“Women with money and women in power are two uncomfortable ideas in our society.”
As a financial planner, I was pretty adamant when I had couples as clients that they both participated in at least the initial kickoff session. After that, if one of the two said that they were fine with not being involved going forward, then that was acceptable to me, although I always gave the non-participating spouse a one-page “to do” list if the participating spouse ever got hit by the beer truck, and got a premature opportunity to find out what was on the other side. (Besides the stories that John Edward used to tell people about their loved ones talking to them through him.)
Maybe it was because I am a male or because there was a selection bias that occurred in the types of couples that I drew as clients, but there were certainly a few instances where the wife was the one who said that her husband made the financial decisions, and she was fine with it.
Note: I’m not including same sex couples in this analysis because if you’re a same sex couple, you both face the same gender-specific issues, whereas an opposite sex couple means that the female has different financial needs than the male.
Horses. Water. No drinking.
It was frustrating to me to see this situation because, like it or not, the women are much more likely to have to deal with and pick up the pieces when the husband passes away. I’ll explain more about this later.
The husband-as-lead scenario didn’t happen terribly often in my practice, maybe 20-25% of the time, but it certainly happened enough that I had a standard response to it.
The statistics about women participating in household financial decisions are mixed. A 2008 Pew Trust survey showed that families believe women make more decisions 43% of the time, whereas they divide decisions equally 31% of the time, and the man makes more 26% of the time.
But, in the same survey, the perceptions about who managed the money in the household differed between men and women. 45% of women said that they managed money in the household and 23% of women said that their spouse managed the money; however, 37% of men said that they managed the money and 30% of men said that their spouse managed the money.
Regardless of whose numbers you believe, there are a significant number of women who are punting the decisions on household finances to their spouses.
I’ll throw one more statistic to show some numerical and financial disparity.
The scores were scaled from 0 (the worst score) to 3 (the best score). When both spouses got a 0 on the test, the average household wealth was $200,000. When both spouses got the highest possible score, the average household wealth was $1,700,000 – 8.5 times higher than the 0/0 pairing.
According to the survey, men were more responsible for the finances than the women, with men in charge 62% of the time.
In cases where there was a 10 year or more age difference where the man was older, and the man was age 70 or older, the man made the decisions 82% of the time. This was the case, even though studies show that cognitive decline can start as early as age 60, and that math is the first skill to go.
What’s even worse, according to the RAND study, is that households where the man scored 0 on the test had him making the financial decisions 50% of the time!
How does this impact family wealth and financial well-being? Let’s look at couples who had one member score 0 and another member score 2. There were less than 20 0/3 couples out of 1,200, so there wasn’t enough data to draw conclusions.
In cases where the 0 scoring spouse led the family finances, the average wealth was $548,500. In the cases where the 2 scoring spouse led the family finances, the average wealth was $684,500, meaning that if the 2 scoring spouse took the reins, the average wealth was $136,000 higher.
More broadly speaking, when the less numerate spouse made decisions, the financial wealth of those couples was 14.7% less than households where the spouses were equally numerate.
But Wait! There’s More!
Adhering to traditionalist values, particularly when the financial decision-maker isn’t the mathlete (that’s a word…trust me!) is really harmful to your long-term nest egg’s health.
However, that’s not the only issue that causes women to come out on the short end of the stick when they don’t take part in the financial decisions.
On Average, Women Earn Less Than Men Over Their Careers
This quotation from Catalyst sums it up:
“No matter what their race/ethnicity, age, occupation, or education, all women are impacted by the gender wage gap.”
The Catalyst study finds that, on average, in 2013, women earned 78% of what men earned in income.
Let’s assume that you have a man and a woman starting out in their careers at age 25. The man earns $100,000, and the woman earns $78,000. Each saves 15% of their income, gets 7% return on their investments, and gets a 3% payraise every year.
How much will each have at the end of the year at age 60?
The man will have $3,154,916.
The woman will have $2,460,834.
Those differences add up over time. It’s a 28.2% difference over 30 years for the man.
Not only is this a problem when a woman is in her working career trying to save up, it’s a problem when she’s retired, too, because…
Women Live Longer Than Men
A woman who is 25 years old today can expect to live about 4.3 years more than a man who is 25 years old today.
So, just from a pure actuarial standpoint, women have a longer retirement to plan for. They can either work longer (which stinks if your husband is already retired) or plan so that they have enough assets to carry on when they, statistically speaking, outlive their spouse.
However, that would only be true if you married someone your age.
The average age difference for a heterosexual couple is 2.3 years, meaning that men are usually 2.3 years older than the women they marry.
So, women should plan on living between 6.5 and 7 years longer than their male spouses.
Most retirement projections from financial planners basically assume a 30 year joint retirement.
That’d be great if the female spouse was about 6.6 years older than her husband, but as we saw above, that rarely happens.
On average, a woman has to make the financial decisions for 6 ½ to 7 years without her spouse, whether she wants to participate or not. Plus, she has to make those decisions when she’s likely cognitively impaired and, therefore, susceptible to making the wrong moves.
Ladies, that’s not a position you want to be in, I can assure you! How many of you have heard the anecdotes of the widow who doesn’t even know how to balance the checkbook?
