A Man is Not a Plan
By Echo Huang, CFA, CFP®, CPA
Recently I heard a story from a 67-year old woman who had gotten divorced after twenty years of marriage. She had raised her daughter at home while she was younger and she didn't get much at all from the divorce. She is now collecting about $900 per month from Social Security income and working part-time to get by while sharing an apartment with others. She is fearful about her financial future because she has never managed money before and it's hard for her to find a job at her age. This month, I also heard another story about a woman who confided to her granddaughter in college that she had stayed in an abusive marriage for many years because she didn't have any control of money. Later, this woman's death resulted from falling down the stairs and was later confirmed not to be an accident. In fact, her abusive husband pushed her down the stairs. Staying because of money had literally cost her her life.
There are many stories like these that made me feel sad, but they have also made me more certain than ever that a man is not a plan.
Women face unique challenges in planning for a secure financial future while going up against these facts:
- Women earn less than men even though more women have a college degree than men. According to statista.com, in an impressive increase from years past, 35.3 percent of women in the United States had completed four years or more of college in 2018. This figure is up from 3.8 percent of women in 1940. A significant increase can also be seen in males, with 34.6 percent of the U.S. male population having completed four years or more of college, up from 5.5 percent in 1940. More women in the US have a college degree than men, but the average woman's unadjusted annual salary has been cited as 78% to 82% of that of the average man's as of 2015 (and hasn't changed that much today).
- Women tend to choose occupations that are not highly paid. 40 years after Congress banned sex discrimination in American education, we still see women choosing the lowest-paying jobs. Women make up 55 percent of middle-skill workers, but 83 percent of those in jobs that pay less than $30,000 a year, according to the Institute for Women’s Policy Research. And the median wage for women with a certificate is $27,864, compared to $44,191 for men, the Georgetown University Center on Education and the Workforce reports. Much of that gap is due to occupational segregation —women clustering in low-paying careers including cosmetology and child care and men in more lucrative professions such as welding and automotive repair. In addition, more men choose highly paid careers that require a four-year college degree such as science, technology, engineering, and finance. Women tend to choose nursing and education. The stereotype that boys are better with math and science is not true but many girls lose interest in math and science before the age of 15. There are only four or five years in which governments, teachers, and parents can influence girls to stay interested in math and science. Girls are more likely to pursue a career in these areas, it’s been shown, if they think men and women will be treated equally in the workforce.
- Women spend an average of eleven years out of the workforce caring for a relative or children. That time is usually spent not saving for retirement. Women spend as many years caring for their elderly parents as they do raising their children. Women have lower Social Security benefits as a result, as those benefits are tied to earned income history.
- Women live longer than men by about 7 years. In the United States, the average life expectancy for men is 73.4 years, whereas the average life expectancy for women is 80.1 years. Women overall tend to take better care of their bodies than men do, because of the pressure to stay young and beautiful. Men feel the need to be strong and powerful, therefore, they often put their bodies through many risks and challenges. Women tend to pursue activities that are better for their overall health and longevity and tend to benefit more from modern medical advancements. Women pay more for clothes and personal care in general. The total cost for women to maintain the same lifestyle as men costs a lot more during a lifetime.
- More women are single because American adults are far less likely to be married than they were two generations ago. In 1950, married couples represented 78 percent of all households in the United States. In 2011, the US Census Bureau reported, that percentage had dropped to 48 percent. In 2014, the Bureau of Labor Statistics reported that 124.6 million Americans 16 years and older were single, or 50.2 percent of the population, compared with 37.4 percent of the population in 1976. Many grown women with real jobs still seem to think they can put off financial planning, however - everything from contributing to a 401(k) plan to buying a house, thinking "This will all be taken care of when I get married.” Do not wait to make major decisions until you get married because the reality is that Prince Charming may never come.
- The high divorce rate in the United States. About 40 to 50 percent of married couples in the United States divorce. The divorce rate for subsequent marriages is even higher. "I have a husband who manages investments" is not a solution. Overall, retirement savings for most Americans are insufficient, and divorced women have even lower retirement asset balances and income to plan for their financial future.
- Women stay in an abusive relationship much longer when they do not know how to manage money. They sacrifice themselves for raising children because they do not want their children to suffer from financial disasters. Some women, even highly educated women, give up their careers to raise children. When they already don't earn income and don't feel confident about managing money, losing the love of their partners contributes to their lower self-esteem.
The fact is, an increasing number of women will end up managing money on their own because they've been divorced, widowed, or have never married. All these unique challenges for women make planning for a financial future even more important. A man is not a plan.
So what can women do now to own their financial future?
I believe that meticulous planning, right now, can prepare you for uncertainties in your future. You can start planning now even with limited money. Here are some tips for women to take action now. See how many apply to you and your situation:
- Educate yourself about the basic functions of personal financial planning, such as goal setting and budgeting. You can visit the website for the Foundation for Financial Planning for available resources. In addition, you can sign up for our monthly newsletter on our website and other financial blogs to learn more going forward.
