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“For women, financial independence is a matter of necessity.”
Financial independence is essential for everyone. Women have lagged in gaining autonomy, being more reliant on their spouses for money than is healthy. They have made significant progress in the workplace, and their financial clout is rising.
As they pursue higher education and careers, women are increasingly the breadwinners. 41% of mothers were sole or primary breadwinners, with an additional 23.2% on par with their spouses, according to the Center For American Progress. True, some of these statistics are due to the greater growth of single moms. According to Jean Chatzky, by 2028, women will control 75% of discretionary spending, and by 2030, 66% of America’s wealth.
As Family Structure Changes Are Joint Accounts Still Warranted?
Traditionally, couples blended their financial lives and assets and opened a joint account. However, changes in our family structure–later marriages, high divorce rates, second marriages, cohabitation, single motherhood/fatherhood, same-sex couples–may dictate the need for separate financial accounts. That said, there is still a tendency for couples to treat money as joint assets, with women closing their bank accounts, transferring their assets to be managed by one spouse, usually their husband.
As young teens, girls (like boys) share their bank accounts or credit cards with their parents, often to monitor their spending. Historically and even now, men monitor their wives’ spending. Until fairly recently, women could not get their credit cards or access their lines of credit. They needed their fathers or husbands to cosign on their applications. The Equal Credit Opportunity Act of 1974 finally lifted that restriction. That is well behind the women in Ancient Egypt of 3100 BCE who held equal financial rights with men, who could acquire, own, dispose of the property in their name; enter into contracts in their name.
The Benefits Of Joint Accounts
Joint bank accounts for couples make sense for some purposes. Building openness, trust, and transparency in a marriage are often cited as crucial benefits for a couple to have a unified account. I am not saying that couples should not have joint bank accounts at all. Indeed, equitable contributions based on each person’s commensurate salaries (or net worth if that is practical) to fund the combined account makes sense. It is easier to pay joint expenses out of one account for household bills such as rent or mortgage, insurance, college tuition, and groceries.
I recently wrote a letter to my teen daughter on becoming financially independent, and here is that post. It is never too early to talk to your children about money topics as their confidence matters.
Women Have Distinct Financial Hurdles To Overcome
Women need to have their financial accounts–bank, retirement, investments– and manage their own money with more confidence. By being women, longstanding gender biases provided us with these obstacles to overcome:
1. Gender Gaps Persist
Women are paid 82% less than men, according to a 2017 Pew Research Center study. According to a UBS study, the cumulative effect of starting at a lower base at age 25, with raises on that smaller amount, will provide 38% less wealth for women by the time she reaches 85.. Of course, women may not receive the same raises or bonuses as men adding to this gap.
2. Retirement Savings Will Be Less
According to the National Women’s Law Center (NWLC), if lower earnings for women prevail through their working years, the loss could amount to $406,760 over a 40-year career. Their report presumes a woman is working full time with a constant wage gap of $10,169 each year. If so, women may need to work ten years more than their male counterparts to make up the difference.
These amounts may be a conservative amount. Separately, a Merrill Lynch study with Age Wave has shown that with the multiple impacts of lower earnings, parenting, caregiving, and reduced retirement savings opportunities, women will collect $1,055,000 less than men by their retirement age.
3. Lower Earnings Impact Social Security Monthly Benefits
Average social security monthly benefits for retired workers were $1,422 in 2018, with women receiving $1,049 versus $1,382 for men. Across all employer retirement plans, men have higher average account balances, which gap grows wider with age.
4. Women Hold More Debt And Lower Credit Scores
Women earn 57% of the bachelor’s degrees in US colleges and universities. They have more degrees in every higher education category, including doctorates than men. However, this is not translating into higher earnings for women. The result is that women are being squeezed by carrying nearly two-thirds of the outstanding student debt as of early 2019 while earning less.
As a result, women tend to have slightly lower credit scores than men. According to a Federal Reserve report, women score 762 versus 768 for men based on Vantage Credit Scores. Women’s lower scores are due to higher outstanding debt and higher credit utilization rates than men. Low credit scores hurt their abilities to raise capital to start and manage their businesses compared to men.
5. Taking More Time Off
Career pauses for women occur far more often (44%) than for men (28%). They take time off when having children and are nearly twice as likely to work part-time. Many take an extended hiatus from work. There is a greater likelihood a woman will be a caregiver to aging parents, including her spouse.
6. Life Expectancy Remain Longer
Women live longer than men in the US, by estimates of 5 plus years based on recent reports. Overall life expectancies have declined in the past few years associated with opioid-related deaths, significantly higher for men based on the Kaiser Family Foundation report.