I’m sure you’re not in that position because you’re Frugal Femmes, but even then, you need to be actively participating in the financial decisions, from budgeting to investing to insurance to estate planning.
I’m not really going to go into the nuts and bolts of budgeting here; you can swing a dead cat at the Internet and find budgeting articles.
However, you do need to make sure that you’re setting aside enough money each month to save for your retirement.
We calculate the number such that the youngest spouse lives to be 100. There is a less than 1% chance that both spouses will be alive at that point, but you do not want to run out of money on your 99th birthday. That’s about the worst possible scenario you could face if you’re alive at that point.
I like the anti-budget. Figure out how much you need to save and then work backwards from there.
Again, I am not going to tell you what to invest in. In general, invest in low-cost indexed funds for most of your investments. Don’t try to swing for the fences lest you fall prey to the myriad behavioral biases that make the average investor a chump compared to market averages.
The rule of thumb that we use is for asset allocation – 100 – the age of the younger spouse for equities and the rest for fixed income. Easy peasy. Rebalance. Use proper asset allocation. Don’t follow the herd and try to figure out what the market is doing from what Jim Cramer prognosticates.
You do need to know what you’re invested in and why you’re invested in it so that if you have to be the one to start making the investment decisions, you’re fully aware of the game plan so that you can continue to execute it.
The reason you buy insurance is to protect yourself against an unexpected event. You do it with your house in the hopes it doesn’t burn down. You do it with your car in the hopes that you’re never in an accident that is your fault. The same holds true for both life and disability insurance.
By the way, repeat after me (loudly, preferably if you’re reading this from a Starbucks):
INSURANCE IS NOT AN INVESTMENT. IT IS INSURANCE!
Yes, there are a few exceptions to this rule, but they are few and far between.
So, in this case, you want insurance in the event that you need to replace your spouse’s income, either from getting hit by the beer truck and finding out what’s on the other side (life insurance) or from getting hit by the beer truck and not being able to go back to work for long periods of time (which happens more often than you’d expect it to).
This can be a touchy subject, particularly if you have a blended family. Remember, if your spouse passes away, you still have to look out for Number One (the person you see in the mirror).
You want to make sure that you have your documents together and affairs in order, to include not only a will, but other documents like advanced medical directives and do not resuscitate orders (if either of you doesn’t wish to be resuscitated in the event of an unlikely recovery).
It’s painful to go through. You’re forced to face your own and your spouse’s mortality in a way that no other event, aside from the death or disability of someone close to you forces you to do.
But do it anyway. You owe it to yourself and you owe it to your spouse to go through the planning process and make sure that you both understand each other’s wishes.
I’m Convinced! What Do I Do?
This list is not a comprehensive list, but a starting point for discussions with your spouse.
- Know what the target number is for you to ensure you run out of heartbeats before you run out of money. That’s the amount that your nest egg has to be so that you can continue your desired standard of living in retirement without running out of money. Sure, the ideal is to spend your last cent (minus what you’d like to leave to kids/other benefactors, although I argue you should give that away while you’re alive so that you get to enjoy the act of giving) right as the old ticker gives way, but trying to achieve that, except through the use of low commission annuities, is impractical.
- Know what you need to save each month/year in order to hit that target number. This is the starting point for your anti-budget. How you spend beyond that is a decision between you and your spouse.
- Negotiate your salary. Only 16% of women negotiate their salaries, and only 15% believe that they are effective negotiators. What are most pay raises based on? Your current salary. That compounds over time. So, do everything you can to get your baseline as high as possible!
- At least do a “fly-by” review of the monthly budget. You don’t have to get into the line item details, but you should have a general idea of where the money is going and how it’s being spent just in case you have to pick up the responsibility in the future.
- Know where the accounts are. All you have to do is maintain a list of accounts by institution so if you need to access that list, it’s readily available.
- Make sure that you’re both properly insured. Do a review. Find out your numbers of how much insurance you need. Get it. Don’t avoid the situation, put your head in the sand, or think “this could never happen to me.” Invariably, the unexpected happens more often to those who don’t expect the unexpected (though I have NO statistics to back that up!).
- Update the beneficiaries for your insurance (you should be the first for your spouse’s insurance and vice versa) and the Payable On Death recipient on accounts. This will help you avoid a ton of inconvenience and wait if the worst case scenario hits.
- Plan what you will do in the event your spouse can no longer manage the money, if you decide to delegate. It’s OK to not be a super active participant in the day-to-day finances (unless you’re the math smart one, in which case, you should manage), but you also need to have a contingency plan for the statistically inevitable.
Personal finance, in general, should not be a lot of work on a month-to-month or even a year-to-year basis. Set a plan and execute it.
Even if you don’t want to be involved in the nuts and bolts, if you’re a woman, you’re, in all probability, going to have to be the one to handle the day-to-day finances at some point. Make sure that you’re prepared for that day so that, if it comes, you know what to do and do not get taken advantage of.
Jason Hull, CFP®, is the CTO of the online, comprehensive financial planning service myFinancialAnswers. He is an Army veteran, earned a BS in Engineering from the United States Military Academy at West Point, and earned a MBA from the University of Virginia’s Darden Graduate School of Business.
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