The year 1787 was historic for the United States, and not only because it was when James Madison, Alexander Hamilton and John Jay wrote our Constitution. That year also saw an early crack in the financial wall built to keep women economically dependent upon men when Massachusetts passed one of the first laws allowing women to conduct business by themselves. The Femme Sole Trader statute gave any married woman the right to offer and accept transactions when her husband was out of town.
From the Femme Sole Trader statute, it would be nearly 190 years of uphill battles before women were fully acknowledged to be capable of maintaining their own finances. The 1974 Equal Credit Opportunity Act, which eliminated the common requirement that women have permission from their husbands to get a credit card, was the last barrier preventing women from controlling their own financial destinies.
As with most civil rights matters, however, that act did not end the fight for female financial equality; that battle still rages today. While women now have the same access to financial instruments and the same rights to own property and conduct business as men, they are still limited by the gender pay gap.
Three financial hurdles women face
On average, women working full-time jobs are paid only 84% of the wages men in equivalent roles receive. That can be a significant difference. The average job which pays a man $70,000 per year will pay a woman only $58,000 for the same work. That $12,000 per year difference is significant and acts to punish women in three main ways:
The first is the pay gap itself. Especially on the lower end of the pay scale, earning significantly less than men makes women more likely to struggle to make ends meet. In the above example, that $12,000 per year could mean the difference between a sub-par apartment in an undesirable neighborhood and an airy two-bedroom near the beach. Or, it could simply be enough for a woman to stop living paycheck to paycheck and instead be able to build healthy savings.
The second is retirement savings. Straight purchasing power is only the most obvious way the gender pay gap negatively impacts women. Financial advisers often tell their clients to save at least 15% to 20% of their paychecks in retirement accounts. But 15% to 20% of the average woman’s salary is considerably less than the same percentage of the average man’s. This means that not only is her purchasing power curtailed during her working years, but during her retirement as well.
The third major blow is diminished retirement income. Social Security benefits are generally based on the highest 35 years of a working person’s earnings. If that person earned only 84% of what she would have been paid had she been male, her Social Security checks would be lower as well.
Clearly, the gender pay gap creates problems for women that last their entire lives. While equality is the ultimate goal, it won’t happen right away. As women continue to strive for equity, there are steps they can take now to stay financially secure despite their statistically lower wages.
What can women do? Invest
On average, American women believe they need $6,000 in disposable income every month before they can start to invest their money. That’s $72,000 per year on top of income earmarked for regular living expenses. To put that into perspective, the average salary in the United States is less than $60,000 — so, for many, that level of disposable income is an impossible goal.
This perception has left many women failing to invest in their future. If women invested at the same rate as men, there would be $3.2 trillion more assets under management nationwide.
In reality, you need much less than $72,000 per year in disposable income in order to invest; even $25 per month is better than not investing at all. To help make up for a lifetime of lower wages, women must save for retirement in accounts that can grow their money.
Begin investing early
It’s not just critical to invest. It’s also critical to start investing as soon as possible. “Time is money” is never truer than when considering long-term investments. While women earn less than men, and therefore have less money with which to invest, if they start early enough it’s entirely possible for a woman to enter retirement with more money than many of her male counterparts.
Most Americans have less than $30,000 saved by the time they’re age 44. By starting her retirement savings in her 20s, a woman who is able to save less than most men could nonetheless have more saved at retirement thanks to the power of compounding interest. Beginning early is an excellent way to compensate for the gender pay gap.
Recognize that education is key
Only 45% of women feel confident in their ability to manage their investments, and 30% of women who are saving for retirement have no idea how much they need to save to actually retire. These sobering statistics boil down to one problem: education. People do not know enough about personal finance to feel confident and, too often, a lack of confidence leads to inaction.
Fortunately, there are myriad resources people can use to educate themselves in personal finance matters, from online courses to articles in Kiplinger. Any topic women feel uncertain about can be researched from the comfort of their living room, and it’s vital they do so. Only by having a sufficient level of financial savvy can women hope to compensate for the gender pay gap now, and in their retirement planning.
America has a long way to go before reaching gender parity in its paychecks, but with careful planning and a concerted effort, women can overcome that gap to have healthier finances and a happier retirement.
