Family Finance

Women are living longer, saving less

Is personal finance different for women and men? Yes. Not drastically, but there are real differences in income levels, investing styles and life expectancy, which in turn affect the personal finance priorities.

Labour force participation at record high

There are almost six million women working full-time and another 2.1 million working part-time in Canada. The wage gap has narrowed, but it hasn’t closed entirely. In 2007, women working full-time earned a median weekly income of $812 compared to $1,010 for men. There have been numerous articles written about the wage gap and its drivers but the bottom line is, it still exists.

More women are working for themselves

Whether it’s autonomy, flexibility or issues in the work world, more and more women are choosing to work for themselves. In fact, over the last decade the number of female entrepreneurs has almost doubled to 821,000 and they provide 1.7 million jobs, contributing almost $18 billion to the Canadian economy. Entrepreneurs face greater income risk but also higher upsides than salaried workers. They also enjoy greater tax planning opportunities. For this group, investment and tax advice are vital.

What about investing?

While women are clearly playing a greater role in the economy, for various reasons only 37% of women say they regularly contribute to their RRSPs. Sixty-seven percent say they pay little or no attention to financial markets and investing.

According to a number of studies, when they do invest, women tend to be more conservative than men. While one could speculate on the reasons for this general pattern, it is important to note that a conservative bias is not necessarily a bad thing.

Fear of losing everything

In a poll, nearly half of women said they worry about losing all their money and becoming destitute in their old age. A long list of issues contributed to those fears: divorce, widowhood, longer life expectancy, wage cap, childcare, elder care and lower pension income.

Strategies

Start saving -- today

It’s hard to stick to a budget while trying to save more. The best way to do it is to save automatically by opening a pre-authorized chequing plan. The money goes directly from your paycheque or bank account directly to your investment account.

Jennifer and Lucy both want to retire at age 65, but Jennifer started a decade earlier. She was rewarded with more than three times the retirement assets.

Compounding

By starting to invest earlier women can take advantage of the power of compounding – one of the most powerful forces in the investing universe.

This hypothetical example is based on monthly $100 contributions and assumes an average annual return of 8%.

Diversify

Because it’s nearly impossible to predict tomorrow’s winning asset class, industry sector or region, it is prudent to diversify. As the chart below illustrates, holding a mix of equities (both domestic and international) and fixed income securities like bonds reduces risk in your portfolio.

Source: Datastream. December 31, 2008; Blend = 50% DEX Univers, 25% S&P/TSX, 25% S&P500 ($Cdn)