Financial Planning For Women
Posted on:
Raffi Pailagian
MBA, BSc, DipFP
Financial Planner / Managing Partner
The Importance Of Financial Planning For Women
We’ve come a long way in bridging the gender divide in recent years, across a range of metrics. But we still have a long way to go. One area where there is still not enough parity is the financial position of women. This is why financial planning for women is so vitally important.
While preparing a financial plan is much the same for men and women, there are a few key things we need to factor in when developing financial plans for women.
Financial Inequality
According to The Salvation Army, older women are the new face of poverty in Australia.[i] There are a number of reasons for this phenomenon:
- Women are still paid, on average 16.8%[ii] less than men, based on the average full-time wage. Since Superannuation payments are based on a percentage of income, women pay less into super in real terms.
- Women are typically the partner who takes time off for child-rearing, creating a gap in not only their income producing ability, but also their superannuation contributions
- Women are more likely to work part time, especially if they have children, therefore earning less income and, again, reducing their superannuation contributions. In fact, in 2015/16 the average superannuation balance for men was $270,000; for women it was $157,050. That’s a difference of nearly 50%.[iii]
- Women are generally disproportionately affected by being one of the ‘sandwich generation’
What Is The Sandwich Generation?
The combination of an aging population and people having children later in life, and the prohibitive expense for grown children leaving home, has created what we call a ‘sandwich generation’. This refers to people in their 40s and 50s who are caring for their aging parents, while at the same time still raising children, or supporting grown children. Typically, the lion’s share of these caring responsibilities fall to the female partner. This often means she is unable to work full time, further reducing her ability to create a secure financial future for herself, even once the children have grown.
Why Financial Security For Women Is Important
In his paper on Gender Differences in the Consequences of Divorce, Thomas Leopold identified that the ‘key domain in which large and persistent gender differences emerged were women’s disproportionate losses in household income and associated increases in their risk of poverty’[iv]
This is not only relevant in the case of divorce. As we said earlier, women are still, more often than not, the lower-income-earning partner. When the higher income earning partner is either no longer around, or earning income, for whatever reason, it can create a financial crisis. So making plans to protect yourself makes sense.
With such a combination of factors, effective financial planning for women is essential for ongoing financial security.
What You Should Consider
When you look at the numbers, it’s a somewhat bleak prospect for many women. However, whether you are single or in a relationship, there are a few key things you can do to ensure your financial future is secure.
- Know Where you Stand. You should not only be across all your financial arrangements, but understand how each of the financial products you use or invest in fits into your overall financial picture. Make sure you are aware of the incomings and outgoings of all your accounts and take an active role in following your returns.
- Educate Yourself. In addition to the day-to-day budgeting we all do, take some time to educate yourself in the broader subject of Financial Planning. Sir Francis Bacon was the first to say knowledge is power, and nowhere is this more true than in financial planning. The more you know, the more confident you will be in choosing or evaluating the right investments for you. In fact, according to a recent report only 38% of women felt they contributed to investment decisions, and this can create a sense of disempowerment.[v]
- Know The Plan. It’s very easy to let things roll along, but a plan is essential to financial planning success, so make sure you are active in developing one, and monitor its progress on a regular basis.
- Get a Credit Rating. Don’t rely on your partner’s credit rating. Ensure you have a good credit rating of your own so, should the worst happen and your partner is no longer around, you are not left in a position where you are unable to access credit if you need it.
- Have Your Own Savings. As with a credit rating, having a track record of savings of your own can help you if you find yourself in a position where your household income is reduced.
- Include An Estate Plan. Planning for unexpected outcomes for both you and your partner is essential. Without a well thought through Estate Plan you are at risk of being caught in a difficult financial position or a cash-flow crunch at the worst possible time.
A Word About Super
As we have identified, women typically have much lower superannuation balances than men. However, superannuation forms an important part of any financial plan. There are a couple of ways to address this, particularly if you are earning a lower income.
Spousal Contribution – if you earn under a certain amount (this amount changes regularly but is currently $37,000) your spouse can contribute up to $3000 to your superannuation every year. As a bonus, this reduces their taxable income, so they will pay less tax.
Government Co-Contribution – if you are able to contribute a small amount each year (over and above the employer contribution) the Government will contribute 50c for every dollar you put in, up to a limit of $500. It may not sound like much, but over the years it will add up.
What Do I Do Now?
If You Have A Partner – Firstly, have a frank and open conversation about what your position would be should anything happen to the higher income earning partner. If you already have a financial planner, bring them in on the discussion. If not, it might be worthwhile to find one.
If You Are Single – Taking a look at your existing arrangements and determining if they meet your needs now, and will continue to meet them for the foreseeable future, is a good idea. An experienced financial planner or advisor can help you with this.
If you feel you would like advice on how to secure your own financial future, Manly Financial Services can help with advice tailored specifically to your needs and circumstances. Call us on 02 9976 3388 or contact us through the button below, to find out how.
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