Many personal finance books are aimed at women. It’s a logical brand extension if you get a bestselling title. Not only are women more willing than men to buy books that offer advice for improving one's life, there’s also a widespread belief that women need more help in the monetary arena than men do. As Suze Orman wrote in Women and Money, “Why is it that women, who are so competent in all other areas of their lives, cannot find the same competence when it comes to matters of money?”
There would seem to be some evidence pointing to women’s money troubles. Women are rapidly becoming more educated than men, and yet women build up far less wealth. Clearly that calls for some financial education, right?
Except the problem with much literature aimed at women in this regard is that it takes a scolding tone that women are blowing their cash on frivolous things or, to use the title of one book, Shoo, Jimmy Choo!. According to Helaine Olen’s new book, Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, Gallup found that men spent $11 more per day than women in 2011. “They are also easier online marks, quicker to click the ‘buy it now’ button and less likely to comparison shop or return items. Men are more likely to buy Groupon and other online coupon deals for fun, while women use the services to purchase needed goods at a discount.” Men are more likely to spend big on cars -- a category that can get you into trouble far faster than the sale rack at Macy’s -- and yet, as Olen notes “there are, needless to say, no male equivalents of this stuff. No books with titles like Let Go of the Lamborghini! or Bench the Bulgari.”
Compounding this issue are some studies finding that women may, on the margins, be better at investing. They’re less likely to pursue hot stocks. Writes Olen, “A Vanguard study found men significantly more likely to panic and sell at the market lows, locking in their losses instead of their gains.” So if women don’t spend more frivolously than men, and they don’t invest any worse, what’s the problem?
In a nutshell, the reason women build less wealth is that they earn less money. While plenty of personal finance books promise riches from stashing away small bits of cash -- thanks to the miracle of compound interest -- the interest rates that make it look like $3000 a year will buy you a mint at retirement hover in the 10-12% range. Actual, inflation-adjusted rates of 6-7% are more likely over the long term. To build up lots of wealth, you need to be investing lots of money. It’s a lot easier to invest lots of money if you have lots of money coming in. One Federal Reserve study found that while fewer than 60% of families in the 40th-60th income percentile save, just about 85% of those in the top tenth do.
There are lots of reasons women earn less money. Discrimination is one. Women are less likely to negotiate starting salaries (though there’s some research claiming that they hurt their hiring chances when they do). They work fewer hours, even when they work full-time, and women are more likely than men to work part-time, with all the income trade-offs that entails. There’s sorting within fields, with men perhaps putting a higher value on income than other factors like flexibility. All this can be limiting to men too -- society tends to judge men more based on income than it does women -- but the financial results are obvious.
So what’s to be done? With any big issue like this, you can keep an eye on someday goals (ending pay discrimination) while also asking what individuals can do Monday morning. These are not either/or choices. It is not denying the reality of larger social forces to look at both. Of the list of causes above, the one most within individual control would be the number of hours worked. When we get busy, it’s easy not to put in the extra hours on the margin -- the planning, networking, skill-building hours. Perhaps we might call these the “lean in” hours, to use the language Sheryl Sandberg is proposing. These are the hours when, as a freelancer, you’re seeking out new clients, or the hours in a conventional job when you’re angling for the next promotion or to move to a higher level in a different organization. But these are the ones that lead to more money down the road. There are, of course, other things to life than money. But in general, whether you’re male or female, having more enables more choices than having less.
(I’m writing, a few days this week, on topics proposed by Women’s Money Week. Today’s topic is income. You can read other bloggers' posts on that topic by clicking on that link).
Photo courtesy flickr user SarahSphar