“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.
On the flip side, a 2013 Fidelity survey reported that only 24% of women said that they took responsibility for day-to-day financial decisions.
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.
In 2010, the RAND Corporation conducted a study relating the numeracy (math skills) of household members to overall household wealth.
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.
This post is a part of Women’s Money Week. If you want to join us, you can do so here. Please tag this post with #WMWeek17 when sharing on social media.
It’s been really great to see how many women are involved in PF blogosphere. That’s really encouraging. And posts like this always make me smile a little bit – my mom was the money person in our house growing up, and now I am. Though, I do try to get my husband involved, it’s definitely much more of an interest and passion of mine than him.
I’m probably preaching to the choir a little (a lot?) with this audience, which is great, since you already understand the importance! However, even if I get one person to change behavior, then I’ve succeeded in what I wanted to do.
As long as your husband knows what to do in case you get hit by the beer truck (and today is National Beer Day, mind you), then that’s a fine arrangement.
Thanks for reading the article!
I’m the same way! Here’s the thing, though. My evidence is totally anecdotal and I don’t have the numbers off hand to back me up, but many women I know do manage the day to day. They’ve got budgeting and saving down. But when we move into things like investing and estate planning, women start to lose their edge. I was one of them until I entered the PF sphere. Which is why I was thrilled Jason wanted to write on the topic: we as women need to move beyond the day to day and get into the complexities of the long-term. Not ALL women are behind, but I think collectively we could step up!
Every time I see a post like this, I’m reminded that I need to update my “If Hannah Dies” document. My husband really does not care for the day in and day out, even though I’m guessing he would be a 3 on the finances scale.
And I so agree. I have friends who just could not care less about the budget, and just accept that there husband says to aim for $500/month on groceries and household goods. I mean, I’m glad they trust their husbands, but don’t they want to know where that number came from?
Yeah that would kill me. Feels more like an allowance than having your own stake in your finances. I should have a look over at my own documents, as well. So much can change in a few years!
Well since I do most of the work with the budget every thing is good there. Until I die. He will manage somehow…even though I don’t tell him how much we have in the checking account he seems to have a running tally in his head. Since his side of the family seem to live awhile longer than mine…I have threatened to give him the checkbook and let him do all the bills for a month. Really though that scares me but I know he will step up to the plate when he needs to. …he’ll have to.
Investment wise I’m afraid I’m lacking. I have a lot to learn in that department. I always seem to want to jump ship when the storm blows. I watch the news with him and my eyes glaze over, my palms get sweaty, and I just end up leaving the room! I have a lot to learn on that score.
Great insightful article!
Family genetics definitely play a large part! Both of ours are mixed so I guess we’re playing some dark kind of lottery with that, though if we go just based on age, I’ll probably be around longer. Which is sad for me to think about, but massively influences our retirement planning.
That’s why I was so glad to have Jason contribute this; you are not alone! I think a lot of women stop short of investing, and its something we really need to motivate ourselves to change.
I love this! Women can be great at managing the day to day expenses and bills, but when it comes to investing or retirement planning, we can get a little intimidated and leave it to the men to handle. Ever since becoming debt free and saving a decent amount, I’ve wanted to switch my focus to investing. It’s important to empower ourselves with knowledge, especially because, like you said, we’re very likely to outlive our spouse.
Love it! The empowerment is aspect is so huge.
And if you’re single and female you better learn how to manage all aspects of your money or be in deep doo-doo!
Absolutely. And here’s another aspect of that: even if you’re married or have a partner, divorce happens to lots of people who don’t expect it. I actually met a woman at FinCon who is a financial coach for divorced women who never learned how to manage their finances. May have to see if I can pull her in on this one, because single, married, or not, finances are important for women.
These are really important points to consider. I’m consistently amazed by the number of SAHMs I know who have nothing to do with the family’s finances (working moms and women without kids seem to, in my experience, stay more involved with financial decisions) . They just know money gets earned, bills get paid, some gets saved, and they can spend the rest. The lax attitude infuriates me. Specifically due to situations outlined here.
It is! Part of me wants to just say it’s their business, but the other part wants to educate. Because if anything ever happened, that lack of awareness could really destroy your life.
Although I have always been a feminist (I know that’s a bad word to some people. To me, it is simply a belief in the equal value of men and women), for years, I left the finances to my husband. There was definitely a subconscious, deeply-rooted traditional gender role thing going on there. I still have so much to learn. This post reminds me of that fact! Thanks.
Your story is so interesting to me, because while I wish you had never had to go through the debt, I’ve watched you really empower yourself through the process. Maybe that’s the way things were, but you’re a shining example of how to turn things around IMHO!
Thank you! (I had to look up IMHO. Urban Dictionary is such a useful tool : )
This is exactly what I hope the readers become aware of. We have a ton of mental scripts in our head, and we don’t realize most of them and how they influence our lives. Money scripts are some of the hardest inner dialogues to overcome, and they can have some extremely invidious long term effects.
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Jason – awesome post. It touched me, but for a different reason. My circle of people is primarily stay-at-home homeschooling moms like myself. I’ve seen a half dozen or so of them over the last 5-10 years get dumped unexpectedly by their husbands and be left with NOTHING. No child support, alimony – just kids to care for and feed and no income or savings of their own. I also watched my own mom and us kids suffer financially after my parents’ mutual divorce. There were times when there was ZERO food in the house, the electricity was shut off in the middle of winter, etc. As much as I have hope and security in the success of my marriage, I certainly won’t leave myself financially dependent on my husband. As a mom of four kids, I cannot take that risk.
I’m 100% with you on this, Laurie. I actually said the same thing to Tonya! It’s why I’m a big fan of separate finances. Mitigating that risk is huge. Very few people walk down the aisle thinking they’ll get divorced.
I remember my grandmother telling me that she told my mom and my aunt that they had to get degrees in college (they were the first generation to go to college) where they could have independent careers, because they didn’t want to ever be dependent on a man for helping them to make a living. Fortunately, Mom heeded the advice, as she had a job teaching while a single mother when I was a toddler. I vaguely remember the trailer home (we were in the deep South, so it wasn’t called a mobile home) and then the house that burned down before Mom told me that our last name was changing.
Plan for success. Prepare for failure.
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I looked at the dysfunctional state of my mom’s marriage as a teenager, did some reading, and quickly realized I would always need to have financial responsibility in my life. That said, I have my own Roth IRA and checking/savings account and an Acorns account. My fiancee and I are going to keep things separate after we get married next November. I believe it’s important to have a big part in my financial well-being and future. My mom stayed in a loveless marriage for years due to fear of being thrust into poverty. I vowed early that I will never have to choose money in order to be with someone. I would be with a rich man, or a less wealthy one, as long as I am in control of my own financial present and future. It’s so important! My grandmother, aged 91, subsists entirely on social security. I don’t want to be in that situation someday. It’s too potentially scary. While she is lucky to live with my uncle, and helps him out financially you just never know. It’s better to be prepared!
I really enjoyed this post! It was informative and enjoyable to read.
I’m the math-challenged one in our household but I’m the one interested in finance. Even so, this is a good reminder to get all my finances in order, like having a will and making sure all account information is on a checklist for my spouse.
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