This article was originally published in Money, U.S. News.
The relationship between women and money has evolved dramatically over the last few decades, but the connection isn’t as strong as it needs to be in today’s world.
A recent poll by the wealth management division of UBS found that 85% of women manage everyday expenses, but only 23% take the lead when it comes to long-term financial planning. Even though women are more proactive with everyday household finances, it is critical that they also set themselves up for financial success in the future.
Being more engaged with and vocal about finances not only increases women’s confidence, but also empowers them to sustain control of their financial lives over the long term – which is especially important as women continue to live longer than men.
Here are four key things that women should know when it comes to making decisions about their money:
- Longer life expectancies mean an extended retirement.
- Women tend to be risk-averse, missing growth opportunities.
- Women often put loved ones first.
- Women need to find an advisor they trust.
Longer Life Expectancies Mean an Extended Retirement
On average, women live five years longer than men – but a longer life can mean more financial complexity. As women live longer, they may need to fund a retirement that stretches across more than 30 years.
And yet, even though they are more likely to save, women tend to fall behind on retirement savings because they are less likely to invest. On the one hand, that may be a result of spending less time in the workforce due to caretaking responsibilities for children and aging parents. On the other hand, according to CFP board ambassador Cary Carbonaro:
“Women like to hang on to their cash and are more conservative in their investing behaviors.” — Cary Carbonaro
Women Tend to Avoid Risk and Miss Growth Opportunities
Though women are less likely to invest than men, they are more likely to have a cash emergency fund. However, their emergency funds are often too large and sit in the bank without accruing any value.
When women do invest, they tend to outperform men. One key reason women outperform men is that they invest with specific goals in mind. Another reason is that men are often overconfident and make rash decisions, whereas women tend to research and take time to make investing decisions.
Working with an advisor to create a financial plan that establishes both short- and long-term investing goals at the outset provides women the opportunity to see the big picture of what they are trying to achieve. By doing so, they can make smarter, more intentional financial and investing decisions to stay on track and reach their goals.
Women Often Put Loved Ones First
It can be easy to deprioritize retirement savings when funding a college savings plan or caring for elderly parents feels more urgent, but women need to invest in themselves.
Women work hard for their money and should remember to “pay themselves” first. Fund a retirement plan before contributing to college savings goals and consider tapping parents’ assets for their care.
During periods outside of the workforce, prioritize setting aside funds for the future, where possible, through spousal individual retirement accounts, or even after-tax savings accounts, for example.
Women Need to Find an Advisor They Trust
When dealing with traditional couples, for example, it’s common that a financial advisor may assume the man takes the leading role in making decisions. Given that, it’s no surprise 80% of widows and divorcees move on to find a new advisor, according to the Spectrum Group.
In my experience as a woman and a CFP professional, women are very willing to broach the topic of money with the right person. They are more likely to engage in finance, ask questions about money management and investigate their investment options – especially when the person they are talking to is not condescending and avoids speaking in jargon.
By the end of next year, women are projected to control $72 trillion in private wealth. Without a doubt, financial conversations will occur more frequently as a result. Women’s desire for competent and ethical financial planning advice will also increase but finding a financial advisor who will listen to their concerns should be a top priority.
Here’s the bottom line: Nearly all women will become the sole financial decision maker in their household at some point in time. To help ensure women can comfortably navigate both short- and long-term financial goals – such as enjoying their retirement years without the fear of outliving their savings – they need to start saving and investing, early and often.
And they need to commit to communicating more openly about money. This can feel like a daunting process, but it’s not something women have to do on their own.
Partnering with a CFP professional is the first step in taking a more active role in financial planning. Engaging with personal finance today will help ensure women have the financial security tomorrow to enjoy each stage of their lives.
This article was originally published in Money, U.S. News.
