The Five Biggest Financial Challenges for Women
/By Shelley Murasko
Women have all the traits needed to succeed financially. They’re inquisitive, focused, diligent, connected, and collaborative. Yet a mere fifty years ago, women were not allowed to have credit cards or home mortgages.
Today, they have equal access to most financial instruments. In fact, women controlled one-third of the U.S. personal invested wealth in 2020. By 2030, it’s projected that they will control more than two-thirds.1
Furthermore, women are now the primary breadwinners for 65% of households. They’ve gained ground in almost every profession3 and now hold 52% of management positions. In addition, women are starting businesses at over twice the rate of their male counterparts.2
With all this financial success and progress, women still tend to stand in their own way when it comes to money.
In this article, I’ll cover five financial challenges women face and how to overcome them. While there are exceptions to these generalities, being aware of the challenges is the first step to making a difference in your financial life.
Financial Challenge #1: Throwing Away Your Financial Power
Despite the many strengths women possess, they can lack awareness of their financial situations. In most households, women defer major financial decisions to their male counterparts.1 Most don’t even like to discuss money.
This could stem from the lessons they learn as children. From a young age, many girls are instructed to be “cautious” with money, while boys are taught to be “smart” with money. This approach has led many women to question their ability to manage their finances with confidence.
These days the average household carries $8,590 in credit card debt4 and has saved an average of $182,000 upon retirement between ages 60 to 69.5 Since retirement planning is more do-it-yourself than ever before, there’s a need for everyone to participate.
Taking back your financial power starts with getting educated. Like Ben Franklin once said, “Investment in education is the best investment.”
Getting started is easy. You’ll find numerous courses online that you can take for free. Here are five worthwhile ones to consider:
· edX’s Finance for Everyone: Smart Tools for Decision-Making
· edX’s How to Save Money: Making Smart Financial Decisions
· Brigham Young University’s personal finance courses
· Udemy’s Personal Finance 101: Everything You Need to Know
· Purdue University’s Planning for a Secure Retirement
Your local library or online bookstore is also a great place to expand your financial knowledge. Check out these personal finance books:
· The Investment Answer by Daniel C. Goldie and Gordon S. Murray
· The Elements of Investing by Burton Malkiel and Charles D. Ellis
· Wall Street Journal. Complete Personal Finance Guidebook by Jeff D. Opdyke
· Smart Women Finish Rich by David Bach
As women become educated about their finances, they’re more likely to take a seat at the financial table.
Financial Challenge #2: Overcomplicating Retirement
Whether it’s a lack of knowledge or a need for perfection, women tend to avoid retirement planning.
The first step is understanding how much you’ve saved and how much you’ll need to retire. To get a quick estimation, you can use a helpful tool like the T. Rowe Price® Retirement Income Calculator.
Another approach is outlined in Pete Adeney’s article, "The Shockingly Simple Math Behind Early Retirement," on mrmoneymustache.com. He suggests following these steps:
1. Calculate your annual spending needs in retirement, including taxes in today’s dollars.
2. Subtract your expected retirement income from #1 Annual Spending Needs, such as social security income or a pension.
3. Take #2 x 25, or “30” if you’re more conservative with your investments, to calculate the total retirement savings needed.
This simple 1-2-3 approach uses the 4% safe withdrawal rate published in 1996 by the Trinity University finance team — arguably the best study ever done on how to draw money from investments in retirement.
Financial Challenge #3: Overcomplicating Investing
Vanguard’s founder John Bogle famously said, “Investing is simple, yet not easy.” Use the four key elements below as a guide, and you’ll be off to a good start with your investing.
1. Allocate assets: Divide your money between stocks, bonds, and cash to minimize losses if one or more of your assets performs poorly.
2. Invest wisely: Choose high-quality mutual funds to increase your odds of getting good returns.
3. Keep costs low: Ensure fund and advisory fees are under 1% so you have more cash to invest.
4. Be open to change: Systematically make updates to your portfolio over time to optimize your investments.
Notice what’s not on the list? Market timing. Bitcoin. Picking individual stocks.
While these topics are often found in money forums, they turn sensible investors into speculators. Some stock picking might not damage your financial health, but your serious money should be diversified. Sensible investing is not only about realizing a strong investment return but also doing this as reliably as possible.
The books mentioned earlier serve as a useful guide for balancing stocks and bonds. Still not sure where to begin? Consider a target date fund that will automatically allocate your money based on your retirement date.
