Despite gains in the workplace and the political arena, women continue to lag behind men, when it comes to financial and investment understanding. What can be done?
Research based on data from the Investor Education Foundation of the Financial Industry Regulatory Authority (FINRA) reveals that both millennial and older women did not perform as well as men in answering five basic financial literacy questions.
A recent article from WTOP, “12 reasons women need to close the financial literacy gap,” notes that “women consistently score lower than men on financial literacy measures, and this gender-based gap may negatively impact women’s long-term financial well-being.”
The study also found that women are more likely to answer that they “don’t know” to these questions. On average, between 25-36% of the time, women say they don’t know the answer to a question. One possible explanation for this comes from research results showing that men are more likely to be offered financial education. Men are more likely to be employed full-time, and financial education is frequently provided in the workplace.
These lower levels of financial literacy among women, may keep them from accumulating and managing assets, which ultimately leads to securing a less than promising financial future. Sometimes the financial literacy gap occurs from a person’s life circumstances. For instance, when a woman is married, she’ll usually share financial accounts and decision-making with her spouse. With a partner who’s more educated in financial matters, it’s understandable (and often common) for a woman to accept or ignore her own financial education gaps.
Here are some of the reasons why women should pay attention to their money:
To close the wage gap. 2017 research shows that women are paid about 82 cents for each dollar a man makes. That means a woman must work four more months per year to make the same annual salary as a man. However, among millennials, women are significantly closer to pay equality.
It enables women to care for loved ones. Women are frequently the primary caregivers for extended family. Research shows that the average caregiver is a 49-year-old female providing 24-hours-per-week of care for four years to a 69-year-old female relative. Giving that kind of care often leads to women leaving the workforce sooner than men. As a result, their retirement savings and other potential wealth-building options are more likely to be decreased by a parent or other family member’s unexpected need for care.
Funding charitable causes. Women have different goals for their investment portfolios, and women are usually more goal-oriented. They center more on how their money can be used to meet their life goals, like helping loved ones or giving back to charity. Being smart about how they give to others, enables women to give in a tax-efficient manner and can leverage their charitable-giving dollars.
Beneficiaries can be changed. In a second marriage, there can be challenges that come from the competing need for assets for an aging woman and the desire to leave assets for children from a prior marriage. While receiving a life estate in a home, a life insurance death benefit or a share of retirement accounts can help secure a surviving woman’s future, they’re usually insufficient and not permanent answers, because the owner of these assets has the ability to change his or her mind. They don’t have to give any reason for making a change in beneficiary, and depending on the type of account or insurance, may not have to give any notice. Be proactive and set up legal obligations via a prenuptial or postnuptial agreement, an irrevocable provision in an estate plan, or by being the owner of a life insurance policy written on a spouse’s life.
Longer lifespans of women. The average male can expect to live to about 76 ½, while the average women’s life expectancy is a little more than 81 years, says the World Health Organization and the Imperial College of London. This is why women ages 75 and older, are nearly two times as likely to live in poverty, compared to men of the same age. We know that one of the biggest expenses to retirement savings is the cost of healthcare. Put the two together, and by the time a woman is 70, it’s likely she’ll need assisted care. Rising healthcare and long-term costs make it critical that women are educated and involved in planning for longevity.