Women & Money

Financial articles addressing the needs and concerns of women

Women’s Unique Financial Challenges

iStock_000007492305Small

Many aspects of financial matters are unique for women; therefore, the implementation of their financial plans should take their special needs into consideration. Doing so will help them better prepare for the documented financial inequities between women and men.

If you were to guess which issue women worry about most, would you guess family, health, time, stress, or maybe equal rights? According to a March 2000 gallop poll, the answer is their finances. This response may surprise you now, but consider the following list of financial issues unique to women.      

Consider these results from a women-and-money incubator, and research by William L. Anthes and Bruce W. Most:

  • “Women are more intimidated than men about financial issues
  • Women earn less money than men
  • Women are less prepared for retirement
  • Women receive smaller retirement benefits
  • Women live longer than men
  • Women are poorer in retirement than men
  • Women are more conservative investors than men”

We would also add:

  • Special difficulties for single mothers
  • Women caring for elderly parents
  • High-deductible health insurance plans cost women more
  • Women may defer to men regarding financial decisions
  • More women manage daily family finances
  • Retirement issues because of divorce agreements
  • Male-dominated financial services industry

Earnings Differences: It is a well-documented fact that women earn less than men do. A study by the American Association of University Women Educational Foundation (as reported by Ellen Simon of The Associated Press) found that:

  • “Women make only 80 percent of the salaries their male peers do one year after college…10 years after college, women earn only 69 percent of what men earn…Even after controlling for hours, occupation, parenthood, and other factors known to affect earnings, the study found that one-quarter of the pay gap remains unexplained. The group said that (a) portion of the gap is ‘likely due to sex discrimination’…Catherine Hill, the organization’s director of research, said: ‘Part of the wage difference is a result of people’s choices, another part is employer’s assumptions of what people’s choices will be…Employers assume that young women are going to leave the work force when they have children, and, therefore, don’t promote them.’ …The organization found that women’s scholastic performance was not reflected in their compensation. Women have slightly higher grade point averages than men in every major, including science and math. But women who attend highly selective colleges earn the same as men who attend minimally selective colleges, according to the study.”
  • Anthes and Most wrote that “According to the U.S. Department of Labor, women working full-time, year-round, earn roughly 74 percent of what men earn… (and) workers in the age category of 45–54—the prime earning years for most people—women earned $516 a week while men earned $732.” It gets even worse for single mothers with young children whose “median income in 1998…was $14,248. This figure is the lowest among all family types, representing roughly one-fourth the median income of married-couples with children…and approximately three-fifths that of females with no children.”

Retirement Differences: Women are often less prepared for retirement than men. Anthes and Most also noted that “a Study by the National Center for Women and Retirement Research at Southampton College of Long Island University found that 58 percent of baby boomer women had saved less than $10,000 in a pension or 401(k) plan, while baby boomer men had saved three times that. A Scudder Kemper Investment, Inc. survey of households with incomes of at least $30,000 found that 43 percent of the men had more than $100,000 in their 401(k) plans, while only 27 percent of the women had that much.”

Investment Differences: Also, “the 1997 study by Dryfus and the National Center for Women and Retirement Research showed that women investors were more worried than men about running out of money in old age, preferred more conservative investments, wanted fixed/steady returns, were more unnerved by stock fluctuations and worried more about investment decisions… As these statistics underscore, the financial barriers and challenges faced by women are real and formidable. As one incubator participant put it, “Women are frozen in the headlights, caught in the dilemma of, ‘I know I should be doing something, but I don’t know what to do.’”

Social Security Retirement Differences: Of course, less money earned by women means less money saved for retirement or contributed to Social Security benefits, and because women live 79 years on average while men live 72, women retirees are poorer in retirement than men. Anthes and Most note that according to the Administration on Aging “…half the elderly widows now living in poverty were not living in poverty before their husbands died. The picture is even worse for older women in many minority groups.”

Retirement Summary  Because of these inequities, women have less money going into their retirement accounts (if they have one) over time, than men. In addition, the fact that women live longer than men means that they need more money in their retirement than men do.

Decision Making. The next generation of retirees may have been raised in an environment in which men handled the money decisions. More women actually pay the weekly bills, but they may have little knowledge of the larger family finances such as retirement plans, Social Security, IRAs, insurance, annuities, etc., because they may have deferred to their spouse’s decisions.