7. Widowhood And Divorce Takes A Greater Toll On Women
According to the US Census Bureau, the average age a woman becomes a widow is 59 years meaning that women may face decades managing their own money. Divorce causes significant financial hardship. Divorce rates in the US for the 50+ population have doubled since 1990. While challenging for both parties, the split usually takes a more significant toll on women.
A woman (Jane Alexander) seeking financial independence took center stage in the play Grand Horizons on Broadway. Playing Nancy and Bill as a couple in their 70s, they contemplated divorce after 50 years of marriage. Nancy asks for a divorce, wanting her financial independence at last. When asked by her surprised husband and her adult children why she is willing to do this, she shrieks, “I want my own bank account!” Nancy adds she doesn’t have her credit card, which impedes her ability to go freely to places without Bill, such as with friends or to shop, dine, or travel independently. The audience of largely women roared at this reality.
Women need to overcome these challenges by becoming financially independent. That means exercising greater control over their finances. At some point in their lifetime, 90% of women will be solely responsible for navigating their finances.
What Women Need For Greater Financial Independence
1. Separate Banking And Checking Accounts
According to a TD Bank survey, nearly half of couples with joint bank accounts also have bank accounts. 43% of women wanted their accounts, citing independence as their top motivation, while only 34% of men did so for those purposes. 20% of couples keep separate arrangements to make sure they have enough money for their own needs. Individual accounts for women promote autonomy and provides active encouragement to manage their own money.
According to FICO, women (26%) are less likely to open a bank account for themselves compared to men (17%). Women have, on average, 1.5 fewer online bank accounts. On the other hand, women are more tolerant of security measures than men.
2. Separate Retirement Accounts
Through their workplace, women need to establish their own 401K retirement accounts. They also need to contribute to their own IRA account. On average, women of all education levels are less comfortable managing their retirement investments. According to a Federal Reserve report on retirement, 58% of men with at least a bachelor’s degree are mostly or very comfortable investing their self-directed retirement savings. In comparison, only 32% of women are comfortable doing so.
Part of this gap may be because women tend to do short-term planning: day-to-day household budgets. However, they leave long term planning for their husbands. According to this study, 60% of US couples have dual incomes; only one person may be saving for retirement. Shortchanging the nest egg is a danger for women whether they are working or stay-at-home moms.
Consider Your Retirement Lifestyle Needs
Women need to determine what kind of lifestyle they expect to be financially independent. The Department of Labor recommends maintaining at least 70% of pre-tax income for your retirement years, though closer to 90% is a better target. It depends on what your specific plans will be. Consider what choices you make in your retirement savings.
I recently found an old IRA account with a balance of $20,000 I put away in a bank account. Current balance? Drumroll….$20,000. I never invested in anything! My bad! Most likely, I lost track of the account and missed an opportunity to transfer it elsewhere so it could grow. It is vital to invest your retirement money so that you can keep pace with or exceed inflation. That’s why stocks in mutual funds are the right choice for long-term horizons.
Women who are working and have access to their employer-sponsored 401K retirement plan must rely on themselves. If available, they should take advantage of their employer’s match contributions by meeting the required minimum. With a high rate of nearly 50% of couples divorcing even late in their marriages, women face more difficulties in the event of a split.
Women can establish spousal IRA (Roth or traditional) if your spouse is not working as long as the married couple file joint taxes. This contribution remains subject to the income limits. If the wife is the sole worker, she can contribute up to $6,000 to her own IRA and $6,000 to her husband’s account for a maximum of $12,000.The latter account is owned by her husband and is not a joint account.
3. Have Your Investment Accounts
Apart from retirement accounts, women should have separate investments funded by their earned income and any inherited assets acquired from their family. However, studies point out that women favor cash over stocks because of their conservative nature and lack of confidence. A Blackrock Investor Pulse Survey showed 72% of women rejected riskier equities than 59% of men. They also tend to trade less frequently than men, adhering to buy-hold strategies.
A Fidelity study highlighted their lack of confidence, with only 9% of women believing they could outperform men concerning investor returns. Yet, in reality, women overall performed 0.4% better in investment returns. Compounding that slight beat over a long term horizon could amount to significant dollars. Holding a lot of money in cash rather than investing is a bad choice because of opportunity costs.
Women can afford to be more aggressive in investment choices, especially when they are young. Start investing early with a diversified portfolio holding at least 75% in stocks and the rest in bonds and money markets. Many investment choices can help you reduce risk by more diversification through low-cost mutual funds and ETF’s.
4. Find Your Own Financial Advisor
Given the different characteristics that women face, married or single, finding your own financial advisor is a good idea. Men and women have different attitudes toward money, careers, cirmcumstances and your particular needs. You do not necessarily need to have a female advisor. Find someone who understands your needs, outlook, risk profile and family situation and has your best interests at heart.
