Financial Finesse’s latest report focuses on the gap in financial wellness between men and women. Women significantly lag men in basic money management and investing, the report found. Not only that, but the gender gap is actually widening in some areas.
Financial Finesse analyzed questions that employees put to the firm’s financial hotline from January through March, and broke down the data into seven topics: investing, money management, tax planning, college planning, insurance, retirement planning and estate planning.
Nearly 90% of men claim to have general investment knowledge, but only 66% of women could agree. While men reported relatively low levels of confidence in their allocations (45%), it far exceeded the 29% of women who said they felt confident.
Furthermore, it seems very few women have reviewed their plans to make sure everything is in order. Just 37% said they had taken a risk assessment and were aware of where they sat on the risk tolerance spectrum, a full 20 percentage points less than men who have done the same. While 38% of men have reviewed their assets and created a master plan to avoid overweighting certain asset classes or overlapping investments, just 16% of women have, and only 10% of women have done a fee analysis on their portfolio. Twenty-eight percent of men have done a fee analysis.
The gap between men and women with a general knowledge of investment products is noticeably growing, the report found. In 2010, the gap was 33 percentage points, a gap that more than halved in 2011. This year, though, the gap increased to 23 percentage points.
In money management, the gap between men and women was also significant. Debt is clearly a problem for women. Fifty-two percent say they are comfortable with the amount of non-mortgage debt they have, and only 45% regularly pay their full credit card balance. Less than half check their credit report on a regular basis, compared with 58% of men.
“It seems like men and women have taken a step backward,” Diane Winland, resident financial planner at Financial Finesse, told AdvisorOne on Thursday. “Generally, men are pulling back across the board, and women are pulling back in certain areas like money management and investing. We’re seeing a bigger pullback in the day-to-day, but none in retirement.”
The report notes that between 2009 and 2011, women made “steady progress” in paying off credit card debt in full, before reversing course in the first quarter. “This, coupled with the steady decline in the percentage of women that report feeling comfortable with their level of non-mortgage debt, may be cause for concern and is something worth watching in the future,” according to the report.
Regarding taxes, women are struggling to understand the implications of their investments and retirement accounts. Just 34% said they understand the subject, compared with 56% of men.
Winland (left) stressed the importance of understanding the difference between Roth IRAs and traditional IRAs. It’s also important, she said, to understand how distributions are taxed as they come out of the account.
Women reported low levels of understanding in college planning, but this subject also presents the only area in the report where women outpaced men. Less than 30% of men know how much they need to save for college costs and are on track to meet that goal, but only 16% of women agreed. Over a third of men are saving for college in a tax-advantaged plan, compared with 19% of women. Women edged out men in understanding financial aid options, but just barely; 60% of women understand grants, scholarships and loans, compared with 59% of men.
When it comes to insurance, the gap between men and women begins to shrink, with both groups reporting fairly high levels of understanding in some areas. Seventy-eight percent of women review their insurance coverage every year and are confident they are adequately covered, compared with 82% of men. Half of men and 42% of women report having enough life insurance. While both groups are prepared for a long-term disability (53% of men have long-term disability coverage, compared with 52% of women), long-term care insurance is still something of a novelty. Just 16% of men reported having coverage, compared with 12% of women.
The good news is that in retirement planning, women aren’t lagging men as badly as they are in other areas. In fact, the report found “virtually no gap” between men and women participating in 401(k)s or IRAs. Almost 80% of women are taking full advantage of their company match, and 87% of men are doing likewise. Unfortunately, neither group appears well-prepared for retirement. After falling from 14 percentage points in 2010 to just eight points in 2011, the gap between men and women who are on track for retirement increased in 2012. Just 22% of men said they are on target to replace 80% of their income in retirement. A piddly 12% of women said they were on track.
If men and women are already participating in their company’s retirement plan and contributing the max to get the full match, what else can they do to improve their retirement chances? One thing, Winland said, is to put in the actual maximum they are allowed contribute to the plan, and not just the maximum needed to earn the company match. “Planners like to see people putting in 10%,” she said. “But for some people the max to get the match may only by 6%.” Workers need to “set a higher bar for how much they’re going to save for retirement,” Winland said. “Once they’ve maxed out their contribution, maybe they can supplement that with an IRA.”
The subject of estate planning, while it didn’t represent the wide gap other topics did, also indicated a challenge for men and women. Although 81% of men and 80% of women have updated their beneficiary designations, less than 5% of each group has met with a professional to create an estate plan.
Winland was disappointed in women’s apparent backslide after improvements in 2011. “I would have thought women would continue gaining ground,” she said of this year’s report. She noted that men are pulling back, but women are pulling back more, and wondered if women were more reactive than men. “It seems women are more sensitive to outside changes,” she said.