It is essential for women to understand the ‘big picture’ of their finances, especially for retirement, divorce, or death of their spouses. Because women make less than men, are less prepared for retirement, and receive smaller retirement benefits, they need to make sure that their husband’s retirement benefits will pass to them if their husband dies first. Because women may be more intimidated about asking questions of their attorney or financial advisor, they may miss crucial details (such as single-life annuity, which may bring higher levels during the husband’s life but that ends when the husband dies first), or incorrect beneficiaries on life insurance policies.

Divorce. During a divorce, women may be more concerned about custody issues and keeping the house than their future retirement and may agree to forgo the 401(k). Single parenting brings a whole host of financial challenges, including lost wages from parenting responsibilities and childcare and babysitters. If the extra expenses and possibly lower-income are not included in the divorce settlement, the single mother may find that she is unable to keep the house, and she loses the two most valuable assets: the house and the 401(k).

Health Insurance. Women not only make less money than men, their health plan may cost more (as reported by Mike Stobbe from the Associated Press). When an employer changes to a high-deductible plan, it costs on average $1000/year more for women than for men. “Women’s costs are higher because they need mammograms, the cervical-cancer vaccine, Pap tests and pregnancy related services”, said (Dr. Steffie) Wollhandler, the Harvard Medical School study’s lead author. This is unfair, but while the inequity exists, women must make an extra effort to contribute the difference to a Health Savings Account or savings program to avoid using credit to pay for the added medical bills. We have personally experienced the $4,000 deductible per year health insurance plan and, although it is better than no insurance, it can certainly make a dent in the family budget.

Care Giving. Another huge drain on women’s finances is caring for their aging parents. More women care for aging parents than men. However distasteful it may be to condense a daughter’s love for her parents into a discussion of money, this issue must be addressed so that women can prepare. Because of the aging baby-boomer population, these numbers will soon become staggering. If you add caring for young children into the mix at the same time, the financial results can be devastating.

What Should Women Do? Because of the special issues facing women, it is crucial that women educate themselves about finances and the realities of financial gender inequity and that they plan for their future. The male-dominated financial services industry is just beginning to realize the unique financial planning issues for women. Make sure that your trusted advisors understand these issues and are helping you plan accordingly. Don’t be afraid to ask your advisors questions, and obtain a financial plan from an advisor or online at eFinPLAN. Your financial plan will give you a complete picture of your current and expected future financial condition. You may also use our ‘what-if’ scenarios at any time to see how any change would affect your overall plan.

Part 5: Is Suze Orman Right: Can you do your own financial planning?

Suze Orman says: Do Your Own Financial Planning! “I think it’s imperative for you to do as much of the work as possible, rather than turning control over to someone else: your finances.” Ms. Orman and I agree on this. Is this really true, and what does this mean?

I think the biggest thing Suze Orman can be accredited with is her encouraging and empowering people, especially women, to take responsibility for their personal finances. Her advice and message isn’t particularly sophisticated; she doesn’t get into a lot of the minute financial details. But her positive motivation with basic financial wisdom helps people to become more engaged and make better decisions.

Suze definitely believes people can and must take control of their overall personal financial situation in the broad sense, and that includes knowing and making good decisions with its various parts, from insurance to 401(k), and from budgeting to debt elimination. We, she, and other financial personalities recommend this. However, in the professional context, can people be their own financial planners? My answer is, of course. Everyone is intelligent enough and capable of learning and doing their own planning.

What is a professional financial plan? I defined financial planning in a prior article, but to summarize, a financial plan is a written personal road map to financial goals. It covers virtually all areas of one’s finances. It is both an organized snapshot of where one is, and a plan to where one wants to be. A financial plan will cover virtually all areas, such as retirement, college education planning, investing, and more than 50 other areas.

Until recently, people could only obtain comprehensive financial plans from professionals. They either pay a fee or agree to be presented with a financial product that would pay the planner a commission. But now, companies like eFinPLAN can offer online financial planning, for a very low-cost, and with no product bias.

DIY: The advantages of do-it-yourself financial planning

  • Engages you in the process, which gives you a great sense of responsibility and the confidence of being ‘in-the-know’.
  • Forces you to organize your financial records and affairs.
  • Helps you become financially smart because you will learn much during the planning process as you see how various parts of the plan and your results are connected.
  • Gives you a better understanding of how to use trusted advisers so you can relate to them at a higher level.
  • Helps remove the intimidation factor of working with financial professionals and helps you detect when they may not be working in your best interests.

