- This webinar discussed external impacts that affect women’s earnings. Can you talk about them?
There are a number of external impacts that affect what women earn. Among them are college degree and occupational choices and the pay associated with different careers, pay gaps by gender in the labor force, pay negotiation ability, a desire for shorter hours and schedule flexibility in career choices, gender discrimination and bias (if not outright misogyny, which is a strong prejudice against women), and family schedules and care-giving responsibilities (i.e., care for both young children and older parents). Having children is a key factor affecting women’s earnings. There is a documented “motherhood penalty” that occurs when women have children (vs. a “fatherhood bonus” for men). It is difficult to “lean in” at work (which can lead to promotions and increased pay) when you are also raising a family. Something to remember each year on Mother’s Day.
- Research tells us that women are typically more risk averse than men. How can financial educators and practitioners work with women to help them maximize their investments?
Educate and coach. Teach female clients about the historical performance of different asset classes over time (e.g., Ibbotson/Morningstar data) and the potential loss of purchasing power that accompanies cash equivalent assets. Listen to her fears and encourage automated investing and regular deposits at regular time intervals (i.e., dollar-cost averaging), which reduces the emotions associated with investing during volatile markets.
- What are some of the other differences between men and women’s financial behavior?
In addition to everything noted previously, women live longer and earn less than men, on average, so they must stretch a smaller amount of earnings over a longer period of time. They are also more severely impacted financially than men by life events, such as divorce and widowhood and are more likely to have gaps in their employment history.
- Poverty rates are high for older women. How can women protect themselves in their retirement years?
Given all the data about differences in earnings and labor force participation rates, it is not at all surprising that older women are much more likely to live in poverty than older men. The best protection that a woman can have against poverty in old age is strategies that build her financial resilience. This includes an adequate life insurance policy on her husband’s life in case he predeceases her, no or minimal employment history gaps, regular savings in retirement savings plans such as a 401(k) or IRA, and a long-term care plan (e.g., LTC insurance, self-insurance, and/or annuitized income). Working a few years longer than planned (e.g., age 68 vs. age 65) can also have many positive financial effects and stretch out retirement savings longer.
- What are some other financial protections that financial educators and practitioners should discuss with female clients and students?
Below are five key topics to discuss with female clients:
- Household Cash Flow- Be honest about needs, wants, and personal spending patterns and make adjustments to household income and expenses as needed. In other words, avoid living “above your means.”
- Net Worth- With the possible exception of an income tax return, no other document is as enlightening about a household’s current financial status as a net worth statement that lists assets and debts.
- Investment Preferences- Have clients complete one or more investment risk tolerance assessments and then help them develop a personal investment policy statement (IPS) that is based on their income, financial goals, risk tolerance level, and other factors.
- Preparation to Be a Widow and/or Divorcee– Odds are that women will be. To avoid financial fallout, maintain your earning ability, obtain adequate insurance and spousal pension benefits, and familiarize yourself with specifics of family finances and the contents and location of key financial documents.
- A Female “Lens”– Financial topics such as cash flow and life expectancy should be viewed through the “lens” of the financial characteristics and challenges of women. In other words, (and no pun intended because many women love buying shoes), try to “walk in their shoes” and make advice and information relevant and realistic for their lives.