4 Smart Financial Strategies for Women
Although we strive for equality, it is a simple reality that women and men are different when it comes to money. Understanding these differences is a key ingredient for success, especially among women. Women have specific financial needs and behaviors that diverge from what is typically explored as men are often viewed as “the standard.”
Research has demonstrated that women have better financial behaviors than men. For example, women are more likely than men to:
Take advantage of employer-sponsored retirement plans
Save a greater percentage of their income
Use more goal-directed investment strategies
Make fewer investment trades (and are therefore less likely to make a poor trade)
Have higher credit scores
Have less personal debt
Given all these great money behaviors, it makes sense that women would be financially better off than men. However, women are more likely to end up with less money when they retire.
So, why are women in a worse wealth position than men? Several factors may contribute to this picture. First, women earn less than men across their lifespan even in the same jobs and with the same qualifications. Although the wage gap varies across careers, the average income for women is 20% less than for men.
This income discrepancy is a result of gender stereotypes and gender role socialization. Gender stereotypes come from employers who perceive women to be less capable or fail to recognize their achievements is the same way as their male counterparts.
On the other hand, gender role socialization results in women being taught from a young age to behave in a way consistent with gender stereotypes. Common gender stereotypes for women are that they should be polite, helpful, modest, selfless, and caretakers. Girls tend to be helped more than boys and are repeatedly discouraged from taking risks. Both genders are rewarded by society for behaving consistent with the gender role while they are often punished for gender role inconsistent behavior.
Gender role socialization influences behaviors in many different areas of people’s life and are often unconscious. Women are taught to play it safe and so they take fewer risks with their money. This results in women making less risky investments and keeping a greater amount of their wealth in savings. While this strategy means they are less likely to lose money, they are also going to have smaller returns on their investments.
Women are also socialized to be modest and selfless. Therefore, they are less likely to apply for jobs for which they may be under qualified, are less likely to ask for a raise, and have difficulty being acknowledged for their achievements. Men, on the other hand, are more likely to push their career and financial boundaries and so make progress faster.
In addition to differences in behavior, women have unique financial needs. Women live longer than men. Since women and men tend to retire at the same age, this means that a woman’s nest egg needs to last longer. Additionally, women are more likely to be caregivers than men are. This can put an added strain on finances.
How to level the playing field
1. Educate yourself:
Although this is important for everyone, it is vital for women to educate themselves on financial principles and their own financial position. Learn best practices for investing, planning for retirement, and money management. Understand your personal spending and saving behaviors then develop good habits. Never rely solely on a significant other or financial advisor. Once you have a good understanding of a sound financial strategy, put that knowledge into action! Trust yourself and take a well-planned risk.
2. Support each other:
It is difficult for women to advocate for ourselves because we are often socialized to be modest and selfless. Therefore, it can be useful to capitalize on our inclination to help others, which may feel more comfortable. Find female allies at work and in your personal life that can provide advice, encouragement, and help with political maneuvering to get a new job or to take a new financial risk. Make it a point to highlight each other’s achievements in meetings and to bosses to help each other get raises or promotions.
3. Shift view of finance to others:
Another strategy in line with the way women are socialized to put other’s needs before their own is to create a concrete goal that includes the well-being of others. Oftentimes people think that caring too much about money is selfish and shallow. However, money is a necessary part of life.
Shift your mindset around money to thinking of how it can benefit not only you, but also your loved ones. This may mean being able to travel more with your significant other, being able to pay medical bills for family members, or being able to support yourself in retirement so that your children won’t have the financial burden of supporting both their children and their parents.
4. Find your growth edge and push it:
A growth edge is the point where your knowledge and ability end but have the potential to expand. Find out where you are and then determine what the next step is in your growth. For example, if you have gotten your debt paid off and you have the recommended amount in your saving, the next step for you may be opening an investment account.
Even if that sounds scary and overwhelming, lay out the steps that you need to take. This next step may be researching investing accounts or reading about investment strategies. Commit to taking actions outside of your comfort zone.