Women and Money: How You Can Close the Financial Gender Gap

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What women want out of money and finances
In my career as a financial advisor, I have spoken with thousands of men and women about their finances. After a while, I saw patterns emerge in the differences between the sexes with regards to money -- how they viewed money, how they managed money, and how they wanted to learn about money.

I thought I might be making too many generalizations based on my experiences, but then I came across a recent study on the gender gap in financial literacy that supports my findings.

Widening Gender Gap in Financial Literacy

According to a recent study from Financial Finesse, a company that provides workplace financial wellness services, women are falling behind men in several areas of financial planning. This gap is noticeably growing with regards to paying off debt, arming an emergency fund with a few months' living expenses, and having basic stock, bond, and mutual fund knowledge.

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On a positive note, the study found little to no gender gap with respect to longer-term planning. Women participate in workplace retirement plans about as much as men, and also report roughly equal engagement with long-term estate planning.

It's the nitty-gritty of financial management where women are coming up short. To better understand why, here's what I discovered that women want in terms of their personal finances.

• Women want peace of mind: For women, financial peace of mind is the ultimate personal finance goal. Women want a secure and sound financial future for themselves and their families, and they view their investments as a way to support and protect their loved ones. Surveys -- and my personal experiences as a financial advisor -- show men are typically more interested in wealth accumulation.

• Women want time to research their options: Women are deliberate decision-makers and take their time doing research. Women prefer gathering information from a vast group of experts before taking action and initiating a plan. Women also prefer thinking through and planning for "devil's advocate" and "what if" scenarios to help protect them against the unexpected.

• Women want an ally, not a bossy know-it-all: Education, collaboration, and patience are critically important to women. If a woman feels condescended to or the environment does not foster question-asking, then she'll disengage from the dialogue. A woman needs to feel the financial educator is an empowering ally, not a rival. Whereas men typically want the facts and information to make investing decisions on their own, women prefer a collaborative, nurturing environment.

Get More Engaged with Your Finances

The good news is women are seeking financial information and education at rapid rates -- roughly twice the rate of men, according to Financial Finesse's findings. That's a trend worth continuing, particularly in light of the unique financial challenges women face. (See "The $849,000 Penalty for Being Born Female" for more on that.)

Here's how you can take matters into your own hands.

  • Educate yourself. Look for an investing class at a local community center or college. Many of them are free or very low cost. Join an investment club. Ask your daughter, sister, mother, or friend to attend with you. Have fun with it.
  • Make the most of the savings tools available to you at your workplace or if you are self-employed.
  • If your spouse or partner handles the money, call a family finance meeting. Ask that individual to teach you what s/he does. Find out how the budget looks, bills are paid, household cash is managed, and investments are monitored. After you understand, take your turn. You don't have to do it forever, but you should know how. You may even enjoy it and improve your family's finances.
  • If you choose to get professional financial help, interview prospective financial advisors. If the advisor won't take the time to listen, get to know your needs, and explain concepts to you clearly and simply, then feel free to walk out and don't look back. Find an advisor who speaks your language at your pace.
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The $849,000 Penalty for Being Born Female
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Women and Money: How You Can Close the Financial Gender Gap

Women live longer than men by an average of five years. If one needs $3,500 per month (in today's dollars, no less) to cover costs, then that means a woman will need an average of more than $200,000 in extra retirement savings compared to a man purely due to statistical longevity.

Women take more time out of the workforce to raise children, care for sick or elderly parents, and tend to other family matters. Immediately, this results in lost income and depleted savings. For a hypothetical job with a $40,000 annual salary, just two years out of work means she's already $80,000 (minus taxes) in the hole versus her male counterpart. And less time in the workforce leaves women fewer dollars for Social Security, pensions, and other retirement income.

The gender bias also exists in health insurance, where women typically pay 30% more than men in premiums. According to a report cited in The New York Times, "more than 90% of the best-selling health insurance plans charge women more than men." For example, a $300-per-month premium policy for a woman might cost a man $210 per month (30% less). This difference adds up to roughly $44,000 over a lifetime spanning from post-college age to the time one is eligible for Medicare.

Women often get paid less for the same work. In some cases, women get paid 66 cents for every dollar their male counterparts make; for some occupations, this figure is closer to 77 cents per dollar. At best, women receive equal pay for equal work. But a 23% wage penalty due to one's gender -- approximately $10,000 per year over a working life (again assuming a $40,000 annual salary) -- translates into $400,000 over the course of a 40-year career. And those lost dollars could be the difference between being able to save enough for retirement or not.

A woman has a 1-in-2 chance that at some point in her life, she'll need long-term care -- meaning a period of at least 90 days when she requires assistance with activities like dressing, eating and bathing. Those odds are greater than her male counterpart's. And a woman typically spends twice as many years needing long-term care as a man, statistically three years longer. At a national average rate of $3,477 per month for assisted-living long-term care, this equals roughly $125,000.

As if these staggering added costs weren't enough, due to divorce or death of a spouse or partner, 90% of women who at one time had a second household income to help them get by will be left to handle the entire burden on their own later in life.

All of these reasons make it absolutely critical for women to understand money, investing, and personal finance in order to take control of their financial lives.

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