- Set some short term and long term goals. Your goals must be specific and have deadlines. For example, pay off the credit card balance in 12 months. Save $500 per month to put six months of living expenses in your savings account as an emergency fund by December 31, 2019. Contribute 6% of your earned income to your 401(k) plan to get the maximum employer's matching contribution.
- Spend less than you make. Start creating a monthly budget and stick to it by using some free online tools such as www.mint.com to see exactly how you spend your money. Remind yourself often Your Needs are different from Your Wants. Your Needs are essential expenses such as shelter, food, basic clothes, and health insurance, etc. Your Wants may include entertainment, dining out, vacations, private schools for children and nice cars. If you haven't saved enough, review your discretionary expenses carefully and start trimming them now to direct the savings to your top priorities such as paying off high-interest rate credit cards and saving for an emergency fund.
- Create a financial plan before you invest. This plan can be a simple cash flow plan that shows your projected income and expenses over multiple years. Being able to see a detailed cash flow report helps you understand your time horizon and how much risk you can afford taking. If you don't know how to do this, you can hire a financial advisor/financial planner to do this with you.
- Maximize your contributions to your 401(k) to get 100% of employer's matching. Don't leave free money on the table, because you might stay at the same job long enough to receive the vested matching contributions. For example, if you contribute $3,000 per year and receive $1,500 in matching contributions, even if your investment return is zero for the year, your contributions would earn 50% rate of return for one year.
- Diversify to successfully invest. Picking a few stocks does not provide enough diversification to reduce risks. Asset allocation is an investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance, and investment horizon. The three main asset classes - equities, fixed-income, and cash and equivalents - have different levels of risk and return, so each will behave differently over time. Please note that a trusted advisor can help you decide how to approach asset allocation to maximize risk-adjusted return to help you achieve your goals.
- Start investing early and consistently during up and down markets. When the markets are down, you can buy more shares of stocks or stock funds with the same amount of investment. What matters is the time in the market, not the timing of the market.
- Learn more about emotional biases and cognitive biases. I discussed in previous blog posts and how to mitigate the negative consequences of bias in order to have a successful investing experience.
- Compound your return. The magic of compounding is more magical if you have the time and the investments are in tax-free accounts such as Roth IRA, Roth 401(k) and a Health Savings Account.
- Assess your skills, strengths, and experiences in order to get a better and higher paying job. In order to increase your income and happiness, consider using these two tools: The Kolbe A Index, and the DiSC Profile. Knowing yourself better can help you nail down the job that can use most of your strengths.
- Network continuously to learn from others and to help others. Without networking, I would not have found my dream career in personal wealth management in 2000 while I was working as a tax CPA with KPMG. Without networking, I would not have had the courage and wisdom to start my own business in 2003 with LPL Financial.
- If you are married but don't know how your husband manages your investments, it's time to be engaged in the discussions of what money can do for you and how you should create a plan to manage money better. You can work with an advisor to facilitate the discussions and create your financial plan based on your priorities and goals.
- If you don't have a financial advisor and don't want to do this alone, you should look for the right financial advisor to partner with you. There are 450,000 financial advisors in the US, but there are only about 75,000 advisors with the CFP® (Certified Financial Planner) designation. The Financial Planning Association (FPA) has a search function to find planners based on your criteria: www.plannersearch.org.
- If you currently have a financial advisor but are not satisfied with the services, you should interview a few to find the right one. I suggest that you focus on a few key criteria in addition to a good personality match: fiduciary standard, depth of knowledge and training, team approach and growth mindset. It's important to know how the advisors are paid. Only CFP® certificate holders are required to follow the higher ethical standard (the fiduciary standard) requiring them to make their recommendations based on their clients' best interests.
I'm proud of adding three associate wealth managers to my firm. As we have expanded our services to younger Gen Y clients recently, now even if you don't have $1 million in investable assets, you can contact us for a complimentary call to see if our firm is the best fit for you and your family.
Do Americans know how to manage money? Some of the statistics aren't encouraging. About 63 percent of the nation's residents could not pass a basic financial literacy quiz. According to the Federal Reserve Board, 40 percent of U.S. adults don't have enough savings to cover a $400 emergency. We must work on improving financial literacy by requiring public schools to offer classes in financial literacy in all states.
Empowering women can change the world for the better. I hope to empower more women to earn more, save more and invest wisely in order to have a secure financial future. For women who are good with numbers and want to help people, personal wealth management can be a great career. I found this dream career after I tried banking, private accounting, and public accounting (auditing and tax services). The Bureau of Labor Statistics reports that women represent 31 percent of U.S. financial advisors—a definite minority, but still significantly higher than the 23 percent who are women CFP® professionals. Attracting and retaining more women CFP® professionals will help more women become better investors, because they may prefer to discuss their money issues with women advisors.
Remember, your future is yours, so believe in yourself, and believe that success is achievable as long as you are willing to dream, learn from failures, plan meticulously and deliberately, and then take small actions to get you to the next goal. Monitor your plan over time, and position yourself to seize opportunities as they arise. This doesn't mean living with only the end in mind. Your dreams may change, so be flexible and adaptable, and above all, remember wealth management can be complicated, but it does not have to be, so get the right help and make sure you enjoy the journey.