Generationally, women have not always had the knowledge, resources or professional advisors to confidently take full financial ownership. But now, women are more equipped than ever to not just find their financial footing, but also play a significant role in driving their own — or their family’s — finances. The Center for American Progress (CAP) reports that “84% of employed, prime-age women work full time,” and similarly another source published that in a survey of 1,000 women, nearly 90% assumed or shared control of finances.
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Multiple studies reflect that the balance of financial power is shifting from men to women. By 2030, it’s projected that as baby boomer men in the U.S. pass away, women are expected to control much of the $30 trillion in financial assets possessed by the baby boomer generation, according to a McKinsey & Company study. The same McKinsey study from July 2020, also illuminated that younger women are becoming more financially savvy, with 30% more married women making financial and investment decisions compared with five years prior.
Even with increased financial ownership among women, research suggests financial insecurity still exists. A Bankrate story recently revealed that close to half (48%) of women expressed being confident about their finances, but only 28% feel empowered to take action.
Undergoing a significant life change — divorce, parenting a child with special needs, taking care of an elderly relative or experiencing the death of a spouse — can be added stressors for women when it comes to what to do next to ensure financial security. For this reason, it’s more important than ever to proactively build up financial health well in advance of any possible major life events.
Impact of divorce on women’s finances
It’s no mystery that divorce often breeds turmoil. It’s also not uncommon for women to experience longer-lasting financial repercussions as the result of a divorce. A study conducted of divorced male and female individuals between 1984 – 2015, featured in the National Library of Medicine, demonstrated that while men experience a disproportionate share of the psychological strain of divorce, these challenges are transient, whereas women’s disproportionate financial strain is chronic.
With the shift in women baby boomers capturing a lion’s share of assets in the future — as reflected in the McKinsey study — and younger women having greater access to resources to help them, insecurities will likely lessen. For now, financial education and partnering with knowledgeable advisors can help significantly contribute to more favorable outcomes for women approaching — and going through — a divorce.
There are two initial steps women should consider when divorce is imminent:
1. Take inventory of one’s current financial position: It’s important to understand all assets and liabilities, income channels and expenses — taking note of the titling and location of each asset. A cash flow statement can help determine what’s needed in terms of basic living expenses and discretionary spending as well as provide a future roadmap for budgeting.
2. Assemble a team of trusted advisors: This often includes — first and foremost — legal counsel, a financial advisor and Certified Public Accountant (CPA). There can be a tendency for women who go through divorce to want to “cut and run,” but having the right group of professionals and support system in place at the start can significantly help prevent future and long-term financial hardship. It’s important to vet, trust and be comfortable with any professional advocates prior to securing them. Referrals, extensive online research from reputable sources and personal interviews can help solidify a dependable, long-term team.
Other difficult financial situations
Divorce is not the only scenario in which a woman can find herself feeling financially unsettled. Parenting a child with special needs or taking care of an elderly relative can incite financial worry. Experiencing the death of a spouse is another instance that triggers financial concerns. “New Scientist” reported that in the U.S. women outlive men by an average of six years. Complex financial factors like owning a business can only compound these difficult situations. In any of these scenarios, the more financial preparations in place the better.
In addition to the previously discussed steps — evaluating financials and assembling a team of trusted advisors — understanding the role of insurance in protecting and providing for oneself and loved ones while facing unforeseen hardship is critical. Estate planning is also an important step for any woman seeking to productively manage finances. Common elements of an estate plan typically include a will and often a trust, powers of attorney (both financial and medical), and a living will. It is also important to consider beneficiary designations on life insurance policies and retirement plans and to appoint guardians in a will if minor children are involved.
Guidance for new generations of women
Conversations about financial independence can — and are — happening earlier. Guardians can begin to have financial preparedness discussions with their daughters as soon as — or even before — an opportunity to earn income arises.
It’s never too early to discuss money, how it works, and to develop habits and strategies that build confidence and empower young women to take control of their financial lives. Important elements of the conversation should include:
• The importance of setting both short- and longer-term goals
• How to create a budget and the importance of sticking to it
• The importance of saving, both to protect against emergencies and to achieve one’s goals
• The importance of investing to help grow wealth over time
• The basics of credit, taxes, and insurance
• The importance of continually educating oneself about personal money management
Takeaways
As a great transfer of wealth to women is underway, it’s an opportune time for any woman — at any age or stage of life — to delve into managing their personal finances. There have never been more educational resources available, from in-person classes to online materials, nor more advisors committed to understanding the unique financial needs of women and to partnering with them to help build and protect their financial health and well-being.
Author: Megan Ruffentine is private wealth advisor at BMO Wealth Management in Arizona, serving as lead advisor and relationship manager to high-net-worth individuals, families and organizations, including closely-held and family-owned businesses.
