Why it Costs More to be a Woman
In our society, women’s money experiences are vastly different than men’s. Money is divided along gender lines in ways that might not be obvious at first. Women are at a disadvantage when it comes to earning and saving. It also costs more to be a woman. These differences add up and ultimately impact a woman’s ability to retire in an equal manner as a man.
Women are at a disadvantage when it comes to earning and saving. It also costs more to be a woman.
The Pay Gap
On average, women still live longer than men do. This means that, to have the same quality of life after retirement, women have to save more than men. Their retirement pot has to be bigger because it has to last for a longer period of time.
Women also have to save more as a percentage of their income. Let’s say we take the popular statistic that women make 78 cents to every dollar that men make. If men save 10 cents of that dollar, women have save 10 cents from 78 cents to be on an equal footing. In addition, because we live longer, we have to save even more (say, 12 or 15 cents out of that 78 cents).
We all know how hard it is to save 10%, 15% or 20% of our take-home pay. On a lower base, it’s even harder for women because it’s not like rent or food is cheaper for women. In fact, when it comes to women, many consumables are even more expensive.
Women generally live longer than men do and have to save more as a percentage of their income for retirement.
The Pink Tax
Gender specific consumable goods are more expensive for women. There are more examples than we can count: vitamins, razors, shaving cream, drugstore lotion, dry cleaning. These products and services cost more once they are branded pink. According to the NYC Department of Consumer affairs, women pay more for pink packaged products 42% of the time. Even if we say the price difference is only 5% more, we’re not just talking about a single item. There can be 10-20 regularly purchased items, each priced at 5% more!
To add insult to injury, women pay tax on feminine products. That’s right. Tampons and pads are considered luxury items and therefore taxed, while Viagra is considered medicine and therefore not taxed. Women have been paying tax on hygienic items for most of their lives. Society also makes it necessary to buy beauty products that women consume throughout their lives. Of course it’s a woman’s choice to purchase these products, but we’d be naive to deny the social pressure.
These additional costs add up. Combining in the wage gap, it’s clear how women can end up retiring in very different financial circumstances than men.
According to the NYC Department of Consumer affairs, women can pay more for “pink packaged” products 42% of the time.
It is well known that women often take time off to raise children, or take care of aging parents. As a result, women’s earning potential is greatly disadvantaged. What’s more, they are also likely to be living off savings during these pauses. How likely is it that a woman will be able to save for retirement during this time?
Some may argue that perhaps a woman has fewer costs during this time because her husband may still be working. But what about professional single women who are choosing to raise children solo? What about divorced women who have to take care of their elderly mothers? What about single mothers?
So as it turns out, women may have fewer years to save for retirement.
Women have fewer years to save, have to save more, all the while earning less with higher costs, to live a comparable life to their male cohorts.
Financial Services under-serve women. When/if women marry, financial advisors often address the husband or have him as the primary contact. They may even dismiss the women’s concerns or objectives. She may feel talked down to because she isn’t familiar with the financial jargon an advisor is using. Discouraged, she may tune out these conversations and withdraw. Resigning herself to letting “the man of the house” take care of these decisions can be detrimental, as we outline in the Distressed Decisions section below.
Because financial information has been historically directed at men, fewer women invest in stocks than their male counterparts. These under-invested women are not fully participating in the wealth accumulation. In a society with a shrinking middle class and greater inequality in executive vs. employee pay, women face the double whammy of being the both employee and not sharing in the benefit of higher corporate profits as other male shareholders.
Because financial information has been historically directed at men, fewer women invest in stocks than their male counterparts.
Women are more likely to assume control over finances during the most difficult times. This is usually during or after a divorce, or after the death of their spouse, but it could also be because of the death of a parent. I have several professional female friends whose fathers run their investment portfolio. And it’s not uncommon to hear of a woman who has no idea what is in their investments because their husbands take care of it. They feel their father or husband has the expertise. Though this may or may not be untrue, the situation is not sustainable.
