no prior heart conditions. She came home to find him lifeless in the bathtub.
The gut-wrenching thought of suddenly losing my husband had made an unforgettable impact on me. It taught me the importance of getting both partners knowledgeable as we never know when a role reversal can take place.
Bear in mind that the death of a spouse will decrease your household income unless there is life insurance in place. And after a divorce, a woman’s income falls by 41%.
Fact 3: Long-term care illness, taxes, and inflation can further erode retirement savings.
Two in 10 women will need long-term care for more than 5 years. And the cost of long-term care has been rising at a fast rate every year.
In my last newsletter, I talked about the constrained investor, where most middle-income earners fall under. They are saving for retirement but have very little cushion, very little room for errors or unexpected events, which can be an illness, a market recession, inflation, etc. They may have a sizeable nest egg but the amount of savings isn’t high compared to the level of income needed to support the investor’s minimally acceptable lifestyle.
Because of these facts, we owe it to ourselves, and also to our loved ones to be better at our knowledge and confidence in planning for retirement. We can not simply roll the dice or depend on our partners to do it for us and hope it will be enough. You cannot depend only on a pension plan from your employer. Social Security will not pay all the bills. Learning the skills to both save and invest
Yes, you can hire an advisor but you still need to have an understanding of the strategies they use, whether they are really taking time to listen to your needs and act in your best interest.
“Start building your assets. If don’t start, you will have none. “
3 Steps to Find Out How Much You Need For Retirement
Because many don’t know where and how to start, they never do. These three steps may help you get started in your retirement planning.
- Define what your retirement will be like. What does it look like? Where will you live? Make a list of important, nonnegotiable items you will be spending money on in addition to basic necessities. Is it travel? Grandchildren’s college education? Your kid’s house?
- Figure out the monthly cost of living. Take inventory of how much you are spending now. Do you expect a similar lifestyle in retirement? Will you be spending less due to your mortgage being paid off (be sure to plan to pay it off before retirement) or will it be more because of an active lifestyle of traveling, playing golf, or other interests? Putting a dollar amount to your expenses based on #1 will help you plan.
- Estimate how long you will live. Look around at your family. Who is your oldest relative? Since we won’t know until it’s too late, we must plan for our money to last a long time in retirement. But for how long? Ideally, you’ll want to plan that your retirement will last into your mid-90s. If you have longevity in your family, you should plan for even longer. If you have some significant health issues, you may decide to plan for a shorter time. But, think positively. 70 is the new 50!
Once you have an idea of how much your expenses will be and how long you will live, you can devise a plan. Here’s the formula:
Annual expenses x Number of years in retirement= How much you need to save
You can get familiar with your employer’s retirement plans, and how they are taxed. You can learn about other ways to save outside of that plan such as IULs and Index annuities, real estate, and stocks so you can diversify your assets.
Check out these Retirement Planning Resources
A word of caution: If you will depend on that money, be sure to put it in a place where you know the risks, if any, and be willing to take losses. Only put some of your money at risk if you have your nondiscretionary spending already covered.
The 3 L’s of A Dignity Plan
As an insurance agent, I help my clients plan for these 3 key areas:
1. Longevity
If you live a long time, to your 80s, 90s, or 100s, will you run out of money or need to adjust your lifestyle? Can your plan survive a major economic setback? How will your parents aging or illness or children’s needs affect your life and financial plans? Will you have the money you need to live in dignity until the day you die?
“Of the 80,000 centenarians in the US today, over 80% are women.”
US Census Bureau Report
2. Long-term care
How would you and your family emotionally and financially handle a significant change in health and lifestyle? Will you have the money to get the quality of care you desire to keep your dignity if you get sick, hurt, or disabled? How would you feel if you became dependent on your children/grandchildren? The average length of long-term care is about 3 years, and women typically need it for 3.7 years.
Experiencing a DBMDR-Death, Birth, Marriage, Divorce, or Retirement? Let us help!
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3. Legacy
Reflects on death and divorce. What kind of assets do you want to leave behind and how will you build those assets? How do I ensure assets are transferred to the people who matter? How would you feel if you were unable to leave money to your heirs?
I know these may seem like a lot, but if you do it early, you can take your time to figure out what is important to you, without any pressure. Planning is easy if you make time and make it a priority. Your future self will thank you for it! There are many resources available, and I can be one of them!
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What Dignity Planning Means:
I help you plan to ensure you live in dignity throughout your life until your last breath.
Living in dignity means
- Being able to focus on getting better because money is not an issue
- Being able to live comfortably and pay your mortgage even if you’re sick and can’t work
- Being able to take care of your sick family member because you can afford not to work
- Being able to afford the best care even when not covered by health insurance
- Living a quality of life until your last days
- Continuing to take care of the people who matter most even after you’re gone or no longer can work
Ask Sheilla
Q: How do I find time to learn and plan for retirement on top of my other responsibilities and obligations?
A: Women have a unique ability to get things done. Every one of us has a way of doing so, some use a planner, or a calendar to schedule priorities. The key is making it a priority to spend our time on. We make time for what matters to us. And if your financial well-being matters to you as it should, you will make time for it.
Whether it’s once a year, once a quarter, or once a month, it’s different for everyone. You can set aside time to review your plan and put it in your calendar, or set a timer on your phone to remind you.
Learning about financial concepts can be done for a few minutes a day or week, by reading a book, an article, a blog (like ours!), or my monthly newsletter. Take the time to talk to your spouse, family, and friends about strategies they are implementing.
And finally, you can work with a trusted adviser who will spend time educating you. I have put in thousands of hours learning over the past 22 years because I’m totally interested in making the best financial decisions for myself and my family, and now my clients as well. It’s a huge responsibility, not to be taken lightly.
Even though your spouse is doing a great job, we never know when a role reversal can take place. An illness, death, or divorce, can suddenly put you in the driver’s seat of your finances. So I encourage you to make it a priority to start learning and talking to your spouse. At the very least know where your accounts are, and how to access them. Is there a will or trust for the transfer of those assets?
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Sheilla Vidal is a Retirement Income Certified Professional RICP® and life insurance broker. Sheilla is also a physical therapist, wife, mother of two, and one of the caregivers for her 85-year-old father. She is an avid learner. She writes, speaks, and recognizes that her work in helping clients live with dignity is her God-given mission.
