The good news is, research shows that female investors often make better investors than men. The bad news, as ROBIN POWELL explains, is that women also face some big disadvantages when it comes to saving for retirement.
Human beings are not cut out for investing. Our evolutionary instincts have made us so finely attuned to immediate threats that one of the biggest dangers of all — running out of money in later life — is given nowhere near the attention it deserves.
Sadly for women, the challenge of ensuring their long-term financial security is even bigger for them than it is for men. A recent UK government study revealed that women’s private pension pots are worth 35% less than men’s by age 55.
Why is there a gender wealth gap?
There are several reasons why this gap exists. One is the simple fact that, even today, women often earn less than men for doing the same job. The mean difference between men’s and women’s average hourly pay in the UK is 5.45% and the median is 9.71%.
Another factor is that female investors tend to be more risk-averse than men. Although that’s not necessarily a bad thing, it definitely is if it means you have too much money in cash and not enough in equities, particularly in early adulthood.
Then there’s the thorny issue of divorce. There is a widely held perception that, financially at least, divorce from a heterosexual marriage tends to favour women. But several studies have shown that it’s the other way round, and that men tend to emerge from divorce better off than women.
But there’s another major reason why women have less money in retirement than men, and it’s this: there are specific chapters in women’s lives that put them at a big disadvantage compared to men when it comes to investing.
The investment platform AJ Bell recently published a wonderfully titled paper called Financial Wobbly Bits: Uncovering women’s financial wobbles and providing a toolkit to overcome them. The research identifies three significant life events that most women go through, and which greatly contribute to the gender wealth gap.
Children
Although men are generally more involved in childcare these days than they used to be, the numbers show that parenting still has a far bigger impact on women’s careers than on men’s. AJ Bell’s researchers found that 92% of men who were working full time before the birth of their first child return to full-time work, whereas only 55% of women do the same. This gap widens as couples have more children, with only a quarter of women returning to full-time work after their third child, compared to 80% of men.
For some women, of course, this will be down to personal choice. But for many, the high cost of childcare prevents them from returning to full-time work. And nor is it just women’s salaries that suffer. More than 25% of women stop contributing to their pension during parental leave, while only 8% of men do so.
Menopause
Menopause can be a difficult time for women, and it can impact their work and finances as well as their physical and mental health. The AJ Bell research shows that one in 20 women who have gone through the menopause stopped working as a result, while one in 25 reduced their hours.
A fifth of women said the menopause had impacted their professional confidence, and an additional 12% said their performance had suffered.
Caring responsibilities
In their 50s and early 60s — a time of life when most men are still working — women are often expected to care for other family members, particularly grandchildren and elderly parents.
According to AJ Bell, almost half of women have had their career or finances impacted by caring responsibilities outside of parenting. For example, 15% of women gave up work, 18% cut their hours, and 7% took a lower-paid job.
How can female investors redress the balance?
What, then, can women do to overcome these disadvantages?
The first thing is for women to be aware of them in the first place. If you have a daughter or granddaughter at the start of their adult lives, why not talk to them about their finances and the importance of investing and living within their means? You could also buy them a book to improve their financial literacy.
Women should start investing as early as they can, and put away as much money each month as they feel able to. So think about your future self and ask the question: is there a luxury I’m spending money on today that I could sacrifice in order to secure a higher standard of living later in life?
If you feel you deserve a pay rise, ask for one, and instead of spending the extra money you make each month, invest it for the future.
Of course, children and family must come first. Quitting work to focus full-time on bringing up children or caring for ageing parents can be extremely rewarding. But don’t neglect your preparations for retirement in the process. The number of women living beyond the age of 100 has grown dramatically in recent decades, and so too has the cost of long-term care.
You may need far more money in your later years than you think.
Whatever stage of life you’re at, think about hiring a financial adviser. And choose one with specific expertise in the specific financial issues facing women, particularly around childcare, career breaks and divorce.
Finally, remember that planning your financial future is ultimately down to you. Who’s going to take responsibility for it if you don’t?
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