March 9, 2020
As International Women’s Day was celebrated yesterday, we at Ronald Blue Trust want to continue to encourage and empower women to play a larger role in their finances and investment strategy.
In June 2019, it was reported that 51% of the personal wealth in the U.S. is controlled by women. This percentage equates to $22 trillion,1 a figure that slightly exceeds the size of the U.S. economy measured by GDP (Gross Domestic Product). Despite women controlling a growing amount of wealth, we have found that they are often reluctant to invest their wealth, preferring to keep it in cash or a savings account because they may feel intimidated by investment decisions. According to a recent survey, 59% of widows and divorcees wish they had been more involved in long-term financial decisions and 74% don’t consider themselves very knowledgeable about investing. We believe women play a vital role in finances, whether they are handling them on their own or as part of a couple, and we want to provide educational resources whenever possible. When women become involved in their finances, they are taking a step towards being empowered to handle whatever situation they face in life, as married or single women.
Above All, Know Your Investment Goals
Investors should follow the timeless principle of first understanding the purpose of their investments, then aligning their investments with those goals. For example, investing for the purchase of a vehicle in four years looks very different from investing to pay for your child’s college education in 10 years or from meeting retirement spending needs in 20 years. There are many investment vehicles, such as equities and bonds, that you can utilize to help you meet your goals in the appropriate time frame.
Specific Considerations for Women
While most investment decision making is similar for men and women, women may want to consider a few scenarios specific to them:
- Prioritize Goals: Often women may serve in a more nurturing role within their families, whether that is to their children, aging parents or in-laws. Sometimes, however, they do not prioritize themselves because they spend so much time taking care of others and putting others’ needs ahead of their own. For instance, some women may put the goal of paying for their child(ren)’s college education ahead of saving for their own retirement. This prioritization may seem like the right thing to do, but a woman is actually better off saving for her own retirement needs first. Her child(ren) will have access to alternative educational funding, such as scholarships and student loans, and a longer timeline to repay educational funding if borrowing is necessary. On the other hand, she may have a limited amount of time in the workplace to save for retirement and possibly take advantage of an employer’s 401(k) match.
- Time in the Market: Women generally earn less in wages yet live longer than their male counterparts and may take time off from the workplace to raise their children or care for elderly parents. While this behavioral and cultural norm is changing, the fact persists that women need to save more of their income to meet their longer-term financial goals, particularly in order to meet spending needs during retirement since they are likely to live longer. How does this impact how women should invest? In order to allow assets adequate time to grow, women need to begin investing and saving sooner and likely need to save a higher percentage of their wages. Using the power of compounding, the earlier you begin to invest, the more time your assets will have to grow, which increases the likelihood of meeting your longer-term goals.
- Be Informed and Aware: In today’s busy world, couples typically learn to divide and conquer household responsibilities to complete the multitude of required obligations. Historically, men were often the breadwinners and therefore they took charge of the family’s finances. In fact, one recent study found that 56% of married women still leave investment decisions solely to their husbands. Often, women do not feel empowered or knowledgeable enough to weigh in on financial decisions with their spouse. However, both parties are affected if situations such as divorce, disability, or death arise. As a couple, they should both be prepared for unexpected situations and we encourage women and men to equally be involved in the financial planning and investment process. It is even more critical for single women to feel capable and confident enough to make financial decisions on their own.
Even if numbers and analysis are not your interest or strength, having the foundation and support system to make wise decisions will help you have clarity and confidence around your finances. Overseeing your finances is somewhat like monitoring your physical health with your doctor. Often, it makes sense to hire a financial advisor as a partner in your financial health to help you navigate decisions and plans. Depending on your financial situation, similar to your physical health, taking on your finances can be daunting, but we have learned that the more engaged you become in the process, the less frightening it becomes and the more confident you become in making the decisions you have before you.
At Ronald Blue Trust, we believe that women should educate themselves on their personal and family’s finances so that they can gain clarity and confidence and make wise financial decisions. To learn more about our resources for women, please visit www.ronblue.com/library/women or contact your Ronald Blue Trust advisor by calling 800.987.2987 or emailing [email protected].