Finance by Betsey Purinton | illustration by Ashley MacLure
A Good Financial Education
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Questions women need to ask “Can I ask a question?”
a female client queries, in a tone that implies questions might be an unwelcome part of investment management. It bothers me when I meet a woman for the first time and she doesn’t feel entitled to financial education. Women still earn less than their male counterparts in the workforce, but the income gap is declining, according to a study by the Boston Consulting Group. As women’s earning power increases, they participate more in financial decisions, with 30% of women in the BCG study saying that they make investing decisions alone and not with a spouse or family member. Greater independence has not necessarily led to greater security, however. In a survey by Mass Mutual of its retirement plan participants, women were significantly less confident in making their own investment decisions (25.9%) than men (44.1%). In addition, the “fear gap” is widening. The fear gap is the difference between men and women’s anxiety over retirement savings. 75% of women surveyed said they were concerned about not having enough retirement savings vs. 63% of men. Additional studies show that women are more risk averse and less confident than men when it comes to investing. A common explanation is tied to the fact that women earn less, have smaller pensions and receive less in Social Security benefits. Since they statistically live five years longer than men, security becomes more elusive, leading them to be more conservative. Regardless of risk tolerance or confidence levels, 90% of women, at some point in their lives, will be responsible for their own finances. This statistic alone calls for women to ask good questions and educate themselves. Women feel comfortable when it comes to asking the financial planning questions, but not so much the investment questions. I find that women like to think longer term and prefer to have a clear set of goals. They evaluate their investments based on whether or not they are on track to meet their plans,
but it is the goals, not the investments, that demand the most attention. Take Erika. Her questions were very specific. She came to me when she was about to settle a suit related to the death of her mother. She knew that she wanted the settlement earmarked for her nieces and nephews, but she also wanted oversight of the distribution of money. The family relationships were complex and she wanted to ensure that her mother’s wishes would be carried out.
Erika’s primary question was, “How can I set things up so that the money goes where I want it to go during my life and afterwards?” As someone who managed a number of real estate properties, Erika was comfortable talking about money. However, she admitted that there was a lot she didn’t know and wanted to fully understand her options before making any major decision. Joan described herself as “lacking in confidence.” Over time she had adopted a fairly predictable lifestyle to keep her in her comfort zone. She was on track to have a decent retirement until life threw her a curve ball. For Joan, it was a divorce and a sudden drop in income. Long out of the labor force, she sold her house, left her neighborhood and headed back to a childhood haunt, where she needed to find new employment.
Joan’s questions included: • Can I afford to do this? • How long do I have before I need to find work? • When should I buy a house? At what price? Joan knew she had to change her life and had taken some bold steps to initiate that. Her goal set had been altered, leaving her with a lot of unknowns. While she felt she lacked confidence, she knew what to ask. So if women are good at asking the financial planning questions, what should they ask about their investments? I contend that there are a few simple questions everyone should have the answers to if they put their money in the markets in a sputtering investing environment. How much risk am I taking on? Risk is the chance that your portfolio will perform other than expected. Risk allows you to make money and to lose money. It is important for you to understand your risk tolerance to determine how much. What do I own? You would be surprised how many people can’t describe what the funds in their accounts actually hold or do. Knowing helps you avoid being blindsided by an unexpected loss. Why do I own it? Usually you choose a fund for a good reason, but that reason can change over time. If it has, you need to consider whether something else would be more appropriate in your portfolio. Will what I own get me to where I want to go? Longer term, what matters is that you meet your life-long goals. If your portfolio can’t do that, you may be forced to make unwanted changes to your lifestyle. Over time, it is easier to change the portfolio than the way you live. My advice is to ask a lot of questions. If your questions aren’t answered fully, ask again. And if you still feel you don’t understand, ask someone else. Everyone deserves a good financial education. Betsey Purinton, CFP® is Managing Director and Chief Investment Officer at StrategicPoint Investment Advisors. You can e-mail her at bpurinton@strategicpoint.com.
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