LOOKING THROUGH THE GENDER LENS

Woman_with_wealth.jpgLast week, we celebrated International Women’s Day. Adopted by the UN in 1975, we recognize this global day of advocacy to celebrate women’s work and to promote women’s rights. It has been a troubling year hearing women’s stories of facing sexual harassment in the workplace and elsewhere, but yet a momentous year of watching women gain a collective voice against this treatment. The #Me Too movement has catapulted women’s rights to one of the top national conversations and focused attention on the goal to removing gender bias in many aspects of our culture. You’ve come a long way, baby, indeed!!

This conversation has also put the spotlight on the gender gap for pay and hiring practices. According to an article in Businessweek, working women still earn between 57% – 80% of the salary of a working man, depending on whether they are white, black or Hispanic. Women’s pay is catching up, but is predicted not to achieve equal status until 2058. This affects all of us, as women have less opportunity to save, contribute to Social Security and participate in the economy. Saving adequate retirement savings is harder for women. Women are able to save less for several reasons, the gap in pay being one of them. There may be career interruptions for children, a need to pay for child care while in the workplace, higher healthcare costs and, of course, women live longer, which all puts a strain on women’s ability to save for retirement and have adequate means when older.

Adding to the difficulty in obtaining adequate saving levels, research has shown that women are, on average, less risk tolerant in their financial decisions than men. According to Associate Professor from the University of Missouri Rui Yao, women and men do not think of investment risk differently, but income uncertainty affects women differently from men. That uncertainty may result in women keeping funds in asset allocations with lower expected returns to “buffer the risk of negative income shocks”. This can be a concern for any investor with low levels of risk tolerance, as they might have greater difficulty reaching their financial goals and building adequate retirement wealth because they are less likely to invest in more growth-oriented asset classes with bigger returns, like equities. “Risk tolerance is one of the most important factors that contributes to wealth accumulation and retirement,” said Rui Yao. At DWM, we review the risk tolerance of all of our clients very carefully. We make sure that their investment strategy matches well with their capacity for risk, as well as their tolerance for it, while making sure that they can achieve their goals for financial independence.

Despite fighting issues of sexual harassment and glass ceilings in the workplace, women have made some remarkable gains in their financial status. In 40% of American families, the primary breadwinner is a woman and, for the first time in history, women control the majority of personal wealth in the U.S. In fact 48% of all millionaires are women. Also, women will benefit immensely in the future transfer of wealth – from husbands who are older and die sooner or parents who now bestow equal inheritances to sons and daughters. Breadwinner women may control more wealth, but there is still a shortfall in other areas.

There are many arguments for equalizing our gender dynamics at home and at work – there is no doubt that enabling women to achieve their full potential is certainly better for women and their families. There is also a universal financial argument to be made. By some estimates, according to Sallie Krawchek of Ellevate Network, if women were fully engaged in the economy, GDP would increase by 9%! Ms. Krawchek’s article also cites multiple studies that conclude “companies with diverse leadership teams” outperform other companies on metrics including higher returns on capital, lower risk and greater innovation. This translates into healthier corporate environments that are rewarded on the bottom line. That is good for men, women and families! All of the reasons for closing the gender gap are important, but the financial benefits for everyone are significant and certainly can’t be considered controversial. As someone once said, “It’s the economy, stupid”!

While there remain roadblocks to women achieving equality in their financial status with men, we do think having these national conversations and educating both women and men on the benefits of empowering women will begin to make progress. We agree that deficiencies in retirement savings and the economic engagement of women are highly related and we hope changes are coming. At DWM, we look at the total wealth management for all of our clients equally and with consideration for every one of their life situations. We know that anything that has a positive effect on the financial success of women is good for us all.