Generational Differences: Women and Money
Originally Posted on August 12, 2016, by Kate Duggan on Watermark
Being born in a different decade says more about you than simply your age or demographic. It also impacts how you view money and what your priorities should be at each stage. According to a recent Financial Finesse report, every generation – Baby Boomers, Gen Xers and Millennials — struggles with financial hurdles. For women, these difficulties can take on an especially poignant weight. Not only do women tend to live longer (seven years on average), but they’re also paid less throughout their lifetimes and often have to take time away from work to care for loved ones (children and parents). Careful planning is critical to closing any potential gaps. Below are some of the most common financial hurdles facing each generation.
Baby Boomers
Prioritize retirement (reducing debt, increasing savings) before helping loved ones. Many baby boomer mothers are straddling two spheres — quite literally sandwiched between helping their adult children while providing care to their parents.
According to the U.S. Administration on Aging, nearly 65 percent of the elderly rely exclusively on family and friends to provide assistance — with women providing the majority of this care (an estimated 66 percent). The financial impact of this on a typical female caregiver’s retirement fund can equal a loss of more than $40,000 (as compared to a man in the same situation). Couple that with helping out adult children, and a women’s retirement fund can really take a hit. According to a study by TD Ameritrade, adults who help their parents and kids lost as much as $630 billion in possible retirement funds. So, while it may be tempting to help loved ones, baby boomer women need to focus on paying down debt and increasing their savings first. This alone will allow them to take care of themselves during retirement and not place similar burdens on their family members.
Plan for long-term care costs. Due to women living longer statistically, planning for long-term care (nursing home, in-home help, etc.) is crucial. An estimated 70 percent of people aged 65 and older will need some sort of long-term care, with only 25 percent planning for it. The average annual premium for a long-term care policy purchased by a person aged 55 or younger is around $1,800, at coverage start date. That same policy would cost $3,500 annually for an individual aged 70-74. Bottom line, it’s important to plan for the possibility of being unable to take care of yourself. Reach out to AARP or your insurance company for a quote and a list of benefits. Build it into your budget. It could save you or a family member from bankruptcy.
Gen X
Make sure you have adequate insurance and estate protection. Although no one really likes to think about it, estate planning is critical. If something were to happen to you or a loved one, your family needs to be taken care of. More than 2.5 million Americans die of either natural or unnatural (i.e. car accident) causes each year, with the most prevalent being heart disease and cancer. In fact, heart disease is the number one killer of women. You may feel like you’re young and this is all far, far away, but take the time to draft a will. After all, more than half of Americans don’t have one. Assign a power of attorney — someone who can make decisions on your behalf financially or medically. You’ll also want to outline your end-of-life preferences. If you have children dependent on you financially, you’ll need life insurance to cover lost income and living expenses.
Millennials
Improve money management skills. Fortunately for millennials, there are numerous technologies and financial wellness programs to help manage money which were unavailable to previous generations. LearnVest is a budgeting program geared towards helping women figure out their budgets — it recommends the 50/20/30 rule. Fifty percent of your income is for essentials (rent or mortgage, living expenses, transportation, food); 20 percent is for retirement, savings, paying down debt; and 30 percent is for lifestyle choices such as entertainment and vacations. Other sites that can help include Mint.com or YNAB.com (short for “you need a budget”).
Prioritize longer-term goals such as retirement and investing. Retirement and longer-term goals all seem like a good idea in theory, but often because they are so far into the future, it’s easy for Millennials to put off saving or think, “I’ll start tomorrow.” Millennials, your biggest asset is time. Let’s take a typical scenario. Melanie starts saving at age 25. She puts $200 per month into a retirement account with an estimated six percent return. Samantha does the same thing as Melanie — only she starts saving at age 35. Both continue to add $200 per month until they hit retirement age at 65. At this point, Melanie has contributed $96,000 in total while Samantha has contributed $72,000. However, by the time they’re both ready to retire (due to compounding interest), Melanie has almost double the amount of money ($402,000) as Samantha ($203,000). Prioritizing retirement savings now will pay off in the long run.
With every generation facing its own unique financial challenges, learning how to tackle these issues is key. And, most importantly, you’ll benefit greatly by taking action now.
About the Author
Kate Duggan is the Senior Vice President of Marketing at Tech CU (Technology Credit Union), a $2 billion Silicon Valley based credit union serving more than 75,000 members. A financial services marketing executive and strategy consultant for 20+ years, prior to joining Tech CU, she worked at E*TRADE Financial, Schwab, Wells Fargo and M&T Bank. Kate has a bachelor’s degree in Business Management, completed the Executive Leadership Program at Cornell’s S.C. Johnson Graduate School of Management, and studied digital marketing and social media at Harvard Business School.
As a passionate supporter of women’s financial advancement and empowerment, Kate has also taught classes and mentored women entrepreneurs through Women’s Initiative for Self-Employment, and is currently a member of the Leadership Circle for WANDA (Women’s Achievement Network and Development Alliance), a financial literacy non-profit serving Bay Area single mothers. She is a member of Watermark.