A man is not a financial plan, according to my partner Joan Baker who wrote a book on women and finance a few years ago. I have read the book so it was not a surprise to me when I saw last week's ANZ Retirement Savings Confidence Barometer which showed that women were much less confident that their savings were on track than men. Only 39 per cent of women thought that they were on track compared with 56 per cent of men.
OPINION: Putting aside what might be many men's misplaced over-confidence, it is right for women to be less assured because they face a lot of financial headwinds.
There are the obvious ones: incomes are lower and women spend more time out of the workforce than men for family reasons. Women also live longer (although the longevity gap is starting to close in some countries).
Add these things together and we see that women need more money than men for retirement (they live longer) but will see less money passing through their hands. It is easy to understand why women are pessimistic regarding their ability to fund retirement.
In addition, there are other factors which do not appear in the statistics. Prime among these is the way that many women come out of relationship breakdowns. Mostly, they seem to come out worse than men. Anecdotally, women get a smaller share of the family wealth and, worse, they have less ability to earn income following a breakdown.
This may be because they take a greater share of child minding after the breakup or because they have limited their careers in the relationship and so cannot earn as well their former male partners when they are by themselves.
Those who are not in paid employment or who are only part-time will obviously have lower incomes but they will also be with low or no employer contributions to their KiwiSaver accounts: something which is likely to be critical for most people's long-term retirement savings in the future. KiwiSaver is starting to be recognised as a major part of a family's retirement plans and on average, women put less into KiwiSaver and attract smaller subsidises.
So, what should women do about this? It is a tough thing to say but these financial headwinds mean that women simply have to be better at managing their money: they need to do what anyone should do, only more so. This may sound trite, however, there is a lot of truth in it: women, with less income and less capital need to be smart and make the most of what they do have.
More specifically, they should first try to keep their employment skills high and keep them current. The same applies to their networks - in many cases, the network is even more important than skills. It is the lack of good employment and, therefore, good income which is the most devastating of all: Everyone (including women) should maintain their ability to earn.
Second, concentrate on repaying debt, especially high interest rate and/or non-deductible debt. Do not get distracted from this by diving off into investment ideas (the big exception is KiwiSaver) but maintain your focus to clear debt. Remember that the main ways to get rid of debt fast are to get the lowest rate (find the best providers and negotiate with them) and applying as much cash as you possibly can to the repayments. Avoid credit card debt like it was hemlock juice.
Third, when you start to invest, you need to be smart. Invest as the right investor type whether conservative, balanced or growth. Advisers and management fees eat into investment returns, so do as much as you reasonably and safely can yourself. Make sure that you are in the right KiwiSaver fund - the right asset allocation with the right provider. None of these is specific to women - we all should be doing them. However, women need to focus harder on doing the right thing in the right way as there is less ability to recover from mistakes.
Time out of the workforce may be inevitable for many. However, that does not mean that you should ignore the principles of good money management; in fact, women's financial management needs to be better. You abrogate the good habits and skills required of financial control at your peril: in a relationship or not, a man is never a substitute for a financial plan.
Martin Hawes is an authorised financial adviser and his disclosure statement is available free at martinhawes.com. This article is of a general nature and no substitute for personalised financial advice.
- Sunday Star Times
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