In the case of divorce or death, these women may have to make critical financial decisions when it is cognitively hardest for them to do so. I remember when my father passed away, I had trouble choosing pink or red roses for his wreath. I just couldn’t think. Now imagine if that decision was something that had some serious financial bearing. It’s easy to see how these difficult times are when financial mistakes are likely to be made.
Women are more likely to assume control over finances during the most difficult times.
Social status for women requires her to spend. I’m not talking only about designer shoes or handbags. What I’m talking about is much more insidious. Society expects women to be “generous”. To achieve social status, women are often pitched to serve on volunteer boards, or to chair fundraising committees. They are encouraged to donate their time and money.
Don’t misunderstand, these charities do need donations. Volunteering can be highly rewarding and fulfilling. (I encourage everyone to participate in philanthropy.) But if a woman doesn’t want to donate or volunteer, we must not judge her to be selfish or petty. Many women simply have too much on their plates to take time away from their work and/or children to participate.
To achieve social status, women are often pitched to serve on volunteer boards, or to chair fundraising committees.
What can women do?
It’s apparent that gender, income and investing are interconnected. Women face systematic money challenges, from earning and spending to investing and retention. Personal finance for women is not as simple as “spend less than you earn.”
There are women who are in different situations, some of these issues may apply to them, and some may not. Some of these observations may even apply to men as well. My aim is to spur discussion, not to single any group out or to nitpick about where we might fit in the Venn diagram of inequality. However, unless people are transparent about their particular financial challenges, they can do very little about them.
Personal finance for women is not as simple as “spend less than you earn.”
Six steps women can take today to narrow the gap
1) Start an investment account or contribute just 1% more.
If you haven’t started to invest for your retirement, start. Don’t let fear of financial terminology or the belief that you don’t understand what you are doing dissuade you. Today, you don’t need a broker to start investing. With the advent of roboadvisors and financial technology, it’s easy to start investing, even with as little as $50.
2) If someone is managing your investments, take the initiative and call them to discuss it.
If you have someone managing your investments, don’t be afraid to ask what you are invested in. Ask questions about your investments so that you can research and learn about them. You may decide that you wish to change them, or re-allocate your funds to different investment vehicles. And be sure to find out how your advisor is paid. Many advisors make a commission from suggesting (often high cost) investment products to you. There are many fee-only advisors that will not take a percentage of your total net worth.
3) Ask for a raise if you haven’t gotten one in a couple of years.
Don’t assume that being offered a raise is par for the course. No employer is going to give away money if they don’t have to. If you haven’t seen an increase in your salary, take the bull by the horns and ask for a raise.
4) Take responsibility for your financial education.
Women of today are at an advantage when it comes to financial education. Why? Because we have the internet. Sure, it’s a given that many of us did not learn about finances in school, but don’t let that stop you from using one of the greatest resources available. Everything you need to learn about is online. Take responsibility and dive in.
5) Buy generic or male-branded consumer products.
No one is going to notice if you shave your legs with a blue or pink razor. In fact, there are ways to save money on shaving and also save our environment. Stop paying for things just because a brand’s marketing department has convinced us that we need it.
6) Talk about money.
Don’t let your a lack of knowledge hold you back from having discussions about money. Share budgeting tips with a friend. Ask close friends about their investment strategies. If they don’t have any, share what you are learning. The more women open up about money, the less uncomfortable we will be discussing financial issues. With each step we take, we can start to turn this tide.
Pauline Yan is an investment portfolio manager at a multinational financial institution based in Canada. She has earned the right to use the CFA and CAIA designations. Her passion is in coaching and supporting women in financial literacy and achieving their financial goals. You can reach Pauline at SundayBrunchCafe.
Disclosure of Material Connection: I have not received any compensation for writing this post. I have no material connection to the brands, products, or services that I have mentioned. I am disclosing this in accordance with the Federal Trade Commission's 16 CFR, Part 255: "Guides Concerning the Use of Endorsements and Testimonials in Advertising."