As far as investment quality and fee management go, use data from investment research firm Morningstar to find top-quality mutual funds. Look for those that carry the analyst rating of Gold or Silver, with fees under 0.5%, to know that you’re in the top 10% of funds in any investment category.
Then remain patient and disciplined. These are two attributes that lead women to become better investors than men. Fidelity offered up this evidence: Over a 10-year period, its female customers earned an average of average 0.4% more annually than their male counterparts.
That may not seem like a lot, but over a few decades it can add up to tens of thousands of dollars or more.6 The reason: women buy and sell funds 50% less often than men.
Financial Challenge #4: Allowing “Thieves” to Steal from You
When you employ poor spending habits, you willingly allow others to steal your hard-earned money. The biggest thief of all is spending without purpose. According to the famous Swedish proverb, “She who buys what she does not need steals from herself.”
Carrying a credit card balance is an act of financial foolishness, though most Americans do it. Many households avoid the idea of a budget like the plague. Rather than paying themselves and building wealth, they buy products and services they don’t need and pay interest to others to do it.
Unless you have an employer pension, you should save at least 10% each year for your retirement. If you’re not able to do this, you shouldn’t be buying new cars, purchasing second homes, or paying for your child’s college education. Saving is how everyday Americans get rich.
Embrace using a spending tracker. For some, pencil and paper and an hour each month is all they need. For others, an online service like mint.com or YNAB is a useful tool.
Another thief we allow to steal from us is taxes. While everyone needs to pay their legal obligation each year, taking advantage of available tax-saving strategies is just smart financial planning.
Along with this, it can be worthwhile to work with a tax professional to ensure you’re filling out forms correctly and not overpaying on your taxes. You may even want to set up an annual tax planning meeting with your CPA to confirm that you’re using all the tax shelters and deductions for which you’re eligible. Another option is to take a tax course yourself to make sure you’re avoiding overpayment.
Financial Challenge #5: Planning for Longevity
People are living longer than those from past generations. While yesterday’s 60-year-old was often resigned to a rocking chair and brittle bones, today’s retirees are riding Harleys and taking up pickleball.
It’s especially important for women to ensure their money lasts well into retirement. That’s because they tend to outlive men by an average of five years.1 For a couple that retires at age 65, the averages show that at least one person will survive to age 93.7 Odds are that it will likely be the woman since four out of five centenarians are female.8
Since women tend to live longer, it’s wise to take these key considerations into account:
· Do I have the assets and income to live to 100, including lifelong guaranteed income streams that cover all core expenses?
· Have I mapped out what happens when I can no longer live on my own? Have I shared that with my family?
· Have I reviewed potential nursing care costs and created a budget to pay for these expenses?
o The average nursing home stay is 2.5 years; that extends to 10 years for Alzheimer’s patients.9
o The annual living expenses for retirement center living is $70,000 to $120,000 per person.9
Women have made great strides with money. Soon they’ll own the majority of U.S household wealth. Learning about subjects like saving, investing, and retirement planning will lead women to even higher levels of financial success and security.
They’ll have greater influence within society as they seek ways to use their money with more purpose — whether it be for charitable donations, political contributions, or business investments. Once women have embraced their seat at the financial table, they’ll lead their families and society toward better financial outcomes.
Sources
1. Pooneh, Baghai. (June 29, 2020). “Women as the next wave of growth in US wealth management.” McKinsey & Company. Retrieved online here.
2. Davis, Krystle M. (May 13, 2019). “20 Facts and Figures To Know When Marketing To Women.” Forbes. Retrieved online here.
3. Glynn, Sarah Jane. (March 29, 2021). “Breadwinning Mothers Are Critical to Families’ Economic Security.” The Center for American Progress. Retrieved online here.
4. Comoreanu, Alina. (June 8, 2022). “Credit Card Debt Study.” Wallet Hub. Retrieved online here.
5. Parker, Tim. (Dec. 3, 2021). “What’s the Average 401(k) Balance by Age?” Investopedia. Retrieved online here.
6. Lieber, Ron. (Oct. 29, 2021). “Women May Be Better Investors Than Men. Let Me Mansplain Why.” New York Times. Retrieved online here.
7. Fidelity Investments. (Sep. 28, 2021.) “Social Security tips for couples: See 3 ways that may help married couples boost their lifetime benefits.” Fidelity.com. Retrieved online here.
8. Women You Should Know. (April 14, 2014). “4 in 5 Centenarians Are Women.” Women You Should Know. Retrieved online here.
9. Deseret Mutual Benefit Administrators. (2022). Long Term Care Calculator. Deseret Mutual Benefit Administrators. Retrieved online here.