Implementation of a financial plan is the most important part of financial planning. This begins after you have input all of your financial information into the financial planning software application, and it produces a complete and personal planning report for you. You then use the report to help guide you in implementing the its steps, such as in the areas of insurance or retirement planning. You have a whole host of ways to go about acquiring products for your plan, including many options from online financial, tax and legal firms. You may choose to use local advisers or online ones, and they may try to provide second opinions. This can be helpful; so be open to this. However, by doing your own online financial plan, and acquiring all of the learning, education and engagement, you are much better equipped to process and judge what is presented to you.

In summary: Suze Orman is right, you can and should take control of your finances, and put yourself into the driver’s seat of your financial planning. You are smart, intelligent, and capable, and with the number of excellent web-based firms today, you can do a lot of it yourself, saving you time and money in the process.

This is the 5th and last article in a series about financial planning:

12 Great Financial Tips for Stay-at-Home Moms

Stay-at-home moms face a myriad of challenges; not the least of them is managing family finances on only one income. This is just a short list of issues. Self education regarding family finances is crucial for homemakers because of reduced income, lack of retirement accounts, increased need for self-discipline (possibly more time to shop), and the fact that if the finances become an issue, homemakers may have to return to work. We wish you the best and hope that these tips are helpful.    By Laura D. Irwin

  1. Accountability – You must plan finances together with your spouse. This way, no one gets to play the ‘blame game’ when things go wrong. When both spouses work on finances on a weekly basis, overspending by either spouse will become apparent. You will also get the chance to congratulate each other on your successes. You are in this together. We all know that money is a huge cause for stress in relationships, and working together will help prevent years of financial stress. This may also help you both learn self-discipline and how to live on less. Remember the commercial where the guy owns everything and he says, “How did I do it? I am in debt up to my eyeballs!” Accountability helps you not be that guy
  2. Keep depositing money in your IRA – Even though you may not be earning an income. Women are poorer in retirement than men are because they earn less, live longer (79 compared to 72), take time out for child rearing without contributing to retirement accounts, and receive less in Social Security benefits because of the time-out for child rearing and lower earnings. This is statistically even more important for women in minority groups.
  3. Budgeting, Debt Reduction and Saving – Proper budgeting and debt reduction will help you meet your goals of being able to live on one income. Some women are naturals at budgeting, but if you are not one of them, a budget is simply a spending plan that helps you keep track of regular monthly expenses and savings for planned purchases and the future. If you have never created a budget, you may consider using software, an Excel spreadsheet, or simply paper and pencil. You will be spending a lot of time with it, so use whatever makes you comfortable. Put your debt reduction plan into your budget.
  4. Fifty Dollar Limit – Or any amount you both decide on together. This tip has saved us many unnecessary purchases because spouses must communicate about a purchase before spending over the limit. (This does not apply to the weekly bills like grocery or utilities.) At times, this rule may seem too restrictive, but we have found it to be a huge budget saver. It also helps to get a second opinion. Recently, I called my husband from the check out line about purchasing an item, and I was reminded that we already own one!
  5. Understand marital financial mindsets – What happens when opposites attract? They get married, then begin to fight about money! Consider the following ways people view their finances: There are optimists, pessimists, spenders, savers, planners, procrastinators, and any combination of these. Perhaps his parents were well off financially and she was raised in poverty. On the other hand, perhaps her parents taught her sound financial principles and his parents kept their finances a secret, or worse, he has copied their example of bad financial habits. Open and honest communication about both of your mindsets may help you work through any pre-conceived views or bad financial habits. Remember that this must be done without finger-pointing and with the goal of financial harmony. Perhaps reading a good book together about marriage and money would be helpful.
