As we move forward from Financial Literacy month in April, financial literacy is especially important for all of us, but especially so for women and children. Improving financial literacy is important for everyone across all groups and for our economy as a whole.

Financial literacy issues for women

Overall, women have significantly lower rates of financial literacy, with 3.8 million American adult women having financial literacy skills that rank below a basic level. To add to this:

• Women make up the majority of caregivers; they are three times more likely than men to quit their jobs to care for a family member at some point during their working years.
• Women make on average 17% less than men. Pay equity for women is not expected to happen for at least another 43 years.
• Even though women are more likely than men to complete college, they are also more likely to incur student loan debt in the process. The combination of entering the workforce and generally receiving less income than men often forces them to hold off on paying off their debt, while interest continues to accumulate. To add to this:
• Women carry 58% of all student loan debt.
• Women’s loan totals are, on average, 9.6% higher than that for men graduates.

Further, include shortfalls in retirement planning for women, and it is easy to see why improving financial literacy among women is so important.

• IRA and 401(k) balances for women fall short compared to these balances for men. This is even more of an issue when we take into account that women tend to outlive their male counterparts.
• Both single and married women prioritize their children’s needs and owning a house over preparing for retirement.
• Women are three times as likely as men to say that they cannot afford to set aside money to save for retirement.

Jeff Runyan, Wealth & Investment Advisor, of Runyan Capital – Securities and Advisory Services Offered through Wedbush Securities Inc. says, “Studies have shown that women have characteristics that can help them be more successful investors than men due to their conservative investment approach. Women tend to exhibit characteristics like patience, a focus on long-term goals — including paying down debt, and are less likely to be influenced to make changes to the portfolio from a conversation with their peers. However, women tend to save versus invest, hurting them financially over time.”

This reinforces that overcoming such obstacles as living longer, taking time off work to care for loved ones, making less money for equal amounts of work and lower financial literacy rates demands focused planning and education to help improve financial literacy and retirement readiness for women.

As an example of this, Runyan adds, “Women tend to use low-risk investment alternatives, like cash, savings/checking accounts, and certificates of deposit. At the same time, men are willing to accept a higher degree of risk, which brings them greater returns over time. The compounding interest effect on women’s returns, even if they are naturally better at staying focused on goals, keeps them from reaching the success they otherwise are entitled to. Fortunately, the investment gap is closing as more women are participating in the market and starting to invest at younger ages.”

Financial literacy for children

Studies have shown that our financial literacy habits are in place as early as age seven. Instilling good habits such as opening a savings account to be able to buy something they want can leave a lasting impression and cultivate good financial habits for a lifetime.

Start talking with your children about money values early on.  This includes what to prioritize and how to create a budget. Use cash as a tangible teaching tool rather than a debit card, and discuss investing in their college education. These lessons are as, or perhaps more, important than anything they will learn in college in that the ability to manage their finances will allow them to keep more of what they earn regardless of what they do careerwise.

How to start investing for retirement and for your future

As with anything that might be new or daunting, start with small steps.

• Learning about your credit score. Good credit is the key to so much in life, including the ability to get a mortgage and even landing a better job.
• Keep track of your personal debt. This is a key component of your credit score and reducing your debt load can free up money for other financial priorities such as saving for retirement. Along these lines, be sure to pay off overdue bills and to earmark funds towards paying off debt on a monthly basis.
• Open a savings account. This is a key first step towards saving and investing for many.
• Make a budget. This allows you to track where your money is going as well as what is coming in.
• Listen to a financial podcast, or perhaps several. There are many great podcasts available on a variety of financial topics. You can listen to a podcast while doing other tasks.

These steps apply to all of us, not just women.

As far as retirement, talk with your financial advisor about the best retirement savings options for you. This might be an IRA, a workplace retirement plan like a 401(k) or other options like an annuity. Our financial advisors here at Wedbush want to help you reach your retirement and other financial goals.

Disclosure

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.