Over the next eight years, an estimated $30 trillion will be amassed by women or passed to women through generational or spousal transfer. That whopping amount creates huge opportunities for financial planners but raises a plethora of issues for women who need to navigate their financial futures.
Suzanne Norman, financial literacy expert and fellow at the Alliance for Lifetime Income, recently authored a paper on women’s financial wellness that gives a largely, and perhaps surprisingly, upbeat assessment of the current state of the economic wherewithal of women. In a presentation on the paper before the National Association for Fixed Annuities, Norman highlighted how connecting traditional values such as a sense of purpose and maintaining strong relationships offers the best way to maintain physical health and emotional well-being. Maintaining physical and emotional health go a long way toward helping women achieve solid financial goals.
“Research tells us that women have a distinct advantage when it comes to savings and their investments,” she told the NAFA webinar attendees. “They tend to use a values approach, and they have their sense of life purpose, and an orientation of their goals and what the money is there for, versus having a lot of interest or focus on what is in the portfolio.”
As such, she said studies have shown that women substantially outperform men when it comes to their saving investments. A study by U.K’s. Warwick University showed women trade less frequently than men, women are less interested in speculative investments, and women tend to take a more long-term perspective with their investments.
“Those are some really good behaviors that I think connect to the fact that women can be very, very committed to a plan when they're clear on why they're doing it,” she said.
In addition, she said, women tend to put more of their paycheck toward savings than men do and invest more of their account balance to investment funds such as individual retirement accounts and brokerage accounts. Overall, women control $5 trillion in global wealth and are responsible for $31.8 trillion in consumer spending.
“There’s a lot of wealth in the hands of women,” Norman said. “They really control the purse, if you will.”
Of course, there are many unique challenges for women when considering their financial wellness.
Women still earn 82 cents for every dollar their male counterparts earned. Only 54% of women have saved for retirement (with an average savings of $115,412), and 70% of women’s wealth is in cash.
“So that’s not necessarily going to help a woman fight against inflation and longevity,” Norman said.
And those figures are exacerbated for women of color.
Moreover, the expected lifespan of women, which significantly outpaces that of men, presents special issues for women as they age. Sixty-two percent of women surveyed said they expect to live until at least age 95, and almost as many between the ages of 25 and 74 believe their retirement savings and sources of income will not last throughout their lifetime.
45% of women surveyed have seen their standard of living decline versus 21% of men.
80% more women than men over 65 are living in poverty.
Women retiring at 65 expect to spend $265,000 on out-of-pocket medical expenses.
Women spend 50% longer in a living or nursing home than men do and 30% longer in home care.
“Most people don't really have a clear idea how much it's going to cost them to pay for their out-of-pocket medical expenses in retirement,” Norman said. “So obviously, financial professionals have a very important role to help people recognize that.”
Financial literacy overall is lacking in the U.S., Norman said, with broad misunderstanding about even financial basics such as compound interest. Only 21 states require high school graduates to have some training in personal finance.
“So, I'm not surprised that there's confusion out there,” she said. “The best advisors obviously know that using simple language, and little jargon, is best. Consider yourself a translator providing clarity for the clients.”
As far as financial goals, Norman said, they are fairly universal regardless of someone’s gender.
“We all want enough money to face an uncertain future,” she said. “The ability to enjoy retirement without money worries and having enough to live as long as you want with dignity and maintaining a standard of living to the cover the necessities.”
Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].