Wednesday, April 3, 2019
“Will I be OK financially?” This is the fear I hear women express most frequently when it comes to money. It’s a very astute question to ask. Some may joke about the proverbial “bag lady syndrome,” but this is no laughing matter. At Brighton Jones, we want all the women in our community to be able to answer it for themselves.
Lately, I’ve noticed an uptick in this fear from extremely well-educated and well-paid women. Some are millennials just beginning their careers, others are relaunching careers after time away from the workforce to care for children and/or elderly parents, and quite a few are in their 40s and 50s—at the top of their game from both an earning and a career progression standpoint.
First, a bit of context. For the past decade, I’ve taught periodic weekend financial literacy workshops across the country for women spanning all ages, ethnicities, educational levels, and incomes. My favorite way to kick off the sessions is to ask attendees to anonymously write down their biggest financial fear on an index card. They throw them all into a basket in the middle of the room. After shuffling the cards, I pass the basket around the group, asking each woman to select a card and read it aloud.
Time and again, 80 percent or more of the responses are some variation of “Will I be OK financially?” In case you are wondering, the remaining responses are generally a mix between paying off debt, dealing with awkward money conversations, and highly nuanced questions specific to an individual’s current life circumstances.
Emotional, Factual, or Both?
Behind this fear appears to be a mix of both emotional and factual issues, with the latter predominantly driving the former.
On the subject of emotions, Sallie Krawcheck, the former Citigroup CFO and former president of Bank of America’s Global Wealth and Investment Management business, provides some fascinating insight. Over her very successful 30-year career in financial services—and as a vocal advocate for women’s economic empowerment—she has come to note that many men view money as a “river” and women view it as a “pond.” In this analogy, the river indicates a resource that is fluid and leads to feelings of abundance. The pond indicates a resource that is static and can lead to feelings of scarcity.
Women Living a Richer Life Series
- Investing in Women is a Movement, Not a Moment
- How We’re Helping Women Live a Richer Life
- Closing the Gap: Female Advisors Share Their Paths to Success
- Women Remain Underrepresented in Wealth Management. Here’s Why.
At a surface level, this may seem like a ridiculous, even trite, generalization. It is not.
There are compelling, irrefutable facts that make this feeling of money—as something static and/or scarce for women—an extremely logical response. You’ve likely heard the three primary culprits many times before:
- Women still earn less than men. Depending on the methodology used for calculation, white women earn roughly $0.77 to $0.82 for every dollar a man earns. For Hispanic and black women, the wage gap is much more significant. The numbers are better when looking at controlled gender gap data—i.e., “men and women in similar jobs”—yet a cursory glance at senior ranks in virtually every industry shows how sparse those data points are. The Census Bureau even publishes statistics for Equal Pay Day to track the amount of extra time a woman must work into the following year to match what a man earned in the previous year.
- Women spend more time out of the paid workforce than men. Studies indicate the average woman will spend 11-12 years more than a man out of the paid workforce, taking care of children and/or elderly parents. Recent research from Harvard Business School clearly shows employers of all sizes are staring down the barrel of a “caregiving crisis” that will have impacts much wider than on just individual woman. The collective workforce is facing a productivity drain unless this issue is addressed substantively.
- Women live longer and often “die alone.” From birth, women in the United States, on average, have a longer life expectancy than men, by as much as 5-7 years. As for the fear of “dying alone,” well, take a look at the obituaries some time; you’ll notice the vast majority of times husband are survived by wives. A huge percentage of women really do “die alone.”
What people often miss, however, is what happens in raw dollars when you combine these three factors.
Let’s use the example of Jack and Jill in a very simplistic scenario. Both Jack and Jill graduate with MBAs from the same school and have the same grades. Jack’s starting salary is $150,000. Jill’s starting salary is 80 percent of Jack’s or $120,000. Yes, even an MBA won’t protect you.
Studies indicate that women spend 11-12 more years out of the paid workforce than men, taking care of children and/or elderly parents.
Let’s assume both Jack and Jill save 15 percent of their salaries each year they work from ages 27 to 67, earn a real return on their investments of 6 percent, and stay at the same salary level throughout their careers (this is the simplistic part of the analysis). Jack would have $3.5 million at age 67, and Jill would have $2.7 million.
