Wealth Building For Women: Part One
Today we start a two-part series on women and finance.
Women today are playing financial catch-up and they’re winning. Whether young and starting their first jobs; re-entering the job market; or recently widowed, women are starting to prepare for their first entry into the world of investments, insurance and taxes. They’re learning that if they want to travel the road to financial security, they had better learn to map the trip themselves.
Why is financial independence so important? Unfortunately, most women still leave the investing responsibilities to their spouse/partner, or even worse, face a crisis before they start taking the reins, leaving them unprepared to handle their financial affairs. According to a Business Week article “Ninety percent of all women, either through divorce, widowhood, or because they have never married, will be in charge of their own finances at some point in their life.”
Women are in a unique financial situation. They usually earn less and live longer than men. In addition, they haven’t been taught to take control of their money. Women typically make 60% to 80% of what men earn to do the same job, take more time off to raise a family, which cuts into their pension savings, and on average live seven (7) years longer than men. For women, this makes taking control of their financial situation even more essential.
Mistakes some women make in their approach to managing money:
- “I don’t know where to begin,” is a common theme that I hear all too often. A number of women, especially those in their 50s and older, never learned about money. Many are not successful with their financial planning because of outright terror of money topics and the mistaken impression that ‘everyone knows more than I do.’
- The “Prince Charming” Myth. Historically, women have tended to abdicate responsibility to their husbands, a male family member, etc. They do this as opposed to taking responsibility for their finances by seeking professional financial advice.
- Women tend to be savers, less willing to take risks. Men invest to grow their principal; women, on the other-hand, invest to protect it. As a result, they often don’t get the kind of returns they need to build wealth. There is some good news though: Once women start investing, they tend to trade less than men and consequently may earn higher returns.
A man typically buys life insurance to protect his family, replace lost income if he dies, and provide for his own retirement security. Life insurance pays off mortgages, funds college educations if the income earner can’t be there, and guarantees that the spouse won’t have to sell the home or otherwise suffer a severe drop in standard of living. The decision to purchase insurance reflects a commitment to family and the need to meet other financial responsibilities.
Why do women buy life insurance? For those very same reasons! Life insurance has always been one of the most cost-effective ways for men and women to protect their loved ones in the event that anything should happen to them — as well as provide for their own futures.
But there is a problem. Historically, women were almost never adequately insured. Women are listed as the life insured on just 29 percent of policies purchased. More telling: Coverage on women accounted for just 15 percent of the total dollar amount of protection.
In Next Month’s Issue
Next month we will cover ten steps that women can use to build wealth.
Also, visit myfinancialsolutions.ca for additional financial information on insurance, retirement, estate planning, investments and whole host of other financial topics.