Women have a savings problem. The way that the majority of us are building financial security and wellbeing is all wrong. How many times have you been told that if you want more money, you need to cut back? That you need to budget better, forgo the breakfast out with friends. Sound familiar? Well, the research says so.
It has come to our attention that women are taught that the road to financial empowerment is learning to budget, whilst men are taught to invest. And it’s true – the main way in which women set aside money for the future is through a savings account. According to Ellevest, an investing platform for women, “of all the assets controlled by women, 71 per cent is in cash – aka not invested”.
But for females in particular, solely storing cash in your bank is not going to cut it. We face greater disparities throughout our lifetime that put us behind the eight ball in terms of money and wealth accumulation. Here are some of the main reasons why.
You know that gender pay gap? Yeah that still exists
Currently, Australia’s national gender pay gap is 13.4 per cent. Women are making less money over their lifetime due to conscious or unconscious discrimination, bias in hiring and decisions about pay, and the fact that women are more likely to work in lower-paid industries or jobs.
A good example is a healthcare worker versus someone in the construction industry. The average hourly rate for a care worker is $29 per hour, compared to a construction worker who is making $39 per hour. Stereotypical ideas about women’s roles in the workforce undervalue participation and set lower standards for wages.
You don’t get paid for raising a family
Women spend less time in the paid workforce on average and take on larger amounts of unpaid labour, including caring for children and older family members. The statistics show that unpaid labour amounts to 64 per cent of a woman’s work week, compared to just 36 per cent for men.
This is amplified by a lack of workplace flexibility to accommodate caring roles experienced by many women. The result is that more females are pushed into part-time work contracts or forfeit work completely due to factors such as high childcare costs.
Your superannuation isn’t getting the same results
As a result of being paid less and working reduced hours, women are retiring with 47 per cent less superannuation than men. Take a second to digest the enormity of 47 per cent. One of the main reasons the figure is so high is because of compounding. Simply, when you invest, your returns compound.
If a portion of your salary is invested into superannuation and you make a 10 per cent return that year, then the next year, the same 10 per cent is on a larger base meaning the return will be greater. Unfortunately, women are missing out on a large portion of compound interest benefits due to lower wages and time out of the workforce (i.e. no one is paying you superannuation when you’re not working).
Just to top it all off, females are expected to outlive our male counterparts by six to eight years. So ladies, forget budgeting for a moment. Being oblivious to, or not researching strategies to grow your wealth could be the riskiest financial move you ever make. Investing in the stock market has returned 10 per cent on average for nearly the last century.
Compare that to your savings account, which is returning an average yearly amount of 1.5 per cent in interest. That’s below the average Australian inflation rate of around 2 per cent, which is the amount we expect to see costs of living increase. This means that the value of your savings sitting in your account is actually devaluing over time.
Let’s take the classic example of your morning coffee – the order is a $5 long black. You put aside $30 each week for six coffees, equating to $1,560 a year. In your savings account, $1,560 will grow to $1,583 in a year based on a 1.5 per cent interest rate ($1,560 x 1.5 per cent).
But the cost of your coffee is increasing by an average of 2 per cent per year, meaning you’ll actually spend $1,591 ($1,560 x 2 per cent). And just like that, your purchasing power has decreased by $8 dollars. It doesn’t seem like a lot, but if you apply the same logic to all of your money, the effect is frightening.
Compare that to investing. The same $1,560 gaining average market returns becomes $1,716 ($1,560 x 10 per cent). And just like that, your purchasing power has increased by $155. Starting to see the magic?
Don’t get us wrong, cash isn’t the enemy and nor are the banks. You need an emergency fund as it is the most liquid asset and a bank is probably the best place for storing it (no offence to the piggy bank under your bed). A rule of thumb you will often hear people talk about is having three to four months of salary saved in cash. And with the rest, well, it’s time to pay forward some love to your future self and consider starting to invest.
The best way to start is to add it to your routine. Just like you apply your skincare every night, put away a portion of your paycheck into a well-diversified portfolio (honestly, even if you just start with $100 a month). It might seem a little daunting, but begin with a Google search, listen to the You’re In Good Company podcast and join the community of women who are opening up the investing dialogue. It doesn’t need to be perfect – you just need to start and you’ll learn along the way.
This article was originally written by the hosts of You’re in Good Company, Maddy Guest and Sophie Dicker for the Fashion Journal. For the original article, and to read more of their articles, click the button below.