WOMEN & INVESTING
Four Financial Issues You Really Need to Think About as a Woman
Being a woman comes with some stereotypes when it comes to money and investing. Traditionally, women have often been told they're not good with money, not aggressive enough when it comes to investing, and not as financially savvy as the men in their life. As recently as 1974, a woman could be refused credit if she applied in her own name, though her chances were not bad if she could get her husband's signature on her application.
Given that fact, women should probably celebrate the fact that they're now regularly offered credit cards they don't even want, but things are never quite as equal as they seem. There are some financial issues you still need to think about and plan for, as a woman, and they're either not improving much, or improving so slowly you'd barely notice.
The gender pay gap still exists, with Bureau of Labor statistics showing that median earnings for women in 2021 were 83.1% of the median earnings for men. The impact of this, however, goes far beyond day-to-day finances. Earning less over a lifetime affects women's pensions, investments, purchasing power, ability to manage debt, and ability to save for a home.
This doesn't mean these things can't be done, of course. In fact, it seems that single women, for example, are more likely than single men to own their own homes, even citing the gender pay gap as their motivation to save aggressively and get on the property market as soon as possible. The simple fact is that with finance, as with many other things, women have to be prepared to put a little more effort in, in order to level the playing field with men.
For women, it's not a bad idea to keep the gender pay gap in mind not just when considering day-to-day spending and investing, but in deciding how much to put into pensions, long-term investments, and retirement savings. This is particularly important with ever-larger numbers of women, and men, remaining single for life. The romantic souls among us may not agree, but it seems that financial insecurity in later life is in fact the only major drawback of remaining single.
Having children is expensive. And no, on this occasion, we're not referring to the estimated lifetime cost of raising a child, which is around $272,049. We're talking more about the cost of maternity leave, taking career breaks to be a stay-at-home mom, working part-time or flexible hours to accommodate children's needs, and being passed over for promotion because you are seen as less reliable than a man or a child-free woman.
The gender pay gap is complex, but one major reason it persists in the face of equal pay legislation is motherhood. Women's earnings tend to drop substantially after having a child, with some researchers claiming the pay gap is actually a childcare penalty rather than due to outright gender discrimination. Research in the UK found that by the age of 42, mothers who are in full-time work are earning 11% less than full-time working women without children. This in turn impacts pension contributions and other savings and investment decisions.
This is no doubt one of the many reasons that women are increasingly choosing to remain child-free, but if you do decide to have children, long-term finances are, again, one of the things you will need to address. Having even one child may mean not only that you are around $272,000 down on your child-free friends 20 years from now, but also that your retirement savings and other investments are considerably lighter too.
Overall, life expectancy in the US is around 75 years for men and over 80 years for women. The fact that women live longer than men, on average, can have a big impact on women's financial needs and contributes to the fact that many more women than men live on low incomes in old age. On top of a lifetime of lower earnings, and lower rates of investment, living longer may not be the blessing it would seem, especially if healthcare becomes expensive, and long-term care is needed.
Clari Nolet, a senior financial advisor at Team Hewins, advises: "Women should be looking at long-term care insurance, or understand if they can be self-insured, to protect themselves." Young women planning for retirement should factor in a longer life span and potentially many more years of being retired than their male counterparts.
Hands up if you've always believed that divorce is financially ruinous for men. That's certainly the myth we're sold. If I had a $100 bill for every man I've heard complaining about his ex-wife taking all his money, I could probably stop worrying about the gender pay gap, the cost of motherhood, and my longer life span.
Given how strong this myth is, I'll forgive you if you are unaware that statistically divorce tends to make men wealthier and women poorer. One study suggests that men's income will rise by around 25% after divorce while many divorcing women end up in poverty. Again this is not a male/female issue, but more of a mother/father issue.
In an article in The Atlantic, Darlena Cunha refers to this concept as the 'divorce gap', a problem that women face due to the domino effects of the cost of motherhood, combined with the high costs of divorce, that tend to eat up a greater percentage of a woman's income than a man's. And of course, the fact that men have more money for lawyers tends to result in a more favorable settlement for them.
There are a few ways to avoid the impact of divorce as a woman. However, as with all these issues, forewarned is at least a little forearmed. As a woman, being financially literate, understanding your options, and knowing the true costs of being a woman, can be a starting point for protecting yourself from financial difficulties.
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