Why Some Women Struggle with Finances (and what to do about it)
Last year I wrote Financial Help for Women, and provided five strategies for women. Some thought the post was condescending -- even my own editor -- but I stand by it. I've seen first hand the negative effects of financial complacency. Unfortunately, the latest research from Financial Finesse, the leading provider of unbiased workplace financial education in the U.S., confirms that there is indeed a gap between men and women when it comes to finances. Here is a Q&A with Liz Davidson, CEO and founder of Financial Finesse:
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Question: Your research is showing the gender gap in financial knowledge is still prominent. It seems there shouldn't be a gender gap at all these days. Shouldn't women and men be pretty equal in their financial knowledge and overall financial security?
Liz Davidson: Well, yes, you'd think so. But there are several issues at play here:
When it comes to financial security, women have so many more obstacles than men in dealing with finances. They earn less, but they have to save significantly more since they live on average 5 years longer than men and have higher health care costs in retirement. This puts a lot of pressure on their ability to become financially secure to begin with and also lowers their confidence in whatever knowledge they do have. It also creates a sense of "learned helplessness" -- the attitude that "I'm so far behind that I'll never be able to achieve financial security, so what's the point of trying?"
Also, we still live in a society where women are usually the primary caregivers. Even if they work full time, most women who have families take on most of the burden of childcare responsibilities. As a result, women become accustomed to putting others' needs before their own and this extends to finances. Their own financial security takes a back seat to making sure their families have what they need today, and that their children are set for college.
Lastly, when it comes to proactive financial management -- investing and financial planning -- most resources out there are not designed to appeal to women. The financial media tends to focus on short-term market and economic news, as opposed to providing the ongoing financial education and support women need to make the right decisions for themselves and their families. For the most part, they don't hit on women's priorities so women tune them out, which only adds to the problem.
Question: In which area or areas is the gap widest?
Liz Davidson: Women are furthest behind men when it comes to their knowledge and confidence in investing. There is a 20 percentage point gap in women's basic knowledge of stocks, bonds, and mutual funds vs. men, and that's where the problem with investing starts. As a result, only 25% of women report that they feel confident about how their investments are allocated, while 42% of men say they are comfortable with theirs.
Budgeting is also a big issue. Only 63% of women spend less than they make each month vs. 80% of men. It goes back, again, to that care giving mentality; wanting to make sure everyone in the household is happy and has what they need, which sometimes means getting overextended.
Question: What about the areas they are doing pretty well in compared to men?
Liz Davidson: The one thing women are doing well is saving for retirement. 92% said they saved in their 401(k) or other employer retirement accounts, which was around the same for men at 91%. This shows that women, and men too for that matter, appear to understand they need to be saving, they know that it's important, and they need to begin taking it more seriously. Our most recent studies have shown an increased urgency in retirement planning so we're hoping this momentum continues. But there's still a downside even to what they are doing well, because they are still saving far too little and may be investing far too conservatively to be able to meet their income needs in retirement.
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So how do we solve this financial gender gap problem? According to Liz "women need to educate themselves and make their finances a priority." You can see her suggestions on how to provide women with more financial education.
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