Closing the Great Divide: Gender Dynamics and Wealth Management

In the past, it used to be that women handled the household spending but men handled the finances. Fortunately, that's changing. But a gender pay gap, combined with longevity trends, should make financial literacy a front-burner priority for women.

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Wealth management and gender: better preparing women for their roles in personal finance
4 min read
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Key Takeaways

  • On average, women tend to outlive men which often leaves women managing the household finances on their own
  • Learn practical steps that women can take to increase financial literacy and take charge of finances

The financial divide between men and women starts early and grows wider as we age. Beyond the widely-quoted fact that women earn 79 cents for every one dollar a man makes, the median income for American males from 16-to-19 years old is more than 15% higher than it is for women—or roughly $501 to $437 on a weekly basis—according to the Bureau of Labor Statistics (BLS).

By the time Americans reach the 35-to-44 years-old age range, men are making roughly 27% more than women at $1,112 to $877 each week on a median average basis. Add another two decades to that range, and men are pulling in as much as 33% more, or $1,191 every week to a woman’s salary of $898, BLS reports.

To make matters worse, women are walking this earth on average for seven years longer than men worldwide, According to the World Health Organization’s World Health Statistics Overview of 2019, which can turn that financial inequality into a deep gorge.

According to David Bach, the financial advisor and author of Smart Women Finish Rich, 90% of all women will have sole responsibility for their finances at some point in their lives, yet a whopping 79% have not a clue what to do,

“Pay attention,” Connie Hill, education coach at TD Ameritrade nearly yells during financial education webinars. “You need to wake up and realize that unless you want to be totally dependent on someone else, which may or may not happen for some, you need to step up and start informing yourself.”

Hill goes back to that marriage longevity statistic, one that has stayed remarkably static over the last three decades. “In most divorces, the woman’s standard of living goes down by about 73%,” she said, citing author Bach. “Yet 50% of marriages do end in divorce. It’s a reality and women need to be involved in their finances from Day 1 for that reason alone.”

Start with Small Steps

Hill, who has a penchant for effective quotes, turns to Mark Twain for this one: “The secret to getting ahead is getting started.”

Here’s how, according to Hill.

  • Figure out your net worth. This is a fairly simple mathematical equation of Assets – Liabilities = Net Worth. It’s the value of what you own excluding what you owe. Assets include cash, your bank accounts, investments, retirement accounts such as 401(k)s, IRAs and 403(b)s, real estate, and valuable property. Liabilities are debt through loans, mortgages and credit card balances.
  • Determine where the money goes. How much are you spending on clothes and accessories every year? Do you realize how often you go out to eat? Tracking your income and expenses along with your spending can give you a crystal clear picture of why dollars seem to melt in your hands. Don’t get too crazy on how to track spending, just be consistent on it, Hill stresses. And think about separating spending into “essentials” and “discretionary” categories, or things I can live without and things I need to survive. This will help you cut out the superfluous for investments that get the compound interest advantage, discussed further down.
  • Set goals. How many times has that been said by financial planners? A lot because study upon study has shown that specifically written goals that are shared with others tend to actually get accomplished. Dominican University found empirical evidence to support the effectiveness of these three coaching tools: accountability, commitment and writing down goals.
  • Be SMART. Strategize the goals with SMART tools that are Smart, Measurable, Attainable, Relevant and Time-based. Enough said.
  • Pay yourself first. Another mantra financial pundits tend to repeat, bears repeating. It helps keep day-to-day spending in check to help reach bigger and better goals like a retirement in a warm, cozy home rather than on the streets.

The Compounding Advantage

Hill, like any financial educator worth her weight in gold, can’t stress enough that the real secret sauce in all this money talk is compounding.

If you don’t know this financial concept, learn it and ingrain it in your brain: It is returns upon returns—which can be in the form of interest, investment returns and dividends.

Like moss on a tree that’s exposed to constant moisture, compounded returns accumulate each year. So an 8% return on $1,000 in year one is $1,080 and 8% return on $1,080 is equal to $1,166.40 and 8% on that comes out to $1,259.71. Over, say, 42 years, that single $1,000 investment sits at $25,339.

Granted, in the real world a robust, constant, guaranteed return is highly unlikely. Markets have bull and bear markets, corrections and recessions, and interest rates ebb and flow over time. But in general, compounding has the power to magnify returns.

But Hill wants investors to ante into that initial investment kitty on an annual basis, thereby magnifying the magic of compounding.

Let’s say now that the contribution on that initial $1,000 investment is $1,000 each year. At $2,000 that first year, the 8% gain brings it to $2,160 and jumps to $3,412.80 the second year. By year five, that annual contribution has swelled the account to $7,805.26. Fast-forward to year 42 and that kitty is fat at $353,923.

“Never underestimate the power of compound investing,” Hill says. And the sooner you get started, the better, as you can give your money more time to grow, and to recover from any downturns along the way.

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Key Takeaways

  • On average, women tend to outlive men which often leaves women managing the household finances on their own
  • Learn practical steps that women can take to increase financial literacy and take charge of finances
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