  6. Houses and Cars – These are the biggest expenses for most marriage partners. Ideally, if you can plan to have your mortgage paid off before your first child goes to college, you will feel less stressed about paying tuition. Another great way to save money is to buy great low-maintenance cars and drive them for a long time. There is no freedom like driving a car that is ‘paid for’. Many experts recommend that you put the amount of your payment into savings after you have paid the car off to save for the next one. From personal experience, we also recommend planning for what kind of car you will need several years from now. In other words, do not buy a two-seater if you plan on having children in two years. Also, do not sell the minivan after middle school because the kids are not in sports anymore. You may need it to haul your child’s belongings to college.
  7. Get Organized – Buy a file cabinet for financial and other important papers. This central location will allow you both to understand where anything important belongs. You can avoid many financial mistakes by keeping papers and bills well-organized.
  8. Understand your Health Insurance – Health insurance costs have risen for everyone. If you have employer-provided health insurance, take the extra time to understand your coverage, especially during enrollment time. Understanding your coverage may help you save a lot of money. Figure out which policy is best for your family. For instance, if you have a high monthly prescription expense you may research which plan pays the most for prescriptions. If your medical and/or dental expenses are very high, you may be able to deduct them (7.5) of your adjusted gross income.
  9. Set long and short-term goals together – Creating goals together is a wonderful marital exercise. You will learn what each partner finds most important both now and in the future.
  10. Determine areas of overspending – Each month as you both check your budgeting progress, watch for recurring overspending in any categories. You will probably find one or two areas that go over each month. If you are within your overall budget, you may want to raise your budget amount in those areas or find ways to lower your spending. Many busy families find that eating out regularly exceeds their budgeted amount. This one requires extra self-discipline to plan ahead and create freezer meals that you can fix in a matter of minutes. Tired moms will hate this suggestion at first, but it really can save hundreds of dollars.
  11. Do not let grocery shopping be a budget buster – A penny saved really is a penny earned when it comes to grocery shopping. For decades, women have come up with creative ways to save on groceries. I remember my mother-in-law saying that any money she saved from groceries went toward birthday and Christmas gifts. Somehow, through hard work she was able to feed three growing boys and still have money left over! My family preserved produce from a large garden and from local fruit growers. Others use coupons, shop for sales at multiple stores, or plan meals around sale items. All of these ways are wonderful – do whatever works for you. I recently read a huge stack of books from the library about saving money and discovered one recurring theme about grocery shopping. Most books recommended keeping a book of regular prices for each item you usually purchase. That way you can see if it is really a great sale price, or if they simply put it in the grocery flyer at the regular price. If that sounds like a lot of work to you, visit The Grocery Game. After entering your zip code and your local grocery store, you will be able to access a computerized list of best deals at your store that week. The first three weeks of doing this amounted to $200 in savings and help to start a nice stockpile of groceries in the pantry.
  12. Judge the long-term benefit of purchases. Our children are grown, so we have had a chance to learn from our mistakes and wish we had done some things differently. One of our regrets is overspending on toys, and watching the toys be neglected, eventually ending up in a garage sale. Another example of this is purchasing children’s furniture, which will have to be replaced as the child grows. An inexpensive bed rail can make an adult-sized bed usable from toddler age to adulthood.

