The goal of financial advising is to help your clients develop financial plans that help them meet their life goals. There is not a one-size-fits-all approach to financial planning. Financial advice and wealth management should be customized to address the current net worth, future earnings potential, and projected financial needs of the client. This also means that financial advisors need to take a different approach when they develop financial plans to meet the needs of men and women. Men and women have different financial advising needs because they have different career, personal, and financial journeys. In recent years, women have become more of a priority for financial advisors, and rightly so.
How The Personal and Financial Journey Differs for Women
The role of women in society has changed a lot over the last 50-60 years. Today, women are becoming better educated and going on to become leaders in government, business, and education. At the same time, women are still the ones who bear most of the burden when it comes to caring for children and aging parents. Women have a complex personal and career journey that requires a custom approach to wealth management.
Only about 40 years ago, women made up only 42% of all college students. Today, the ratios have reversed. Women are now 56% of the college student population, and that number is expected to rise to 57% by 2026. Women also outnumber men in graduate school. About 57% of the masters’ degrees earned each year go to women, and 52% of doctoral degrees are awarded to women.
Although the gender gap in education seems to favor women, a closer look at the numbers indicates that the wealth gap between men and women also begins here. Data show that families save more for college for male children compared to female children. That means women graduate from college with more student loan debt than men. In addition, women generally choose college majors with lower starting salaries, such as education and social sciences. So, women enter the workforce carrying a greater student loan burden while making less money than the average man.
Career and Family
Women tend to face a variety of personal and career challenges that can cause them to fall further behind their male counterparts. Therefore, they need a financial plan that addresses these challenges.
The Wage Gap
It’s been 55 years since the Equal Pay Act, which mandated that men and women get paid the same wage for the same work, passed in Congress. Yet, the wage gap still exists. Research shows that the wage gap has decreased, but it has not gone away. Women are still only making $0.80 for every dollar that men make. The inequity is even worse for Native American, Hispanic American, and African American women.
Career choice can explain a portion of the wage gap. Higher proportions of women tend to choose careers with lower wages while higher proportions of men choose higher-wage careers in math, science, and engineering. Yet, research shows that women are paid around 90% of what men are paid even when they are employed in the same position. As a result, women aren’t investing as much for retirement and take longer to pay off debt.
Sacrificing Work for Family
Women have made great strides to gain power and equality in the workforce. At the same time, women are still the ones expected to sacrifice work for the needs of the family. Women may be expected to leave their jobs in order to move for their spouse’s career. In addition, many women choose to stay home with their children while they are young.
Others just find that the cost of childcare eats up most of their paycheck, so they stay home until their children start school. During this time, women not only lose wages but also lose the progress they made in their careers. After being out of the workforce for a few years, women find it difficult to re-start their careers. They often need to take a step back and accept a job at a lower position and salary than the one they left.
Beyond their children, women are also the main caregivers for other family members. Women may take time off of work or leave their jobs in order to care for aging parents or a sick spouse. All of the time that women spent caring for their families has a negative impact on their lifetime savings and retirement. This negative impact is even more important because women live longer than men, so their retirement savings needs to last longer.
Financial Implications and Why Women Need a Different Approach to Wealth Management
Both the wage gap and the potential employment gaps throughout a woman’s career put stress on her ability to adequately save for retirement. So, women should seek out financial advisors willing to discuss these implications and create a plan to combat this savings gap.
Financial Advisors Should Customize Wealth Management for Women
The wage gap is important to financial planning because women start off at the beginning of their careers already falling behind in their retirement planning. If you make less, you save and invest less. This compounds every month so that women fall further and further behind their retirement goals. Since Social Security payments depend upon the employee’s wage earnings, women are again penalized in retirement for their lower wages and sacrificing work for family.
In addition, women typically amass less wealth than men over their lifetime. They simply have less to invest and are less likely to be in top corporate positions that award benefits such as stock options. The wealth gap causes women to have around $1,0550,00 less at retirement than men.
Since women in the U.S. live an average of 6.7 years longer than men, they not only need to make their savings last longer but also need to pay for greater lifetime health and care costs. Studies show that the lifetime cost of healthcare for women is around $361,000 per capita while the cost for men is around $100,000 less.
As a result, women need a strong team behind them to provide financial knowledge and guidance. Around 90% of women say they are fairly confident in their personal finance skills when it comes to basic knowledge. The percentage, however, drops to around 50% when it comes to investment knowledge and skills. Many women switch financial advisors after their spouse passes, which shows that advisors need to work harder to build stronger relationships with both spouses. When men are handling the investment accounts, it’s easy for advisors to neglect women’s financial needs.
The Good News? Women Are Great at Financial Management
The good news in all of this is that women are resilient through all the hardships and great at financial management. Women are resourceful when it comes to saving money and disciplined when it comes to paying down debt. After refinancing their student loans, women pay their loans off faster than men.
Women approach investment decisions differently than men, and there are benefits to those differences. Women are more socially conscious with their investment choices. So, they are less inclined to seek high returns at the cost of their moral compass. Women are more risk-averse than men, which leads them to hold more cash in their portfolios, invest in less risky firms, and trade less when compared to men. While these attitudes can prevent women from earning the higher returns they may need to compensate for lower wages, it also keeps them from losing as much when stock prices decline. Finally, women simply have a different perspective on money and investments. Rather than focusing solely on finding the highest return on investment, women realize that their money and investments are a way to finance the lives they want to lead. Women need financial advisors who are willing to take the time to provide the knowledge and insight needed to navigate them through their financial journey.
We believe that Paulo Financial Advisors fills that niche. PFA has guided widows from confusion and dependency to confidence and financial knowledge. Professional women have been helped to integrate financial and personal needs . All female clients have been told that they are in control and that our role is to help them define goals and reach them.
*This content is developed from sources which are believed to provide accurate information. The information provided is not written for or intended to be financial, tax or legal advice and may not be relied on for purposes of avoiding any federal investment laws, tax penalties or any other laws. Individuals are encouraged to seek advice from their financial advisor, tax advisor or legal counsel. Individuals who wish to be involved in an estate planning process should work with a trained estate planning team, including a lawyer and tax counsel. Neither the information presented nor any opinion written or expressed constitutes a representation by PFA of a specific investment or the purchase or sale of any securities. Diversified portfolios and asset allocation do not ensure profit nor do they protect against loss in a declining market. PFA makes no representations to ensure profit or protect from loss. PFA developed this material to provide information on a topic that may be of interest to the reader.