A missing voice in financial services

If you’re a woman, the American financial system was not created for you. It was formed by men. It is run largely by men. And it is designed to complement a man’s life.

Consider this:

• Only 14% of financial advisors are women, according to a 2017 survey by Cerulli Associates.
• In 2018, there were more men named James than female CEOs of Fortune 500 companies.
• Finance as a profession drives rewards to those who work long and inflexible hours – making it a difficult or even impossible career choice for many women juggling home and child care.
• Many women take extended breaks from work to care for children or other family members, but IRAs, 401(k)s and other savings vehicles penalize participants for withdrawing large sums before retirement.

“When it comes to finance, it’s still mostly a man’s world out there,” said Lauren Bringle Jackson, a content marketing manager for Self Financial Inc., a fintech startup in Austin, Texas. “There are more barriers in our way in general. We make less on average, we’re more likely to have to take time off to care for children or other loved ones, we live longer yet have less saved for retirement so we’re more likely to outlive our savings – the list goes on.”

Yet when women put their minds to it when they decide to tackle their personal finances and make their money work for them, the results can be very satisfying, she said. “You may have to work harder, you may have more to overcome,” Jackson said, “but even so, the resilience I see from so many women is truly inspiring.”

Unfriendly environments lead to a discomfort around finance

Like many female financial advisors contacted for this story, Stephanie McCullough said the topic “hit a nerve with me.” McCullough has been a financial planner for 22 years, and her business, Sofia Financial, in Berwyn, Pennsylvania, is focused on working with professional women.

Initially, McCullough had doubts about starting her own company. But when she heard women’s stories about bad interactions with the finance industry, she decided to push ahead. Women told her about being sold high commission products from salesmen who never called again, stockbrokers who only spoke to their husbands and getting harassed by salesmen when, talking about their money, women were feeling vulnerable already.

But it’s more than just an unfriendly environment at the stock brokerage that keeps women in the financial dark. From a young age, women appear to feel that if they do not excel in this financial world, they don’t belong there at all.

A study for the National Bureau of Economic Research found that women at an (unnamed) highly-competitive college were just as likely as men to become economics majors if they received an A in the introductory course. Men who received a B+ were just as likely to major in economics. But women who receive a B+ were 15% less likely to become econ majors. “Once women do poorly in a subject at which they are often told they will perform poorly at, they shy away from it,” wrote the study’s authors, Tatyana Avilova, a Ph.D. student in economics at Columbia University, and Claudia Goldin, a Harvard University economics professor.

Gendered language keeps women in the dark

Where do these impressions come from? One place to start looking is the media. Anne Boden, CEO of British bank Starling Bank, commissioned a study on the gendered language in magazine articles about money. She found that 65% of money articles in women’s magazines lamented women’s supposed spendthrift ways and offered advice on how to cut back on spending and achieve thrift in small ways. On the other hand, 70% of articles directed at men described making money as a masculine ideal.

See related: Sexism in the credit industry: Here’s why it could happen

Small wonder, then, that women are less likely than men to understand even basic financial terms, more likely to turn financial decisions over to their spouses and in general less prepared for financial hits and retirement. A 2018 Merrill Lynch study, done in conjunction with Age Wave, found some startling facts. Among them:

• Nearly half of women – 42% – fear they’ll run out of money by age 80.
• This may be because the money really isn’t there. A typical retirement costs $738,000, but only 9% of American women have saved at least $300,000.
• 61% of women say they’d rather talk about their own death than talk about money.

“It’s a situation,” said McCullough, “that needs a lot of attention.”

Other disadvantages have women starting behind in financial services

Many advisors say the trajectory of several women’s lives inherently puts them at a financial disadvantage. Taking time off or just cutting back at work for births, the raising of children or the care of elderly family members – none of this is fully accounted for in today’s financial world.

One improvement, as of Jan. 1, 2020, is a change in federal law that allows IRA and 401(k) participants to withdraw up to $5,000 penalty-free for the birth or adoption of a child. However, this will hardly cover expenses if a woman elects to take six months or more at home with her newborn, said Ashleigh J. Brooker, a Columbia, South Carolina-based financial advisor at Freeman Capital.

