Women are confident in most financial tasks, but when it comes to managing investments, their confidence drops significantly, according to a new study.
Conducted in partnership with Age Wave, Merrill Lynch’s study, “Women and Financial Wellness: Beyond the Bottom Line,” finds that women have great confidence in tasks such as paying bills (90%) and budgeting (84%), but only 52% say they are confident in managing investments, versus 68% of men.
Millennial women were found to be the least confident, at 46%. Yet for women who do invest, their financial confidence soars — 77% of women who invest feel they will be able to accumulate enough money to support themselves for life.
“Women have come a long way both personally and professionally, but when it comes to their finances, there is still a trail left to blaze,” explains Lorna Sabbia, head of Retirement and Personal Wealth Solutions for Bank of America Merrill Lynch.
The study, which examines the progress and financial challenges women still face throughout their lives and offers potential solutions, is based on a nationally representative sample of 3,707 respondents, including 2,638 women and 1,069 men.
Understanding the extent of the gender wealth gap and wealth escalators are important factors in evaluating women’s financial wellness. According to the study, women experience a gender wealth gap that can translate to a woman accumulating more than $1 million less than her male counterparts at retirement. The study defines the wealth gap as the difference between men’s and women’s financial resources across their lifetimes, including earnings, investments, retirement savings and additional assets.
This result can be from a number contributing factors, including temporary workforce interruptions that had a permanent impact. The findings show that one in three mothers who returned to the workforce after caring for children say they took on less demanding work, resulting in lower pay, and 21% said they were paid less for the same work they did previously.
Understanding these findings becomes even more important because of women’s greater longevity. While longevity should be factored into everyone’s financial strategy, women, on average, live five years longer than men and 81% of centenarians are women, the study notes. Moreover, the average woman is likely to have higher health costs than the average man in retirement – paying an additional $195,000 on average – due to living longer and having to rely on formal long-term care in later years.
Even though 64% of women say they would like to live to 100, few feel financially prepared, with 44% expressing concern they will run out of money by age 80.
Promoting Financial Wellness
To help women better prepare for financial security and wellness, the report lays out five recommendations:
- Addressing women’s top financial regret: 41% of women say not investing more is their biggest regret and 60% cite a lack of knowledge and 34% cite confidence as top barriers. “Women regret not investing more of their money and are looking for financial education and solutions that align with their values and priorities, as well as their bottom line,” the report explains.
- Focusing on disparities in wealth, not just income: In addition to closing the pay gap, women’s financial security is also about accumulating assets or wealth at all income levels and increasing women’s access to wealth escalators. To that end, the report recommends participating in a retirement plan as early as possible and taking advantage of tax-efficient retirement plan options that provide the opportunity to grow with compound interest.
- Breaking the silence about money: 61% of women say they would rather discuss details about their own death than talk about their money, while 45% report they don’t have a financial role model. “Encourage conversation between friends, family, and financial professionals, and in the press and in schools,” the report suggests, as well as seeking mentors and learning more about money and finances.
- Acknowledge financial challenges: Save and plan for the eventualities of career interruptions, longer lives to fund or increased health care costs.
- Plan early and often: Consult a professional, discuss life priorities and goals, create a plan that matches any unique circumstances and revisit that plan often and make corrections as necessary.
“As women are at a tipping point to achieve greater financial empowerment and independence, it is even more essential that we support women in helping them pursue financial security for life,” Sabbia notes. “This includes encouraging women to invest more of their assets, save earlier for retirement, and pursue financial solutions that closely align to their personal values and life paths.”