According to the latest World Economic Forum’s Global Gender Gap Report, South African women are paid between 23% and 35% less than men doing the same job, while Stats SA estimates the country’s gender wage gap at 30% across the board. But, disparity in pay doesn’t tell the whole story of how women’s wealth creation trajectory can be hindered. In this article, we delve deeper into the unique financial planning needs of women and the longer-term effects of gender pay disparity.
The unique financial needs of women
Before we can fully appreciate the far-reaching effects of pay discrimination, it’s imperative to understand the inimitable financial planning needs of women. Firstly, their ability to save in accordance with their needs is often compromised because their careers and earnings are interrupted during their child-bearing years. Further, many women need to access their accumulated retirement benefits to help fund the costs of having children which interrupt the effects of compounding. Additionally, as women tend to live longer than men, they need to effectively save for a longer period in retirement. With a greater likelihood of their husbands pre-deceasing them, women also face the risk of living alone during the last few years of retirement – a time at which age-related diseases such as dementia and Alzheimer’s are likely to strike. As such, funding for the costs of assisted living, frail care, or private nursing is a reality for many women.
Many women, torn between raising children, building careers, and caring for their aging parents, attest to feeling cash-strapped and time-poor especially as women tend to take out the lion’s share of household chores. Their role as carers – both at home and within the broader family – can have an impact on their careers and their ability to generate an income. There is also the dichotomy between earning and spending that needs to be factored into the discussion. While women make the majority of purchasing decisions in the household, they don’t necessarily earn the majority of the money – and this can create tension in the relationship. In her book “Women are the majority market”, Fara Warner points out that women in the United States are responsible for making 91% of home purchasing decisions, 68% of vehicle purchasing decisions, and 80% of healthcare decisions. Further, women also rule online shopping largely because they are required to shop for a wide range of people other than themselves (children, parents, grandchildren, husbands, and domestic workers) and are therefore far more multi-dimensional consumers than men.
Women as investors
According to thought leader and marketing strategist, Tom Peters (2014), women make much better investors than men and consistently achieve higher financial returns. This is partly because women tend to be more receptive to advice and are more likely to learn from their mistakes. In her book, “Warren Buffett invests like a girl, and why you should too”, LouAnn Lofton reinforces that women make much better investors because they have the right temperament and can control their emotions. Women are more likely to have a calm temperament, a longer-term outlook, do more research, trade less, and remain steady under pressure. Her research shows that women view things more holistically and are open to seeking advice from a financial planner, whereas many men tend to want to go it alone. In addition, women exhibit less over-confidence and are more likely to know what they don’t know, displaying less optimism and more realism than their male counterparts. Women generally have higher attention to detail, put more time into researching the investment opportunities, and are more likely to consider alternative or opposing points of view – attributes that all impact positively on their investments.
The longer-term effects of pay discrimination
Where a woman begins her career earning less than her equally qualified and able male counterpart, there are a number of inequities that arise, some of which become exponential over time. For instance, her salary increase – even if equal in percentage to her male counterpart – will be calculated off a lower base and, over time, the gap in earnings will widen. Further, where bonuses are linked to her salary, she will take home less in bonuses. If she invests a percentage of her taxable earnings towards a company pension fund, not only will the Rand value of her contribution will be lower, but she will also receive a smaller tax deduction on her contributions. In addition, compounding will take place on a smaller invested amount, and ultimately the value of her funds at retirement will be lower than her male counterpart. On this point, it’s also worth noting the lost opportunity costs in respect of the money she did not earn as a result of pay disparity and which could have been used to further her education, enhance her skills or invest towards her children’s education.
Where group life and disability cover are calculated as a factor of annual taxable income, a woman earning less than her male counterpart will be eligible for less cover. Similarly, if her income protection benefit is calculated as a percentage of her earnings, she will be entitled to a lower level of income protection. Importantly, if she was to become disabled, she would find herself in an economically weaker position as a result of the reduced disability benefit. When she decides to apply for promotions or seek alternative employment, keep in mind that she will begin salary negotiations off a lower base and, as a result, have less bargaining power with which to leverage more equitable pay. This untenable situation can deter women from pursuing career growth or seeking promotions which, in turn, can limit their opportunities to grow professionally and build wealth.
Not only does the gender pay gap reinforce gender equality in the workplace and within broader society, but undervaluing women’s professional contributions can take an emotional toll on women. Further, it creates a cycle of lower earnings, diminished bargaining power, limited opportunities for career advancement, and inequitable representation in leadership positions which not only affects women but their children and extended families as well.
As financial advisors, we need to be more keenly attuned to the specific financial planning needs of women by working with them to develop wealth-creation strategies that are fully aligned with their unique career and retirement trajectories.
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