Women and wealth: Motivations make a difference

by Cindy Richey

Different life choices, career paths and investment strategies can produce dramatically different outcomes. But despite some disadvantages, women can put certain investment practices to work.

 

It looks as though women may reach a new milestone during this recession: For the first time in U.S. history, they are likely to represent a majority of the paid work force.

According to Casey Mulligan, a University of Chicago economist, women’s share of the labor force increased dramatically in the 1970s and 1980s and held steady in the 1990s. During this economic crisis, more men than women have lost their jobs, and women now represent 49.9 percent of American workers.

Women’s economic clout has been growing for decades. Banks and investment firms, eager to earn their business, have launched campaigns to educate women on financial matters and investments. But is wealth management for women really any different than wealth management for men? After all, interest rates, stock prices and other factors are the same for everyone.

So does being a woman really mean we should do things differently?

After years of advising both men and women, I believe there are, indeed, some very important differences. By understanding these differences, women can build more wealth for a lifetime of financial security.

Disadvantages for Women

First, women have a mathematical disadvantage. They live longer than men and they tend to earn less over their lifetimes. It’s a double whammy—lower earnings make it more challenging to build a nest egg, but they need a bigger nest egg to cover more years in retirement.

Whether they are in the paid work force or not, women need to recognize this challenge and pay close attention to financial matters. Women (and men) should be realistic about what it takes to live comfortably to the age of 90. Staying active, healthy and finding work we enjoy are important aspects of any wealth management plan.

Second, I think it’s fair to say that women are more relationship-oriented than men. They are more likely than
men to adjust their career plans to care for children and aging parents.

Economists say this is the primary reason for women’s lower earnings. The gaps between women and men, both in education and in work experience, have narrowed, but women make less because they are more likely to choose work schedules that are less demanding. That may change over time, as younger generations seem more open to a caregiver role for men.

Advantages for Women

While women place a high value on relationships, they don’t tend to link their self-worth to the value of their brokerage account. This can help them avoid costly investment mistakes based on emotion.

In general, women tend to be less speculative with their investments and more likely to stick with a long-term plan. They are also more receptive to financial planning. They want to see the big picture.

A high net worth is meaningful to them because of what it will do for them, not for what it says about them. They understand that by taking care of themselves financially, they won’t be a burden to their children—and that can be the best motivation of all.

 

Cindy Richey is a certified financial planner and president of Prosperity Planning, Inc. in Kansas City.
P     |     816.587.7526
E     |     cindy@prosperityplanninginc.com