5. Improve Your Financial Management Decision-Making
A study commissioned by Ameriprise Financial reported that 41% of all women make their own financial decisions. That number has upside potential as women handle more assets and can gain comfort with their financial prowess. Having your own accounts–banking, checking, credit, retirement and investments–is a great motivator to be more proactive in long term financial planning.
At the same time, be vigilant at reviewing your financial account balances and credit reports. You should automate direct deposit into your retirement savings and bill payments. Use security measures to protect yourself from fraud better.
How To Better Protect Yourself From Fraud
Mandated consumer protections for our financial accounts only go so far. We need to have a healthy dose of skepticism and take our precautions. Digital technologies are growing faster, providing us with more capabilities and convenience. Compliance gaps exist among the incumbents (like Wells Fargo) and fintech companies. Take measures to have financial security.
Here are our recommendations to protect your financial accounts:
1. Be Alert To Imposters And Phishing Emails
According to the FTC, scammers are sometimes posing as someone you can trust, such as a family member, government official, or charity. Never send money or give out personal information in response to an unexpected request.
2. Safely Dispose Of Your Personal Information
Use a paper shredder or wipe your computer hard drive. Find ways to delete all your information from your smartphone. Remove your SIM card from unused phones. To be honest, I keep all my old electronic devices.
3. Don’t Use Public WiFi
Our family has stopped using public WiFi reluctantly. I always used Starbucks’s wifi when I literally lived at my local place when studying for the bar (to practice law). I have also encouraged my kids to use the public wifi rather than drive up our data bill. No more! We find it easy to connect to public wifi because there isn’t authentication that is beneficial for hackers.
4. Don’t Believe Your Caller ID
It is very easy for scammers to use fake names and numbers. I have picked up my house phone because I recognized my own cell number. I hung up that baby so fast that I almost broke my phone. My house phone is on borrowed time.
5. Consider How You Pay
While credit cards have significant fraud protection when detected, wiring money does not. According to the latest FTC report, scammers use money transfer services in many schemes. Never send money to strangers using Western Union or MoneyGram. Be aware that you can’t get your money back.
When I worked on a case for the court, an elderly woman who was losing her mental capacity was literally giving away a large portion of her significant net worth through MoneyGram. She had a constant caller asking her to meet him at mysterious places in her neighborhood. Her family was unaware of her declining capacity or her regular money wiring until they found massive withdrawals.
When using Venmo, Zelle or Apple Pay, make sure you are sending money to the correct party. Check the recipient’s address and contact info.
6. Keep Your Passwords Private
Young people tend to overshare everything, including their smartphones. They often will provide friends with their passwords. Change passwords often and use strong passwords. Opt for two factor authentication. For those who worry about forgetting a password, use a password manager.
7. Don’t Carry Your Social Security Number In Your Wallet
This seems obvious but also don’t carry any private information that may contain your social security number which can be on many different kinds of documents, such as credit card applications, bank applications or your health plan.
8. Review Your Credit Report Regularly
The three nationwide credit reporting companies–Equifax, Experian, and TransUnion–are required to provide you with a free copy of your credit report at your request, once every 12 months. You can also visit annualcreditreport.com to obtain your free report. The FTC does not recommend that you use other websites for free reports.
9. Monitor Your Personal Statements
Review all your statements when you get them and call vendors when you spot a mistake. Check your deposit balances daily. Sign up for text alerts with your bank.
10. Don’t Open Suspicious Emails
When you get mail with a bank name, scrutinize carefully. Don’t open links from someone you don’t know or appear to be suspicious. Your bank will either text or call you if they see unusual spending.
Couples Need To Do Joint Financial Planning
Irrespective to how couples decide to structure their financial accounts, here is what they need to do:
- Set short term and long term financial planning goals together. Women tend to do day-to-day finances but need to understand how to plan for long term needs.
- Share expectations for saving, spending and budgeting as well as insurance, retirement savings, investing and estate planning.
- Communicate openly, honestly and meet regularly on possible money issues like debt payoffs.
- If creating joint accounts, determine the percentage of contribution of funds and allocate the share of expenses.
The truth is that most couples avoid talking about money until issues arise. Even then, communication may prove so tricky that spouses may hide or distort the facts. Avoid financial infidelity as it may cause more significant problems in your relationship. Honesty remains the better policy.
Women have made significant progress in gaining autonomy. Even as breadwinners, women sometimes appear subservient to men when it comes to handling finances. A combination of lack of confidence and experience in long term planning may be at play. Full financial independence remains elusive for many women. The assertion over their own financial accounts will provide women with greater autonomy, money management skills and confidence over their financial future. Its 2020 and it is time!
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With a passion for investing and personal finance, I began The Cents of Money to help and teach others. My experience as an equity analyst, professor, and mom provide me with unique insights about money and wealth creation and a desire to share with you.