Knowledge is power
For many years the world of finance was a male-dominated space, but increasingly women are getting involved and learning to manage their (and others') finances. Yet, many women remain hesitant when it comes to taking financial risks and making investments. Seven in 10 men and nearly half of women report that the husband takes responsibility for long-term financial decisions, such as investing and financial and estate planning. Poppy Fox, an investment director and advocate for getting more women involved in finances, tells us the challenges women face and how to overcome them to take control of their finances, and their future.
According to Quilter Cheviot, recent research shows that 45% of women are not confident in their finances and, if their relationship were to end, would not know if their own long-term financial plan would be enough to live on. On a similar note, research carried out on Generation X (those born 1965-1980, inclusive) and Millennials (those born 1981-1996, inclusive) showed the total invested by women in these demographic groups equated to £10.7 bn and £3.6bn, respectively, less than half the amount invested by men (£21.4bn and £7.9bn, respectively). There is no objective reason why women should not be more involved in finances and should not have their own investing plan. Women are expected to control 65% of the UK's wealth by 2025, due in part to a higher-life expectancy than men, so why are more women not getting involved?
Gender “penalties”
Poppy Fox, investment director at Quilter Cheviot, reveals that women face structural hurdles when it comes to finances. The well-publicised gender pay gap is only one example. According to the Office for National Statistics (ONS), the gender pay gap among full-time employees in April 2022 was 8.3%. This figure is up on the 7.7% in April 2021 but less than the 9.0% in April 2019. This suggests the Covid-19 pandemic may have set back some of the progress made in reducing the gender pay gap in previous year and also shows less money to invest. There are also other challenges to consider, which Fox calls “penalties”:
- Motherhood penalty - mothers earn 20% less than fathers ten years after the birth of their first child (Social Market Foundation Research) and very few new parents opt to take shared parental leave. The same study displays the difference in the working place for mothers and fathers: for women across the UK aged 35-45, the median weekly pay of those with two children in the household is 26.1% lower than among women with no children, whereas men with two children have a median weekly pay 21.8% higher than men with no children. In London, this “motherhood penalty” is even higher at 30.0%. At the same time, the “fatherhood premium” is much lower in the capital at just 2.3%
- Childcare penalty - 65% of mothers work compared with 93% of fathers, according to ONS statistics. Some experts recommend that it is beneficial for both parents to reduce their workload, so their taxes and pension contributions are distributed more equally. However, many parents do not choose to work part-time due to the high cost of childcare. In this scenario, the woman usually puts their career second.
- Good daughter penalty - typically many of the informal care responsibilities performed in families are assumed by women, such as taking care of elderly family members. Those who provide informal care for sick and elderly relatives already help the economy save a staggering £130 billion annually, according to Carers UK. These workers are predominately female (around two-thirds), according to research from the Department for Work and Pensions. However, they are not paid, and they are undoubtedly not eligible for pension benefits.
- Menopause penalty – while notable progress has been made on the above mentioned “penalties”, shockingly the menopause is still seen by many as a taboo subject. One in 10 women employed during the menopause have left work due to menopause symptoms, 14% reduced their hours at work and 8% decided against applying for promotion.
These “penalties” can all contribute to women have a smaller pension pot than expected. Add to that longer longevity, and the pension pot is spread even more thinly.
If all of these struggles were not enough, Fox points out that, in her experience, women tend to be more risk aware, meaning they want to have all the facts before making an investment. This can lead to decision paralysis. Even though women tend to save a lot more money than the “shopaholic” stereotypes suggest, they take less risks while investing, which leads to less return in the long run.
“You cannot change what you do not understand”
This popular quote from American writer Orson Scott Card explains one of the biggest challenges when it comes to women and finances: lack of information due to years of being left out of the conversation. Fox encourages women to educate themselves as early as possible to raise awareness of these hurdles and take the necessary measures to avoid them. “Knowledge is power, being aware of these hurdles allows you to make sure you are not in that scenario where you need to completely sacrifice your family time or take a second job to compensate for the financial losses”. Given that women overall tend to live longer, it is particularly important to grow assets when it comes to pensions – it is hard for many to survive comfortably on the state pension of £141.85 per week.
What steps can women take to engage in the financial world?
- Educate yourself - Poppy Fox suggests reading articles, attending webinars, increasing knowledge about finances in general and learning how this can be beneficial for someone’s particular situation. “If you are younger and want to increase your pot you can potentially start with a Managed Portfolio Service, they do not require very large sums. For instance, at Quilter Cheviot, our MPS starts at £20,000 if you have a financial adviser (or £40,000 if you do not). “Talking to a financial adviser is a great start”, said Fox. Poppy and her colleagues at Quilter Cheviot have been putting resources together tailored for women. In their Women and Investing Hub you can find interesting and useful reads, as well as past and upcoming webinars on investing and general financial education.
- Make a plan - you can of course talk to an investment manager or financial planner, but if you feel more comfortable taking the first steps on your own, Fox recommends setting up a savings sum (it can be £50) and make sure you set that aside every month. “Just get started. It is never too early to start investing and you do not need to be a millionaire to do it,” said Fox. There are a series of webinars on the Quilter Cheviot website (https://www.quiltercheviot.com/news-and-views/women-and-investing/women-and-investing-webinars/)offering help to overcome some of the investment barriers women face throughout their lives and the impact these can have on female financial planning.
- Do not have too much cash around- “It is always a good idea to have an emergency fund but keeping too much money in cash is not a good option at the moment” said Fox. Chances are you will lose money in the middle to long term, and that’s what investment is for: by investing, you are putting your money away for 5+ years.
Do not put all your eggs in one basket
Involving women in finance is Fox’s purpose, and not only has she been trying to engage more women to take control of their own finance, but also to be included in the conversation from the start. Thanks to her experience, she already gathered some very useful tips for women. In addition to the options already mentioned, Fox recommends women to engage early on: “Most of the time women live longer and sometimes they only get in touch with us when they lose their partner, because that’s when they must make financial decisions,” she said. “We try to engage both partners in our investment plan because, even though usually the husband or the man is the one that initiates the contact, we have a responsibility to get both parties involved early on. We want to make women aware of the fact that you do not want to start getting involved in finance when you are potentially most vulnerable. If you just lost a beloved partner, do you want to start going through all this? It is definitely better to get involved before that point.”
It is not news that women have faced many hurdles when it comes to their personal finances, and unfortunately, they still do. Engaging in the matter and having early conversations with your boss or partner will lead to a more successful financial life, and consequently more freedom in the years to come. Once again, knowledge is power!
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