Progress has been made for women in finance, including US Treasury Secretary Janet Yellen, ECB President Christine Lagarde and Citigroup’s Jane Fraser, who now hold top positions in the industry.
But when it comes to personal finances, they all too often lag behind their male counterparts; less tendency to invest and increase their personal wealth.
There are many reasons for this imbalance. Persistent and ubiquitous wage differentials mean that women often earn less than men for the same job, while more money is still lost on unpaid caring responsibilities. In the meantime, many women are solely responsible for household finances later in life due to typically longer life expectancies combined with rising divorce rates.
“Women need to understand that there are certain factual trends at play,” Lorna Tan, director of financial planning at DBS Bank in Singapore told CNBC Make It, “and they need to have a holistic financial plan.”
However, there are ways women can overcome these hurdles and have better control over their money, the best-selling personal finance author pointed out, highlighting her key pieces of advice.
build up trust
According to Tan, the first thing women need to do is become more confident that they can take control of their personal finances.
One study found that women generally spend more money on savings than men (41% versus 35%) but invest far less in riskier assets with potentially higher returns (25% versus 32%).
“That’s usually because they’re less confident,” Tan said. “But I believe that with education and better understanding, women can better manage their finances.”
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Tan recommended first developing a basic understanding of savings and investments through articles and attending free online financial planning webinars. From there, you can dig deeper into specific topics and investments that you bring up.
However, she said she is cautious that the advice is aimed at “holistic” financial planning rather than just promoting an area like stocks.
Make a plan
Next, record your financial situation and the personal goals you are working towards. Then think about your financial habits and figure out a budget to keep you updated.
If you are young please check out the magic of compound investing.
Lorna Tan |
Head of Financial Planning Competence, DBS Bank
Tan recommended that at least 10% of your income be earmarked for savings and investments initially, although she “always advocates saving more”.
She also recommended building a three to five month income emergency fund before moving towards a sold investment benchmark that puts 50% of your net worth in income generating assets like stocks, bonds and real estate.
Make your money work
While women typically have less appetite for riskier investments, in a low interest rate environment, making sure your money is being used for work is important.
Despite the frenzy of trading platforms and so-called meme stocks like GameStop, Tan recommended not tracking individual stocks.
“When people time the market, they usually miss the best days in the market,” Tan said.
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Instead, she recommended investing in low-cost managed portfolios available through robo-advisors such as Betterment, StashAway, Nutmeg, and DigiPortfolio from DBS. These have different levels of risk that you can change over time as your risk tolerance changes.
Such an investment is best made in small, regular increments – a technique known as dollar cost averaging – which reduces the effects of market volatility. By keeping your money invested, you can take advantage of compound interest, with your returns reinvested to grow your profits.
“If you are young please check out the magic of compound investing,” she said.
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