The year 1787 was a historic year for the United States, and not only because it was the year that James Madison, Alexander Hamilton and John Jay wrote our Constitution. It was also the year that the first crack appeared in the financial wall that made women economically dependent on men, when Massachusetts passed one of the first laws allowing women to run their own businesses. Sole proprietor The law gave every married woman the right to offer and accept business when her husband was out of town.
From that Sole proprietor It took nearly 190 years of hard-fought struggles before women were granted full control of their own finances. The Equal Credit Opportunity Act of 1974, which eliminated the previously common requirement that women need their husband’s permission to get a credit card, was the last hurdle preventing women from controlling their own financial destiny.
However, as with most civil rights issues, this law did not end the fight for women’s financial equality; that fight continues to this day. Although women today have the same access to financial instruments and the same rights to own property and conduct business as men, they are still limited by the gender wage gap.
Subscribe to something Kiplinger’s personal finances
Be a smarter and more informed investor.
Save up to 74%
Sign up for Kiplinger’s free e-newsletter
Profit and prosper with the best expert advice on investing, taxes, retirement, personal finance and more – delivered straight to your email inbox.
Profit and thrive with the best expert advice – straight to your email inbox.
Three financial hurdles for women
On average, women in full-time jobs earn only 84% of the wages that men earn in comparable positions. This can be a significant difference. For an average job that pays a man $70,000 per year, a woman earns only $58,000 for the same work. This $12,000 per year difference is significant and negatively impacts women in three ways:
The first is the wage gap itself. Especially at the lower end of the pay scale, women, who earn significantly less than men, are more likely to struggle to make ends meet. In the example above, that $12,000 a year could mean the difference between a substandard apartment in an unattractive neighborhood and a breezy one-bedroom near the beach. Or it could simply be enough for a woman to stop living paycheck to paycheck and start building up a healthy savings account.
The second aspect is retirement provision. Purchasing power is only the most obvious way in which the gender pay gap negatively impacts women. Financial advisors often advise their clients to save at least 15 to 20 percent of their salary in retirement accounts. But 15 to 20 percent of the average woman’s salary is significantly less than the same percentage of the average man’s salary. This means their purchasing power is limited not only during their working years, but also during their retirement.
The third major blow is lower retirement income. Social Security benefits are generally based on the highest 35 years of a working person’s earnings. If that person earned only 84% of what he would have received as a man, his Social Security checks would also be lower.
Clearly, the gender pay gap creates problems for women that last throughout their lives. Although equality is the ultimate goal, it will not happen immediately. While women continue to strive for equality, there are steps they can take now to remain financially secure despite their statistically lower wages.
What can women do? Invest
On average, American women believe they need $6,000 in disposable income each month to begin to invest their money. That’s $72,000 a year on top of the income they need for regular living expenses. To put that in perspective, the average salary in the United States is less than $60,000, so for many, that disposable income is an impossible goal.
This perception has led many women to not invest in their future. If women invested as much as men, there would be $3.2 trillion more assets under management nationwide.
In reality, you need much less than $72,000 per year in discretionary income to invest; even $25 per month is better than not investing at all. To compensate for a life of lower wages, women need to save for retirement in accounts that can grow their money.
Start investing early
It’s not just important to invest. It’s also important to start investing as early as possible. “Time is money” is especially true when it comes to long-term investing. While women earn less than men and therefore have less money to invest, if they start early enough, it’s entirely possible for a woman to retire with more money than many of her male counterparts.
Most Americans have less than $30,000 saved by age 44. If a woman starts saving for retirement in her 20s, even though she may save less than most men, she can still have more money saved by the time she retires thanks to compound interest. Starting early is a great way to close the gender wage gap.
Recognize that education is key
Only 45% of women are confident they can manage their investments well, and 30% of women saving for retirement have no idea how much they need to save to actually retire. These sobering statistics can be traced back to one problem: education. People don’t know enough about personal finance to feel confident, and all too often, a lack of confidence leads to inaction.
Fortunately, there are countless resources people can use to educate themselves on personal finance issues, from online courses to articles in Kiplinger. Any topic that women feel uncertain about can be researched from the comfort of their living room, and it’s important that they do so. Only with a sufficient level of financial knowledge can women hope to close the gender pay gap now and in their retirement planning.
America still has a long way to go to achieve gender pay equality, but with careful planning and concerted effort, women can close the gap and build healthier finances and enjoy happier retirements.
Related content
This article was written by our contributing consultant and represents the views, not those of the Kiplinger editorial staff. You can check the consultants’ records using the SEC or with FINRA.