Women’s Unique Financial Challenges

If you were to guess which issue women worry about most, would you guess family, health, time, stress, or maybe equal rights? According to a March 2000 gallop poll, the answer is their finances. This response may surprise you now, but consider the following list of financial issues unique to women. Consider these results from a women-and-money incubator, and research by William L. Anthes and Bruce W. Most:

  • Women are more intimidated than men about financial issues
  • Women earn less money than men
  • Women are less prepared for retirement
  • Women receive smaller retirement benefits
  • Women live longer than men
  • Women are poorer in retirement than men
  • Women are more conservative investors than men

We would also add

  • Special difficulties for single mothers
  • Women caring for elderly parents
  • High-deductible health insurance plans cost women more
  • Women may defer to men regarding financial decisions
  • More women manage daily family finances
  • Retirement issues because of divorce agreements
  • Male-dominated financial services industry

Earnings Differences It is a well-documented fact that women earn less than men do. A study by the American Association of University Women Educational Foundation (as reported by Ellen Simon of The Associated Press) found that: “Women make only 80 percent of the salaries their male peers do one year after college…10 years after college, women earn only 69 percent of what men earn…Even after controlling for hours, occupation, parenthood, and other factors known to affect earnings, the study found that one-quarter of the pay gap remains unexplained. The group said that (a) portion of the gap is ‘likely due to sex discrimination’…Catherine Hill, the organization’s director of research, said: ‘Part of the wage difference is a result of people’s choices, another part is employer’s assumptions of what people’s choices will be…Employers assume that young women are going to leave the work force when they have children, and, therefore, don’t promote them.’ …The organization found that women’s scholastic performance was not reflected in their compensation. Women have slightly higher grade point averages than men in every major, including science and math. But women who attend highly selective colleges earn the same as men who attend minimally selective colleges, according to the study.” Anthes and Most wrote that “According to the U.S. Department of Labor, women working full-time, year-round, earn roughly 74 percent of what men earn… (and) workers in the age category of 45–54—the prime earning years for most people—women earned $516 a week while men earned $732.” It gets even worse for single mothers with young children whose “median income in 1998…was $14,248. This figure is the lowest among all family types, representing roughly one-fourth the median income of married-couples with children…and approximately three-fifths that of females with no children. Retirement Differences Women are often less prepared for retirement than men. Anthes and Most also noted that “a Study by the National Center for Women and Retirement Research at Southampton College of Long Island University found that 58 percent of baby boomer women had saved less than $10,000 in a pension or 401(k) plan, while baby boomer men had saved three times that. A Scudder Kemper Investment, Inc. survey of households with incomes of at least $30,000 found that 43 percent of the men had more than $100,000 in their 401(k) plans, while only 27 percent of the women had that much. Investment Differences Also, “the 1997 study by Dryfus and the National Center for Women and Retirement Research showed that women investors were more worried than men about running out of money in old age, preferred more conservative investments, wanted fixed/steady returns, were more unnerved by stock fluctuations and worried more about investment decisions… As these statistics underscore, the financial barriers and challenges faced by women are real and formidable. As one incubator participant put it, “Women are frozen in the headlights, caught in the dilemma of, ‘I know I should be doing something, but I don’t know what to do.’” Social Security Retirement Differences Of course, less money earned by women, means less money saved for retirement or contributed to Social Security benefits, and because women live 79 years on average while men live 72, women retirees are poorer in retirement than men. Anthes and Most note that according to the Administration on Aging “…half the elderly widows now living in poverty were not living in poverty before their husbands died. The picture is even worse for older women in many minority groups”. Retirement Summary Because of these inequities, women have less money going into their retirement accounts (if they have one) over time, than men. In addition, the fact that women live longer than men means that they need more money in their retirement than men do. Decision Making The next generation of retirees may have been raised in an environment in which men handled the money decisions. More women actually pay the weekly bills, but they may have little knowledge of the larger family finances such as retirement plans, Social Security, IRAs, insurance, annuities, etc. because they may have deferred to their spouse’s decisions. It is essential for women to understand the ‘big picture’ of their finances, especially for retirement, divorce, or death of their spouse. Because women make less than men, are less prepared for retirement, and receive smaller retirement benefits, they need to make sure that their husband’s retirement benefits will pass to them if their husband dies first. Because women may be more intimidated about asking questions of their attorney or financial advisor, they may miss crucial details (such as single-life annuity which may bring higher levels during the husband’s life but that ends when the husband dies first), or incorrect beneficiaries on life insurance policies. Divorce During a divorce, women may be more concerned about custody issues and keeping the house than their future retirement and may agree to forgo the 401(k). Single parenting brings a whole host of financial challenges, including lost wages from parenting responsibilities and childcare and babysitters. If the extra expenses and possibly lower-income are not included in the divorce settlement, the single mother may find that she is unable to keep the house and she loses the two most valuable assets: the house and the 401(k). Health Insurance Women not only make less money than men, their health plan may cost more (as reported by Mike Stobbe from the Associated Press). When an employer changes to a high-deductible plan, it costs on average $1000/year more for women than for men. “Women’s costs are higher because they need mammograms, the cervical-cancer vaccine, Pap tests and pregnancy related services”, said (Dr. Steffie) Wollhandler, the Harvard Medical School study’s lead author. This is unfair, but while the inequity exists, women must make an extra effort to contribute the difference to a Health Savings Account or savings program to avoid using credit to pay for the added medical bills. We have personally experienced the $4,000 deductible per year health insurance plan and, although it is better than no insurance, it can certainly make a dent in the family budget. Care Giving Another huge drain on women’s finances is caring for their aging parents. More women care for aging parents than men. However distasteful it may be to condense a daughter’s love for her parents into a discussion of money, this issue must be addressed so that women can prepare. Because of the aging baby-boomer population, these numbers will soon become staggering. If you add caring for young children into the mix at the same time, the financial results can be devastating. What Should Women Do? Because of the special issues facing women, it is crucial that women educate themselves about finances and the realities of financial gender inequity and plan for their future. The male-dominated financial services industry is just beginning to realize the unique financial planning issues for women. Make sure that your trusted advisors understand these issues and are helping you plan accordingly. Don’t be afraid to ask your advisors questions.

Go to Top