Written by: Jessica L. Gibbs, CFP
Women and finances. I wish I wasn’t writing about this. I wish that more women had a confident relationship with money the way most men do—and an equal relationship at that—but the truth is a lot of them don’t. Everyone talks about the gender pay gap, but the gender wealth gap is worse; for every dollar owned by a man, women own 32 cents (and if you’re a Black or Latina woman, on average, you own 1 penny).
I know generations of systemic societal attitudes towards women led to the gender wealth gap. But I want to speak to the women of today, who are empowered leaders in so many areas of their lives, but not when it comes to money.
I asked dozens of women what they wished they’d known or started doing sooner when it comes to their finances. Here’s what they said.
Every household has division of labor, and when it comes to money, oftentimes one person is handling the monthly bills and another person is managing the long-term investment portfolio. In essences, one person is looking through a microscope, the other through a telescope—you and your partner may be seeing a very different picture. Maybe you don’t think you have time to see the other view. Or maybe investing or budgeting is a hobby for your partner and you legitimately are just not interested in the minutiae.
But you need to know where your money is and be involved in all your household’s money decisions for the following reasons:
- Transparency of information—You need to understand your assets and what’s happening with them, so you don’t get caught off-guard in the event of divorce, death or incapacitation.
- Row in the same direction—You and your partner should be aligned on your goals and decisions that will support accomplishing your goals.
- Understand risk tolerance—You may have a different risk tolerance than your partner, and consequently be more or less comfortable with certain long-term investments.
- Two heads are better than one—You may see a problem differently than your partner and your distinct perspective will be a huge value-add when you’re trying to answer the most challenging “what if” questions.
Make Financial Literacy A Priority
You may not know all the answers, but you need to know how to ask the right questions. And knowing how to ask the right questions takes time and background knowledge.
Financial literacy is important when times are good, but critical during life transitions. Divorce, the death of a spouse or partner, starting or selling a business, getting married later in life, even helping your aging parents can be such a vulnerable time for women’s finances. To avoid that feeling of starting from the ground up, you need to understand the basics of finance—otherwise you’re going to face a very steep learning curve. Even if you’re working with a trusted advisor, you still need to be an informed client.
So, start learning now. Whether you prefer books, podcasts, videos, or talking to friends and family (as uncomfortable as that might be), just start absorbing as much information as you can. Focus on learning basic money terminology first and build from there. Use online tools like Napkin Finance or look for free classes or webinars from non-profit financial literacy organizations like Savvy Ladies.
Don’t be scared to ask the dumb questions—and to ask them again, if you still don’t understand.
And don’t feel too overwhelmed to start. Financial literacy is a lifelong journey, rather than a pathway to instant gratification. Never think “It’s too late for me” because I promise you, it never will be.
Never “Wing It”
Have the following statements ever come across your mind?
“I don’t know, I guess I’ll just pick these funds for my 401k.”
“I don’t understand this benefit my work is offering, I’ll just stick with what I’ve been doing.”
It’s time to change that. Because making mistakes and missing money opportunities can lead to big losses over time. Women, on average, retire with two-thirds the money that men do.
You need to understand financial decision points over time. For example, while you’re working, it may be how to take advantage of a stock compensation plan or Flexible Spending Account benefit through your employer. And when you’re retiring, it may be how to pick the best Medicare plan for you or when to start taking Social Security. When it comes to your finances, it’s best to have all the information so you’re able to make the optimal decisions for you.
I know it can be challenging to give up control. But putting off getting protections in place for yourself, your family and your wealth just because you are getting caught up in the financial details is a bad idea. Remember: what you do now can be revised later.
Here are some questions you should be able to answer:
- If your spouse or partner dies, will you have access to liquidity immediately? Banks will shut down a bank account as soon as they find out the owner is deceased, so having a joint account means you maintain access. Life insurance companies may require an autopsy before distributing a death benefit or, if the policy was owned by an Irrevocable Life Insurance Trust, there could be a delay before funds are distributed.
- If your spouse or partner becomes incapacitated, do you have durable financial power of attorney (POA)? You can’t sell a jointly owned house by yourself. Banks, titles, and mortgage companies will want to see a POA first. Among the many problems created by COVID, the courts are backed up—meaning it can take many months to get a personal representative appointed.
- If you and your partner don’t want to get married but live together in a place only your partner owns, what will happen if your partner passes away? How long will you be able to live in your home? Will you need liquidity to pay expenses like property tax?
- If you’re newly divorced, how do you know your finances are in fact separated? The last thing you have mental capacity for post-divorce is updating your estate documents and beneficiary designations on retirement accounts and life insurance policies, but doing a full financial audit is critical. It will also ensure you’re staying compliant with your divorce obligations.
- If you get divorced or your spouse passes away, how will you protect yourself against creditors? Tenants by Entirety titling for accounts owned jointly between a husband and wife carries with it protection from creditors. If your accounts are all now titled just in your name, you may need to think about getting umbrella liability insurance.
- If you die without a will, do you know who your assets will pass to? Intestate laws vary from state-to-state and there’s no guarantee that 100% of your assets would pass to your spouse. In some states, it’s possible that a percentage could go to other heirs, including minor children.
- If you’re a business owner, how will you protect your legacy? Know how your business will keep going if you’re not around and how your heirs will get paid for your share of the company. And if you’re a creative, you need to protect your copyright.
Have a Way to Make Your Own Money
Women spend an average of two hours a day on unpaid labor like care work, child care, and domestic chores. It can be exhausting. But having a way to make your own money means you can be financially independent.
Even if you’re out of the workforce, it’s important to keep up your network and transferrable skills in order to ensure that, if needed, you can put your intellect and talents to work.
Teach Your Children Personal Finance, Particularly Your Daughters
Early financial education, particularly starting in high school, is so important to long-term financial literacy. If your child’s school isn’t offering money education in the curriculum, do it yourself. Talk about the benefits of compounding, credit card debt, how to file a tax return, and the difference between saving and investing. Empower your child with financial knowledge. And help make sure your adult daughters are continuing to have money confidence and are participating in their money decisions as they go through their own transitions (first apartment, building their career, marriage, etc).
Conversations about money aren’t always easy, especially if it was considered a taboo topic in your own childhood home. But knowledge is power. And granting your children that power at a young age will enable them to go far.
Think about it this way: If someone you loved was diagnosed with an illness, what would you do first? You’d probably talk to doctors, research medications and treatments, do a deep dive into your health insurance plan and what’s covered, just to name a few. And you’d probably walk away feeling more knowledgeable, more experienced and more powerful having “gone through the woods”.
It’s the same with money. Be upfront about your questions and your needs. Do the work, get the information, and you’ll be the better for it.
Not a DIY’er? Partner with a wealth management team who understands your whole picture. A good wealth advisor will educate you and give you action steps so that you know exactly what you need to do. They can help you make smart, sound decisions, rather than getting excited by attention-grabbing headlines. But moreover, they can help you develop a solid financial plan so that you know how much risk is right for you and can feel confident about how the decisions you make today affect your future.
This first appeared on Monument Wealth Mangement.