This blog post is especially for the women on my mailing list. I know there are men who read this blog, too, (and I’m glad and I think you can learn something from this, too), but this column is especially for my female readers.
We all know about the persistence of the gender wage gap in the U.S. More than 50 years after the passage of the Equal Pay Act which required that men and women receive equal pay for equal work, more than 50 years after the Civil Rights Act of 1964 outlawed sex discrimination in employment, decades after dozens of court cases sought to dismantle discrimination against women in the workplace, the gender wage gap stubbornly persists. Women earn, on average, 79 cents for every dollar men earn. Even after controlling for differences in education level, occupational field, and other factors, a significant gender wage gap persists. In fact, in most fields, studies have shown that men are paid more for doing the same jobs as women.
That gender wage gap is one cause of the other gender gap—the gender investing gap. According to a 2017 study by Mass Mutual Insurance Company, women are three times as likely as men to say they can’t afford to save for retirement. The study also showed that “Women do not invest to the same extent that men do: a lower percent of us have started saving for retirement than men, we have saved less for retirement, and we park 68% of our money in cash.” This is a real problem for women, as Sallie Krawcheck, found of Ellevest, points out. The combined impact of all these trends is that women will have less money in retirement funds at the end of our careers, and we will be more dependent on federal programs like Social Security and Medicare to take care of us in our old age. This is an even bigger problem because we are likely to live longer than men. Women are far more likely to end their lives in poverty than men. According to Krawcheck, that gender investing gap can cost women up to $1 million over the course of a lifetime. (See her cover story in the March print issue of Money magazine.)
Thanks to a couple of women who I call my money mentors, I learned early that investing should be a priority for me. Of course, like all of us, I learned my first lessons about money in my childhood home. Most of us makes choices about money either in accordance with or in reaction to the money management behaviors we saw as children. My parents taught me a lot about money. They taught me to be careful and thoughtful about my spending and to always have some money in a savings account. They taught me to avoid debt whenever possible, especially high interest debt such as credit card debt. They taught me that anything worth having was worth saving for and sacrificing for, and that anything that seemed too good to be true probably was, especially if it related to money.
But some of my most influential advice about money has come from women who were not related to me. My first money mentor was Shirley, an HR professional at Bryant University. I was six months into my second grown-up job. It was a good job, and I was finally making enough money to cover my expenses without a second part-time job. I was lucky enough to graduate from college before the days of exorbitant tuition and the resulting exorbitant student loans, so I managed to graduate with only a couple of thousand dollars in student debt, and in my new job, I focused hard on paying that loan off quickly.
When I had been at Bryant about six months, Shirley in human resources asked to meet with with me. I was worried I might have done something wrong. Why else would I be summoned to HR? When I arrived, Shirley startled me when she said, “I noticed that you aren’t participating in the retirement program, and I’d like to encourage you to reconsider that decision.”
I was a little taken aback. I was 24, and retirement seemed like a hundred years away. I explained that I was trying to pay off my student loan as quickly as possible. “I really can’t afford to pay into the retirement plan,” I said. Shirley said, “You can’t afford not to participate in the plan.” Then she picked up a pencil and began jotting figures on a yellow legal pad. “First, the college matches the first 5% that you put into the plan. That’s over $1,000 you are losing in every year that you don’t participate, and that number will only go up each time you get a raise.” She went on to show me that the $100 a month or so that I needed to contribute would actually be about $80 after taxes because my contribution would not be taxed (at least not until I withdrew it at retirement.)
“Do you really think you can afford to leave that much money on the table?” I admitted that it seemed silly to do that. Then Shirley clinched the deal by showing me some more figures. She explained the miracle of compounding—the way investment returns, when reinvested, compound (build on themselves) over time. For example, if I invested $1,000 last year, and the market went up 10%, I earned $100. If I leave that $100 in my investment account, and the market goes up another 10%, this year, I will earn another 10% return, I’ll earn $110—10% of my original $1,000 plus the $100 in income from last year. If I leave that money to grow over time, it will grow and grow. Even if I never added another dime to my original investment, if it enjoyed 10% returns every year (ambitious but a good round number to play with), at the end of 20 years, my original $1,000 would have grown more than six times—to $6,720. (Check out this nifty compound income calculator to experiment with your own numbers.)
