We like to think we are becoming a more equal society, but women continue to face a particular set of challenges when it comes to managing their income and planning for the future. Jo Noon, head of Cockburn Lucas for Women, explains why women need to take a different approach when arranging their finances.
A recent study by the Resolution Foundation suggests that the pay gap between men and women is closing – but only up to a point. For Millennial women in their 20s, the pay gap has narrowed to just 5 per cent, suggesting significant progress since Generation X (which had a gender pay gap of 9 per cent at a similar age). However, when Millennial women (who may be born as early as 1981) hit their 30s, the gender pay gap rises again to its previous high level.
The obvious reason here is motherhood – when women reach the age at which they want to start a family, their earnings take a dive. In many cases, this dip will be permanent, as earnings fail to recover their previous levels even after the woman returns to full- or part-time work.
But it’s not just this earnings break (plus an overall earnings gap) that women have to contend with. Typically the shape and pace of a woman’s financial life is different from a man’s, women on average display different financial behaviours, and there are numerous other factors that may come into play. The upshot is that financial planning may be markedly different when a woman’s finances are involved. Here are the key reasons why you as a woman may need specialist advice that takes this into account.
The reality of ‘feminine finances’
Women face a combination of different pressures on their finances, both from society in general and personal circumstances. Here are the most significant ones.
Gaps in working life
A significant 27 per cent of women with 1 to 3 dependent children are only able to work part time for many years. This will impact on their income levels and may also influence their protection needs.
Research shows that nearly three quarters of women don’t know how much they need to save to ensure a comfortable retirement, compared to 52 per cent for men.
The Office of National Statistics reveals that 42 per cent of marriages now end in divorce, and that the number of people aged 55+ divorcing has reached an all-time high. Women may need expert planning regarding potential pension sharing orders, investment of assets received as part of divorce settlement, and changing income requirements. This is particularly true for divorcees in retirement.
Women outlive men
Despite this well-known fact, just 36 per cent of women have sought help from a financial planner compared to 46 per cent of men.
The balance of wealth is shifting
This one’s a more positive piece of news for women. It has been predicted (by the Centre for Economics and Business Research) that by 2020 a higher percentage of the UK’s wealth will be held by women, mainly due to divorce and greater longevity.
Lower returns than men
Women are generally held to be more risk-averse than men, and investment is one of the areas where this difference has been demonstrated. In light of the typically longer female lifespan, this risk-aversion may be causing many women to miss out on greater long-term returns from their investments.
When we consider that some women are now likely to live for 35 years in retirement, unnecessarily low returns could have a serious impact on their long-term income. Longer life expectancy should translate into higher risk tolerance, not lower – so it’s important for women to recognise these factors. It can help to consult with a female financial planner who can relate to this psychological paradox and carefully explain the risk-reward relationship. This is also an area where a human adviser – woman or man – makes a huge difference over any online tools, as it can provide the all-important personal approach to help women make appropriate choices for themselves.
Outcome and goal-based investing
Whereas men tend more towards looking into the detail and statistics behind their investments, women are more likely to focus on the intended outcomes of their investment decisions (e.g. paying off a mortgage, funding school fees). Consequently, women will be more in tune with the concept of goal-based investing, and should seek an adviser who will take this approach.
The gender pay gap
The old adversary is not quite vanquished. Multiple studies show that women continue to be severely affected by gender discrimination where salaries are concerned. The knock-on effects of this are significant and numerous, ranging from smaller pensions and savings to inadequate protection. As noted above, the recent narrowing of the pay gap is much less in evidence once women start families, so there is still much progress to be made here. Any financial plan will need to take the earnings gap into account.
This is not to say that all men look at money in a particular way, while women do so in another. But our experience has shown that women can benefit greatly from a tailored form of financial advice that takes these factors into account. Cockburn Lucas has even set up a special arm of our service, Cockburn Lucas for Women, to focus especially on what women want from their finances.
Jo Noon is an IFA at the Nottingham-based firm Cockburn Lucas and is head of Cockburn Lucas for Women.
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