“Investing is far too risky. I’m better off leaving my money in the bank.”
I hear this all the time from women, along with “I don’t have time to invest.” And, “My partner is better at managing our finances.”
Learning about personal finance, and especially investing is daunting for many women I know. I get it. We’re not given the know-how in school and from a very young age we’ve been socialized to believe money is a man’s world. Plus there’s so much conflicting information out there what are women supposed to believe?
So when personal finance experts like me hound you to start paying attention to your money, it’s tempting to brush us off and carry on as you always have.
Please stop. Please hear me out.
Here’s the ugly truth. If you are not currently growing and protecting your wealth, and if you’re not paying attention to your own finances, you are 80% more likely than a man to live in poverty during your retirement years, and you’re very likely to outlive all your savings.
Did I scare you? Good. Because if that’s what it takes to get you to be actively involved in your finances, then mission accomplished.
A 20% Wage Gap Can Cost You a Happy Retirement
If you’re as infuriated as I am about making less than men in today’s world, imagine this:
Suppose that this 20% gap means you’re pocketing $10,000 less than a man every year and this continues over 20 years. That’s $200,000 you lose out on. Now imagine if you had invested that extra $10,000 every year and earned 8% on it. You’d end up with $504,000.
So by making less, you’ve forfeited $200,000 and potentially $504,000 or more.
But wait…your income also determines how much pension you’ll receive in your retirement. Oh, and did you take a career break to raise a family? Sorry, that will cost you – both in lost salary and in your pension.
So before you know it, you’re out some $700,000 just because you’re a woman! That’s the difference between a nice retirement and stressed retirement…or no retirement at all.
90% of Woman Will Be Forced to Manage Their Own Money
It seems like a good idea to leave the finances to someone else, until it’s not.
With the divorce rate at 40% in Canada and rising to all-time highs in most countries in Asia, women can’t ignore the fact that they will be left to their own device to manage what’s left of their share of a divorce or separation settlement.
And if you’ve never managed your wealth before, or money is not a topic you’re comfortable speaking about, there’s a high chance you’ll get the raw end of the settlement deal.
It’s also very possible that you will outlive your spouse because typically the lifespan for women is longer.
Learning how to handle your money when you’re in an emotionally or physically fragile state is not the time to be learning about your finances. I’ve met so many women who at this point are panicked and depressed, and are not sure who to turn to.
The Real Risk Women Face
There are three major mistakes I see women make when it comes to their money.
1) Not Investing
We’re not fixing the wage gap overnight. In fact, the prediction is it could take 200 years to close it. While I urge all women to be vocal on the matter, and ask for raises they deserve, the trajectory of the change is mostly out of our hands.
What is in our hands is how we manage the money that we earn. We have it in our power to save our money, spend it more wisely, and most importantly invest in a diversified investment portfolio to build wealth.
The latter doesn’t require taking a massive amount of risk. It does require spending some time learning about investing. You’ll have to take a bit of risk to earn a greater return than what’s being paid to you by a bank on the money you have stashed in your savings account – which is basically nothing. When you have the capacity to earn 6-8%, you’re taking advantage of the power of compounding and your wealth will grow quickly in the later years.
2) Entrusting Their Partner to Manage Their Money
Women are always surprised when I show them charts that compare men’s financial knowledge with women. Women rank lower than men, but men’s knowledge on financial matters is actually not very high.
I’ll tell you what is high. Men’s confidence. In fact, they are often over confident in their ability to manage the family wealth and too often narrow-minded in their approach (making money rather than looking at the overall financial picture and goals setting).
Let me tell you what else is real. Financial infidelity. Twenty percent of adults in relationships hide money or are doing risky things with it, without the other partner knowing.
Knowing this, are you sure you don’t want to get involved in managing the family money? At the very least, you should be aware of where the source of your livelihood is coming from and where it’s going.
3) Underestimating their Capability
I mentioned this before and I’ll say it again. The lies women are fed that money is a man’s world is just that – lies. Women are incredibility holistic in their thinking, are more risk aware than men, and make better decisions with their money…that is WHEN they are armed with knowledge.
So take some time to learn one of life’s most valuable skills. Because investing in your best life takes that – an investment in time, in knowledge, in awareness and in managing your wealth better.