As children, we were all taught to ignore the three forbidden dinner table topics at all costs: money, politics, and religion. Yet as social issues have become political and religious freedoms are talked about worldwide, why has money been left behind? If you walk into any heated discussion in a liberal arts university, chances are the topics of politics or religion are being contested. But what about money? Not money in the context of socioeconomics or economic policies or tax reform, but personal money. Yes, the so-claled “shallow”, “cringe-worthy”, “confusing” subject that women have been conditioned to disregard since forever.
As the modern-day women’s movement progresses, which really gained speed last January 21st and continued strong through the end of 2017 with #MeToo, our country is becoming more honest about the reality that women are treated inequitably in the U.S. Further, in the past few years, the national (and international) issue of the gender pay gap has received increasingly more attention. We heard about it from Hollywood and Wall Street and Washington and more, and the Fearless Girl stands as a more literal reminder of the pressing need for gender equality.
Today, most would admit that women generally make less money than men. While the exact numbers may vary based on the source, the Census Bureau revealed that women earned 82 cents for every dollar a man made in 2016. When we break that down by race and ethnicity, we see it further with 85 cents for Asian women, 63 cents for Black women, and 54 cents for Hispanic women (Money CNN). And why is that? Why do we continue to make less than our male counterparts?
Well, it certainly is not that men are more capable, or more willing, or smarter than us. So what gives? Well, there’s a few primary reasons noted in the American Association of University Women (AAUW)’s The Simple Truth. First, let’s think about maternity leave policies in the U.S. and my post last week which shows that we are 1 of 4 countries in the entire world without mandated parental leave. This creates a disproportionate disadvantage to female’s careers compared to males. AAUW’s Behind the Pay Gap report discovered that 10 years post-college, 23% of mothers were out of the workforce, and 17% worked part time (compared to 1% of fathers out of the workforce, and 2% working part time). As society does not prioritize making motherhood and female career tracks compatible, women lose out on work hours and time dedicated to advancing in the workforce. Further, while the “motherhood penalty” of returning to the workforce tends to hurt women, the “fatherhood bonus” of receiving a higher salary upon having a child advances men. Unfortunately, it doesn’t end here.
Another contributing factor is occupational choice, which can be traced back to college major selections and how females are underrepresented in majors that result in traditionally higher-paying jobs. When we think about this, we must ask ourselves how young females are conditioned to set goals and think about the future. Men are not intuitively better at math, so why are there more males in quant-heavy majors? Organizations across the country are working to promote STEM education among young females to start addressing this issue. But the pay gap exists in almost every field, so this isn’t the only problem.
Minority populations – be it based on gender, race, ethnicity, religion, etc. – face discrimination and biases that cannot always be proven with numbers. Thousands of cases of sex discrimination are brought to the Equal Opportunity Employment Commission each year, and are settled in favor of the person who filed the charge, showcasing that sex discrimination very much exists (AAUW). Further, there are gender norms and pressures that influence females’ decisions, making their lower wages appear to be a choice, rather than an outcome of societal conditioning. While discrimination and bias cannot necessarily be proven, AAUW found that after taking into account “college major, occupation, economic sector, hours worked, months unemployed since graduation, GPA, type of undergraduate institution, institution selectivity, age, geographical region, and marital status”, there was a remaining 7% unexplained difference between the salaries of male and female college graduates one year after graduation. This worsened with time, as the gap increased to 12% 10 years after graduation (AAUW). These unexplained differences point to some type of discrimination and bias that negatively affects females.
And this sounds bad, right? But what about the other gap, the investing gap that costs women an average of $700,000 across their lifetime.
A 2015 Blackrock study revealed that while 65% of American men have started saving for retirement, only 53% of American women have. Further, amongst those who are saving, women have accumulated less than half the retirement savings as men. While 45% of men are willing to take on higher risk to receive a better return on an investment, only 28% of women are. Worse, 68% of women’s investments are represented by cash compared to 59% of men’s. Parental duties play a part in this as only half of women aged 25-44 are working full-time compared to more than 75% of men, furthering the argument for mandated maternity leave. As the investing principle, compound interest (which I’ll explain more next week), relies on time for better returns, women are unable to catch up with their male counterparts, even though middle aged women come close to matching men in retirement savings. While millennial women are twice as likely to call themselves active investors and take on higher risk investments to achieve higher returns compared to Baby Boomers, only 36% of them enjoy managing their investments compared to 70% of millennial men.
This right here is the problem. Why do millennial men enjoy investing, but millennial women don’t? Why does our society teach men to love money, and women to cower away from it? Because the problem is that when we do that, women don’t invest. And when women don’t invest, we lose out. For starters, 90% of women will have to manage their own money at some point in their lives. Be it during your single, divorced, or widowed life, it happens to most of us. The good news is that we’re pretty good at it. The Ellevest Mind the Gap – and Close It guide (which you must read) reminds us that women have been shown to be better at investing than men here, here, and here. For these reasons, and many more, I find it absolutely necessary that the women of my generation (and those before and after mine) start investing NOW.
You see, while the stock market does not always go up (shout out to 2007/2008), it has an average 10% rate of return annually. This is measured by Standard and Poor’s 500 (S&P 500), which contains 500 of the largest stocks in the U.S., making it a reliable tool for estimating the overall health of large American companies. Compared to leaving money in a savings account – where the return is near 0% – investing it is generally worthwhile. Next week, I will get into more of the specifics of investing beginning with basic definitions, but the point is that investing pays off. The experts say you shouldn’t wait until you make “enough” money, but rather you should start now. If anything, starting young will put you ahead, as you can capitalize on compound interest and start developing good habits.
As you might have read in my article, Money is Power, the fact that women don’t invest is what really drove my motivation to create this blog. As my internship at a wealth management firm heightened my attention and I started to notice that the conversations about money that my male friends had were not raised amongst my female peers, I realized that a problem existed (and I was part of it). Beyond the mighty few who are entering careers in finance, women on college campuses are largely left out of money conversations. While I took it upon myself to become more financially literate through reading and researching last semester, and then opening a simple investment account at the end of 2017, I realize that only the happenstance of selecting a finance internship propelled me into this direction. As I read resources targeted at middle-aged women encouraging them to start investing, as it wasn’t too late, I wondered why we aren’t telling 20-year-olds to get involved because it isn’t too early. And so, this section of The Feminequity Factor aims to do just that. I will impart my limited knowledge of finance on you, while also working to learn more along the way. Together, we can change the story. Instead of reversing bad habits in our 40s, let’s start good habits now.
Let’s get more girls in investment clubs and more women in the stock market. As we work to close the pay gap, let’s invest in closing the other one.