Despite advances in gender equality in the work force and in education, the gender gap in financial literacy and planning remains.
Women lag men in saving, investing and retirement planning.
Nearly one-third of women, surveyed last year by Transamerica Center for Retirement Studies, did not start saving for retirement until age 40 or later. And while 34 percent said their retirement savings are invested in a relatively equal mix of stocks and bonds, an additional 31 percent were not aware of how their savings are invested.
“There is, indeed, a gender gap,” said Catherine Collinson, president of Transamerica Center for Retirement Studies. “Men seem to be in better shape for retirement, but they have room for improvement as well. It’s not a matter of perfect versus imperfect — it’s a matter of degrees of readiness.”
Lois Carlock, education and event manager for Ent Federal Credit Union, said that women tend to save less for retirement.
“In many households, women handle the finances,” Carlock said, “but they leave the investing decisions to their husbands.”
The survey reveals “a significant disconnect between single women’s dreams of retirement versus their actions and behaviors when saving and planning for future retirement.”
“When women feel comfortable and trust a financial adviser, they are more eager than their male counterparts to get financial data,” said Liz Davidson, CEO of Manhattan Beach-based Financial Finesse Inc. “And when the financial education level is equal, women typically outperform men because they tend to be disciplined — they buy and hold when they invest. Women are willing to learn and have natural characteristics that make us good investors.”
The disconnect lies in how and what they’re taught.
“Somewhere along the line,” she said, “the way information is being conveyed is not resonating with women.”
Traditionally, financial planning has been communicated in a “dry way,” when it should be presented as the means to help women design the life they want for themselves and their families.
“When financial planning is packaged the right way,” Davidson said, “Women are hungry for the information.”
Men want to know what the stock market will do next week, she said, whereas women tend to look at the big picture and how it affects their lives and whether they’ll have enough for retirement or to send their children to college.
The consequence is that women are less prepared, not taking the actions they need to, and are less financially confident — problems which are interconnected.
The good news is that women don’t need to reach the level of expertise of a financial planner or a day trader, or watch CNBC every day or spend a lot of money to improve their literacy.
Many employers offer workshops or access to free employee assistance providers.
“Women need to take charge, direct the conversation and state their goals,” Davidson said. “You are responsible for your future. It’s similar to dieting. If you’re serious about getting healthy, you take the doughnuts out of the fridge and replace them with healthy foods. It’s the same thing with finances — set up the environment to help yourself.”
Practical suggestions for dumping the pastries and stocking up on fruits and veggies include paying yourself first — as in, “be one of your own bills” — by setting aside 5 percent to 10 percent of your income via a direct deposit at work into savings or an Individual Retirement Account.
“You would never turn down a raise, so don’t turn down free money — at least meet your employer’s 401(k) match,” Davidson said.
And increase the amount each year. Ten percent is a good rule of thumb, she said.
Once women are financially literate, they make immediate behavioral changes.
During interactive workshops, in which participants create their own financial plan, the areas in which Davidson sees the most progress are those that require sacrifice, discipline and commitment, such as paying down debt, establishing an emergency fund and cutting expenses.
Although the reality of needing to save $1 million is “daunting — it’s not impossible if you start early and save over time,” said Collinson.
The key is to calculate how much you will need for retirement.
“You would not chart a course without a destination — it’s like driving and not knowing where you intend to go,” Collinson said. “But the calculation itself is a starting point — it brings clarity and then things start to change.”
But even hiring a professional doesn’t remove personal responsibility.
“We’re in a do-it-yourself retirement society. Women need to take ownership and learn how to plan and save for retirement,” Collinson said. “It’s highly unlikely anyone else will do it for you.”
Women also need to know what their portfolios are invested in and whether those allocations match their comfort level and financial needs.
There is no easy rule of thumb for asset allocations, she said. It depends on years to retirement, risk tolerance, outside savings, liquidity needs, emergency needs, living expenses, health care needs and debt.
When shopping for a financial adviser, Collinson recommends that women “get to know an adviser who wants to know you.”
It’s similar to choosing the right doctor. A doctor who takes your temperature and blood pressure and “sends you on your way” without asking about symptoms is not concerned about your medical health. Likewise, a financial adviser needs to know about your financial health — your plans, goals and needs, before she can help you save for retirement.
“And don’t be shy or hesitant to ask about the fees for your investments,” Collinson said. “Ask what they are getting paid and what their fee structure is. A reputable adviser should be very comfortable in responding to those questions.”
When women are married or in long-term relationships, two people need to be making financial decisions jointly.
But it’s a subject some people are ill-prepared and hesitant to talk about.
“Couples struggle with how to discuss finances,” said Liz Johnson, private client manager for Charles Schwab in Denver. “Money is an emotionally charged subject.”
And often couples have opposite ideas or instincts about how to save or invest.
One couple, for instance, is a study in dichotomy.
If the financial decisions were all up to her, she would put the money under the mattress. He wants to put it all in commodities and the stock market.
But somewhere in between panic and risking-it-all is the best financial plan — and it can be negotiated.
Couples should interview each other and ask questions such as, “What’s the best thing that ever happened to you with money?” And, “What are your biggest fears?”
“Couples need to discover each other’s emotional landmines and get background, context and understanding about why they make the money decisions they do,” Johnson said.
Money trouble, Carlock said, is the No. 1 cause of divorce.
“Financial counseling should be mandatory before marriage,” she said.
During financial literacy classes at Ent, Carlock said she has learned that when a spouse attends a class alone, it’s because the spouse is “not on the same page with finances — they can’t control their spouse’s spending.”
If couples talk about their dreams, fears and goals, then it’s easier to find the common ground in order to create a financial plan that works for both halves of the couple.