What Women Need to Know about Personal Finance to Overcome the Wealth Gap

What is the wealth gap, and how does it impact your life? While the income gap refers to the differences in earnings between two groups, such as men and women or whites and people of color, the wealth gap refers to the difference between assets and net worth.

For example, take two people, Ayla and Alex. Ayla lives in a paid-off home because she inherited it from her parents. She has no student debt and earns a salary of $50,000 per year. On the other hand, Alex earns $150,000 a year but has a student loan of $70,000 and rents his home. Looking at this from the income point of view, Alex is better off. However, looking at it from the wealth point of view, Ayla has a higher net worth.

The disparities in the overall wealth gap are even more significant when you break the numbers down by race or gender. The gender wealth gap is among women’s most pressing issues.

Regarding income, savings, and overall financial stability, women still face significant disparities despite progress toward gender equality in many other areas.

The impact of wealth inequality in a society spans from lower long-term GDP growth rates to increased crime rates to poor public health, lower education levels, and increased political disparities. Thus everyone needs to do their part to reduce the gap.

To address this issue, women must have more financial power to achieve economic equality. The starting point is improving personal finances. Personal finance refers to all money management and includes the financial decisions and activities of an individual or household, including budgeting, savings, and investing

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Understanding the basics of personal finance will help you better control your money and set you off on your journey to financial freedom.

Here are some things that women need to know about personal finance to overcome the wealth gap:

Financial literacy matters

Lack of financial knowledge is one of the main obstacles that prevent women from achieving financial independence. For example, if you don’t know all the available investment instruments, how will you decide on one that will help you maximize the return on investments?

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Check out this episode of the Nav.it Podcast to learn more about wealth gaps.

The wealth gap between men and women tends to start early in life. Money conversations with girls focus more on spending habits, while boys focus on investing. The result is that moving to adulthood, even if more women are likely in charge of 80% of household finances, they tend to be less involved in investing.

Financial freedom comes from having sufficient income, savings, or investments to enable you to live comfortably and meet all your financial obligations without relying on a paycheck. It is the ability to afford the lifestyle you want for yourself and your family without relying on a salary.  

The road to financial freedom starts with understanding the basics of personal finance. These include budgeting, saving, investing, and managing debt. From podcasts to YouTube videos to blogs and other reading materials, numerous financial resources are available, both paid and for free, to help increase financial literacy. 

Increasing financial literacy will help women make more informed decisions about their finances. It will also result in wealth accumulation, which will help reduce the age-old gender wealth gap.

Be aware that women invest more successfully than men

Traditionally, women are less likely to invest than men, contributing significantly to the gender wealth gap. However, as more women gain financial knowledge, the situation is changing. The most exciting part is that women invest more successfully than men. The question is, how do they do this?

Women typically have a low-risk tolerance compared to men. And from what we know about investments, the riskier it is, the higher the likelihood of a significantly higher return. So how do they manage to invest more successfully? 

Value-based investing. Because of women’s nurturing nature, most are motivated by wanting to do good rather than by the investment return. As a result, they tend to invest in companies with a positive social or environmental impact, such as renewable energy. The motivation to make a difference helps raise women’s enthusiasm for investing, boost long-term wealth generation, and further reduce the wealth gap.

It also helps that women are better savers. For example, studies show that women save more of their income than men, 9% vs. 8.6%. They also show that 47% of women have more than $20,000 saved up as emergency funds. These funds ensure they won’t rush to liquidate their investments to cater to unexpected expenses. 

Advocate for equal pay for women and negotiate for fair compensation.

Another major cause of the wealth gap is the gender pay gap—the measure of what women earn relative to men. 

The most recent Census Bureau data indicates that less than three in 10 six-figure earners in the US are women. Some studies suggest that nearly 30% of women earn six figures and that 33% of millionaires in the US are women. This number is continuously increasing along with the gender distribution of six-figure earners, which empowers women to spend, save, and invest more. 

Despite the increase in women earning more, an analysis of the median hourly earnings of both full- and part-time workers indicates that women in the US earn an average of 82% of what men earn. These results are similar to the pay gap in 2002 when women made 80% as much as men.

Research estimates that women must work 42 more days annually to make as much money as men. Besides being unfair and demoralizing, salary discrepancies also lower women’s lifetime earnings. According to time, due to the gender wage gap, women lose an estimated $590,000 in lifetime earnings over 40 years compared to men. 

When women earn less, they have less money for saving and investment. Note that most women work fewer hours to be present in their kids’ lives, further impacting their earnings. Making less money means fewer dollars in retirement accounts, thus, smaller pension and Social Security checks. 

More must be done to advocate for equal pay to change the situation. These include increasing support for lobby groups and other organizations’ advocation for pay transparency. You can only negotiate for fair rates if you know the salary ranges the company offers for the position. In the workplace, take measures to educate yourself on the wage gap and work to close it by supporting policies and initiatives that promote gender equity.

It is also crucial for women to invest in female leadership potential to ensure wholesome representation in all forums, from management to parliament.

Build a strong professional network and seek out mentors who can provide guidance and support

Let’s be honest. Unless you are a social butterfly, the idea of introducing yourself to strangers is not appealing at all. However, networking is highly beneficial to your career or business. It helps you build connections with other professionals that can help open doors to new opportunities. If you have a business, it can help you expand your customer base, stay on top of trends, and improve your product.

So, when you build a solid professional network, you improve your chances of advancing your career and earning potential. Through networking, you also get an opportunity to seek out mentors who can provide guidance and support. Closing the gender wealth gap can also benefit from intergenerational collaboration.

Surrounding oneself with role models and financial educators makes you feel part of a revolutionary movement toward economic equality. It normalizes discussing money, investing, asking for equal pay, and building wealth. 

Thus, you can learn from other women’s experiences, especially on financial planning and how to negotiate the work environment to ensure you earn what you deserve. It will also help you create effective strategies to help maximize earning potential and take advantage of available investment opportunities. Sharing wisdom about smart financial habits can be the key to permanently closing the wealth and pay gap.

Consider starting a business or pursuing entrepreneurship to build wealth and financial independence 

With the gender wage gap standing constant over the year, some women have opted to start their businesses. Thus there are more female entrepreneurs than ever before. According to American Express, women-owned businesses have increased by over 21% from 2014 to 2019.

However, that’s not the only reason women leave employment to start businesses. Others include the search for more flexibility to manage their work-life balance better. In contrast, others do it to avoid the proverbial ‘glass ceiling’ that they may face in employment. Many others have stumbled on great ideas.

While there are some challenges, such as a lack of financial access, businesses effectively help build wealth. They also impact the economy and are crucial in bridging the wealth gap. 

Overcome the gender wealth gap

The gender wealth gap is a significant barrier for women to achieve financial stability. However, suppose women take an active role in their finances, from planning to seeking ways to increase their earning potential, savings, and investments. In that case, they can make significant progress towards transformation on a microeconomic and macroeconomic scale.

The starting point is better controlling their money by building financial capability. It is time to empower women to bridge the wealth gap and create an equitable economic landscape.

Related Reads

History Makers and Money Managers

What Women Can Do to Close the Wealth Gap

From Grit to Financial Resilience

Money Management: What Gender Has to Do with It

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