Now, let’s say that Jill steps out of the workforce from age 32 to 43 to tend first to young children and then elderly parents. We’ll make the (herculean) assumption that when Jill steps back into the workforce, she is able to earn the same $120,000 salary as when she left. What impact does this 11-year gap in work and savings have on the ending value of Jill’s investment portfolio? Jill would have $1.3 million versus Jack’s $3.5 million. That’s the combined impact of the three trends mentioned above.
How Do We Turn This Picture Around?
There are two ways to address this issue, one on a macro level and the other on a micro level.
At the macro level, I’ll use gender pay disparity as a shorthand metric for talking about the multitude of sub-issues that can justifiably leave a woman wondering if she will be financially OK. These issues range from discrimination working women may face while breastfeeding to the well-documented confidence gap whereby men tend to over-estimate their abilities and women tend to underestimate theirs.
With regards to gender pay disparity, a movement that took root in the U.K. in 2017 has spread to the United States. Citigroup voluntarily disclosed that, on a global basis, it pays women 29 percent less than men. As more activist shareholders such as Arjuna Capital publicly pressure more U.S. based multi-national companies to disclose their own pay figures, we will have even more data to work with.
This is very good news. As highlighted in this piece from The Harvard Business Review, when companies are forced to disclose their pay stats, the gender gap shrinks.
On a micro level, there are a series of steps that women at all stages of their lives can take to answer the question of will they be OK financially.
While you are in your working years, the list includes:
- Understand just how much more valuable the dollars you save and invest are at the early stages of your career. If you think you may have a gap in your paid work trajectory, it is crucial to maximize your saving and investing in these early working years.
- Recognize that you may live nearly as many years in retirement as you spent working. Think about that for a moment. You could very well work 35 years and then spend 25 years in retirement. That means for each year you work, you not only have to fund the current year’s living expenses but also set aside a meaningful amount of money for the future.
- Calculate on a regular basis how much you need to be saving a year to reach your retirement goals. In plain English, know your number. Many variables go into “your number” (i.e., the amount of money you’d need at retirement to fund your desired standard of living with very low odds of outliving your money). So this will never be a precise figure. But if you are saving $10,000 a year and you really need to be saving $50,000 a year to reach your goals, that’s information you want as soon as possible.
When you are in your retirement years, the list includes:
- Know what a sustainable withdrawal rate is for your current age, portfolio size, and spending levels.
- Be tax sensitive as to which accounts—tax-advantaged or taxable—you take money out of and when.
- Ensure you have done a cash needs analysis so that sustained market downturns won’t affect your standard of living.
Unless you specialize in personal finance and investing—for a living or as a passionate hobby—this is not information that the majority of people are taught. Yet without this information, it’s hard to have confidence in your financial future.
As for getting the facts to know whether or not you are on track, women report they do not feel fully served by the existing structure of the financial advisory world. That “yuck” feeling many women (and men) say they have around the advisory industry may well be the result of working with an advisor who operates under the suitability standard, one that allows the advisor to put their or their firm’s interest ahead of the client.
As a 2015 report from Fidelity illustrates, there are many other reasons women feel their needs are not being adequately met by the wealth management community. These reasons range from frustration around lack of clarity in advisory fees to confidence speaking up about finances even with those they are close to.
If you are not taught how to answer the vital questions in your working and retirement years—and you don’t feel comfortable with the industry that is the most common source of those answers—that can easily lead to feeling like you are floating around and around in pond rather than flowing dynamically with the currents and movement of a river.
Leverage Community and Connections
Women often face financial headwinds that men do not in the form of the pay gap, the number of years in the paid workforce, and longer life spans. On top of these factors, given the widespread lack of formal financial education, most people (women and men) are unclear about the key data points they should be focused on while in their earnings years and retirement years. Lastly, throw in the confidence gap and a feeling that the financial advisory industry is not serving them in the way they want, the notion of “bag lady syndrome” seems all too real.
At Brighton Jones, we operate as fiduciaries and strive to ensure every client has a clear understanding of the vital factors needed to understand whether they’re on track to meet both their personal and professional goals. Yet we don’t stop there. Through our Women Living a Richer Life initiative, we demonstrate our full commitment to helping women at all stages of life turn societal headwinds into powerful tailwinds as a result of the advice, guidance, and education provided to all clients.
Interested in learning more about Brighton Jones? We’d love to hear your story and see how we may be able to help.
Manisha Thakor, CFA, CFP® is vice president of financial wellbeing at Brighton Jones.