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Five things women need to know about money

Wednesday, October 5th, 2022 09:20 | By
Shilling
Kenyan currency. PHOTO/Courtesy.

Our relationship with money has been altered by many life-changing events that have happened in the last few years, the pandemic being one of them.

The events nudged many of us to think about our safety nets, examine our spending and start investing to fund long-term financial goals. Yet when it comes to women and money, the narrative is still incomplete.

The gender pay gap has widened; our pensions tend to be minor; we generally live for longer, spend more of our lives caring for others and all of this negatively affect our finances.

As someone who has been in the financial services business for more than 20 years, I worry that focusing on the negatives is a further barrier to engagement. Rather, I want to present some ideas about money that could shift your mindset.

In the five areas below, hopefully there’s a practical takeaway that women everywhere can act on.

Generally speaking, women’s investment style differs from men’s, and this is often not supported by the products or advice available in the marketplace. Research shows that women are more likely to seek advice and stick to it, have a more goals-based approach to investing and require efficiency in terms of communication and administration.

Women investors are less likely to succumb to market timing and overconfidence bias, and more likely to do extensive research before making investment decisions.

The effect of earning a lower income impacts every aspect of a women’s portfolio – personal insurance, lower investment contributions, reduced bonuses, commissions or incentives, a weaker capacity for wealth building, and a lower net asset value over time, exacerbated, of course, by the fact that women generally live longer than men and therefore need to save for a longer, potentially more expensive, retirement.

However, studies show that lack of money, rather than lack of confidence, is a major reason more women do not invest. Closing the gender pay gap requires women to be more proactive and ask for a pay rise.

Much of the dent to women’s earnings potential occurs after they become a parent, but financial planning can help lessen the impact.

There are specific education plans that are structured for parents’ savings needs. The policies enable you to build a fund over a period of time, making suitable provision for school/college fees requirements.

A man reaching 65 today will on average live to 84.3 compared to a woman’s 86.6 year lifespan, according to research. The amount of savings women need for retirement is higher because of their longer life spans.

The longevity risk faced by women has a number of key implications for their financial planning. Firstly, while women generally have a longer investment horizon, investment growth is often interrupted as a result of career interruptions for example having children. Secondly, although women need to save more than men as a result of a longer period of retirement, the disparity in earnings often makes this difficult to achieve.

While a longer investment horizon should allow women to take on more investment risk, research shows that women generally tend to not have sufficient growth assets in their portfolio which, in turn, reduces the purchasing power of their capital over time.

It is important that women take control of their retirement planning and seek appropriate policies.

When it comes to planning for the future, research is clear: those who have a financial plan save more. With this in mind, women should be encouraged to take concrete steps early on to strategically manage their finances through the various life stages that are unique to women.

A positive first step is to find a financial advisor who understands and appreciates the specific needs and challenges that women face.

Together with your advisor, you should be able to develop a long-term strategy for financial independence which is flexible, robust and tailor made for your unique purposes.

—Catherine Karimi is the Chief Executive Officer, APA Life Assurance Limited

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