So I signed up for the retirement plan. By the time I left Bryant and moved on to Converse College in my early thirties, I had the start of a tidy nest egg. I wasn’t rich by any means, but there was more money in my account than I ever dreamed I could save. I’ll never know why Shirley called me into her office. Maybe she did that for every new employee who didn’t opt into the retirement plan. Or maybe she mostly did it for women. She was a divorced woman in her fifties, and I imagine she was hyper-aware of the cost of the gender investing gap in her own life. Whatever her reasons, I’m eternally grateful to her.
My second money mentor was Priscilla. Priscilla hired me at Bryant, and she mentored me throughout my years there, even at times when, in my youth and arrogance, I didn’t think I needed a mentor. She encouraged me to return to graduate school for my Ph.D., and she rejoiced with me when I landed my dream faculty job at Converse. Just before I moved to South Carolina, she took me to lunch and over our salads, she said, “Now I’m going to give you some advice, whether you want it or not.”
A year or two before, Priscilla had left her senior administrative position at Bryant to return to her first passion. She and some partners founded a consulting firm to help colleges expand international education opportunities. At the time, she was in her fifties. She told me a little bit about her new venture and about how much she was enjoying it. “I was able to make that choice because I was very deliberate about saving money,” she explained. "That savings gave me the freedom to make this change."
Oh, I assured her, me, too. “I’ve been invested in the retirement plan almost since I came to Bryant, and I plan to continue that at Converse.”
“Do you put in the minimum to get the match?” she asked. I admitted that I did. “Well, you need to do more,” she said. That was definitely not what I wanted to hear. After several years of surviving on a part-time salary in graduate school I was eager to have a whole paycheck again, and I certainly didn’t plan on extra investing. But Priscilla went on to encourage me to keep my expenses low so that I could invest most of each raise in my retirement account. “You also need to be putting money in non-retirement savings,” she said. That way, I’d have money available for emergencies or for other things I might want to do—like more education, a down payment on a house, or a business venture.
Then she changed the subject. She was a wise woman and didn’t nag me. But I never forgot her advice. And sure enough, each time I got a raise, I increased my contribution to my retirement account. When I earned some extra money for leading a teacher workshop, I put it in a savings account. When the savings account balance reached a couple thousand dollars, I moved it to a CD to earn more interest. I kept saving that extra income and after a few years, I moved the CD to a stock market mutual fund so it would earn more. And thanks to the miracle of compounding, my investments grew.
Years ago, one of my non-traditional students, a widowed single mom named Greta, encapsulated the wisdom that Shirley and Priscilla taught me in a single phrase. One day when we were talking about life, Greta said simply, “money is choices.” I have never forgotten that sentence. And while I’m not a rich woman by any means, starting to save systematically in my twenties has given me choices at mid-life and a little bit more peace of mind about retirement.
Too often, in part because of the gender wage gap, in part because of a fear that we aren't "good with numbers," and in part because we are socialized to put the needs of others first, we women are reluctant to invest in ourselves and our futures. Even though we know intellectually that depending on a higher-earning partner to care for us in retirement might not pan out, we nonetheless are passive about planning for the future. That’s a mistake.
Maybe you’re still saying, “I can’t afford to save for retirement.” I’ll say it again, “You can’t afford not to.” Even if you don't have an employer-sponsored plan, start saving. Begin with a little bit at a time--$10 a week, if that’s what you can afford. Put it aside in a savings account and don’t touch it. When your savings is big enough, move it to a higher yield investment. Educate yourself about the nuts and bolts of investing. Good places to start are Ellevest, the investing service for women founded by Wall Street executive Sally Krawcheck; Ellevate, a global network of women in the professional world, which has some great educational resources on its web site; or Learnvest, a money management service founded by Alexa Von Tobel to help ordinary people learn to manage and invest their money at a fraction of the cost of traditional investment firms. Find a local investment advisor. There are two women in my network (remember how I wrote last time about the importance of networks) who specialize in helping women invest, and they offer free seminars on the nuts and bolts of investing.
However you do it, begin saving for your future. You can’t afford not to.