Note: This article is part of Morningstar Canada's Women in Investing Special Report
The past few years have seen conversations around gender, gender rights, and equality take center stage. These are not new conversations. It seems like every few years, something happens to bring these conversations back to the front – just to be relegated to back burners a few months or years later.
These conversations are important because the challenges women face are very real – not least when it comes to money.
“Women have different circumstances that they need to plan for than men. Some of these circumstances are that women have longer lifespans than men, they tend to be caregivers for both parents and children, as a result, they may take breaks from the workforce, and even when they do work, they tend to earn less than men,” says Sarah Newcomb, who is a Senior Behavioral Scientist at Morningstar.
Though several of these circumstances, or choices that women must make, fall into the ‘social’ bucket as against the ‘financial’ bucket, all of them have financial implications, and as a fallout, one thing that does get impacted is investing.
“Though this is not true for all women, and depends on a case to case basis, research indicates that though women are excellent investors when they do invest, women tend to sit on cash more than men,” Newcomb says.
However a third of women above the age of 45 are still not confident that they will be able to afford the lifestyle they want to live through retirement, according to a recent RBC/Ipsos poll.
She points out that all of this indicates that women need to make their money work harder by investing, women need to be smart and resourceful with their money, and they also need to make sound decisions along the way.
According to Statistics Canada data from the Labour Force Survey, women in Canada aged 15 and older earned $0.87 for every dollar earned by men in 2017, measured by average hourly wages.
“We simply have to work harder at our finances than men because we have a longer time to plan for, more people to care for, and often lower incomes to work with,” Newcomb says.
How should women accomplish this?
Though there are gender-specific challenges and circumstances, there are no gender-specific rules that could make women automatically great at investing.
“What all people need to do is enroll in some form of automatic savings program. Several corporates allow for an automatic enrollment in a retirement plan, which makes employees choose to opt-out, rather than opt-in”, Newcomb says, as this helps employees save more.
She says that one major mental block that some women, and men as well, have is that they believe that because they can’t save enough, it is not worth the effort to save.
“But not enough does not equal not at all. If you can save $5/week, then start by saving that. When you can raise it to $10/week, do that, and when you can get up to $100/week, do that. Just as you spend a little at a time, you can start by saving a little at a time”, Newcomb advises.
One easy way to save, especially small amounts of change, is by ‘rounding up’. There are some apps that help with this, which round up all spending to the nearest dollar and put the change into a savings account. Once you build up a small amount of savings, you could decide what to do with it. If you use cash, you could collect all your change in a jar and save that. The important thing is to start saving as much as you can, as soon as you can.
However, saving is just the first step.
“The big thing is to have the courage to invest. That doesn’t mean putting all your money into risky assets like cryptocurrencies. It means taking the step towards investing in anything that gets you more than just a savings account rate. It could mean putting money into a mutual fund or an exchange-traded fund – whatever you feel comfortable with,” Newcomb says.
Newcomb points out that research has shown that women score lower than men on financial education tests – but at the same time, they are more likely to acknowledge that they don’t know the meanings or answers to questions.
“It doesn’t mean that women know less than men, it could mean they don’t guess as much,” she says.
People are often intimidated by money, but Newcomb advises women to remember that they should face the unknown, and make their money work harder for them.
“Focus on making [finances] something that isn’t scary,” adds Ilana Schonwetter, Investment Advisor at BlueShore Financial, “take bite sized pieces, one at a time, until you’re comfortable.”
Some final words of advice
Newcomb has some advice for women in investors, and women in general. The advice is not what you would expect.
“My advice is: Go for the Promotion. Ask for the raise. Ask for more money. Women need to value themselves more. While it is important to get 6% as against 4%, but it is even more important to earn more money over years and years. Women should ask for more. That’s the best money advice I can give,” she says.