“The general assumption is that the person will work the duration of their adult life with no break in employment,” Brooker said. “If [the finance industry] were more concerned about meeting the needs of women, then it would lobby for legislation that expands the exceptions for penalty-free withdrawals from retirement plans to include time from the workforce to care for a child or a loved one.”

Women at home with kids can contribute to IRAs, but only up to the $6,000 limit, as opposed to a 403(b) or 401(k) that allows up to $19,500 in 2020, Spear said. Social Security also penalizes women for those lost years in the paid workforce. “Why should the working parent get to max out their plan, leaving the retirement assets lopsided for the parent – often a woman – who stays home?” she said.

Women are still eager to gain financial literacy

In financial literacy surveys, women are much more likely than men to answer “I don’t know,” said Annamaria Lusardi, an economist at George Washington University. Yet, this gives Lusardi hope – those willing to admit they don’t know may be more open to learning.

See related: Financial advice: One size doesn’t fit all

“What we might want to do for women overall is make them more comfortable about [obtaining] knowledge,” she said. “If you don’t have the knowledge, you are potentially more intimidated.”

She’s found a way around this in the classes she teaches at George Washington’s business school. Women students, she came to understand, are “switched off” by financial jargon. Now she tries to start each semester free of phrases like “asset” and “mutual fund.” She also doesn’t attempt to motivate students by telling them if they master personal finance, they will become rich. Women, she learned, “may be caring more about financial security.”

Despite a biased system, women succeed in many areas of finance

It may be this focus on financial security that makes women, in general, better investors than men. Back in 2001, Brad Barber published a paper called “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment.” The U.C. Davis management professor found that men traded 45% more than women but women outperformed men – not in spite of their caution, but because of it. “Both men and women are lousy stock pickers,” Barber said. “Men do it more.”

See related: Investing tips for women: Overcoming financial setbacks for future success

McCullough finds that while men are often interested in accumulating wealth, her female clients tend to have different goals in mind. “Once the security of their immediate family is assured, they tend to turn toward assisting their broader family and community,” she said.

Joelle Spear, a financial advisor in Framingham, Massachusetts, said she finds women clients want to make a personal connection with their advisor, and they want to be educated. Industry jargon is a turnoff for them and increasingly, they are trying to be socially responsible investors, putting their money in companies that align with their environmental, social and ethical goals, she said.

Overcoming bias to strive financially

So what’s a woman to do in a slated system? First of all, stop judging yourself, McCullough said. “We carry so much head trash about money,” she said. “Making wise financial decisions is not rocket science – it’s an attainable goal by anyone.”

Christine O’Donnell, a financial advisor in Castle Pines, Colorado, echoes that sentiment. “Don’t be afraid,” she said.

More specifically, follow this advice:

• Start the conversation. “I think the biggest thing women can do for each other is to advocate for and support each other,” Jackson said. “Make it OK and normal to have a real talk about money – both your successes and failures with it.”
• If you don’t have an emergency fund, start there, Jackson said. “That way, you have cash you can access pretty quickly,” she said.
• Educate yourself. Read the finance section of the newspaper, O’Donnell said. Check out finance blogs and follow financial advisors on social media, McCullough said. Listen to personal finance podcasts and read books, Brooker said (she recommends The Simple Path to Wealth).
• Consider hiring help. Think about what you want from a financial advisor, McCullough said. Advice for paying down debt? Building your credit? Investment strategy? Help managing your overall financial life? Answers to one or two specific questions?
• Search for the right match. Meet with an advisor – and if that person doesn’t understand you, or make you feel comfortable, then meet with another. “Find the right person who fits your personality and is willing to truly listen to your concerns and fears,” O’Donnell said.
• Look for a fee-only planner, meaning she makes her money only from her clients and is not accepting commissions from outside sources. Sources for finding planners include the Certified Financial Planner (CFP) Board, the National Association of Personal Financial Advisors (NAPFA) and the Garrett Planning Network, a group of fee-only planners who make financial planning available to even the smallest of clients by charging hourly fees.

Above all, if you’re a woman, don’t fall into the familiar trap of thinking this discussion isn’t for you. No one is going to care as much about your financial future as you are, so it’s time to take charge of it now. That begins with learning as much as you can and asking all the questions you need answered. “When you know your options,” Jackson said, “you can walk away from the ones that don’t benefit you, and that’s key if you’re trying to build wealth and success over the long term.”