Bonnie A. Sewell, CFP, CDFA, AIF, CEPA
Managing Director, Senior Wealth Advisor
Dakota Wealth Management
Money remains something we talk about, joke about, but too infrequently learn enough about to make it work for us in our own lives. Obsessed with the intersection of money and women’s lives, I have worked for 30+ years helping families navigate their finances with a niche in helping them navigate divorce. In short, we do exits. Whether leaving paid work, a spouse, or selling a business, we show you the financial impact of what you are considering.
First, let me define what I mean by a working timeline. If you are working just post college or trade education, you are likely about 22 years old. Due to longevity, you should expect to work to age 72 or longer to pay for the decades following paid work. That is a 50-year timeframe. Hold that context as we dive deeper into the impact of not working for a given period.
When women leave the workforce, there is a lot to consider. But before we explore that, let’s take a look at money and the socialization of women. It starts early when we tamp down girl’s behavior we see as out of bounds in terms of norms. Then it gets compounded when we socialize them to downplay the importance of money, wages, work, and financial independence. While you might think this is a women’s issue, it is a family and human issue. Many males express relief when they do not have to carry a family financially. That said, for women to fully participate in the working economy, we need to make sure they are able to do their paid work and not have additional daily responsibilities that consume their time and energy, leaving little realistic hope of advancement in work.
Some of these daily responsibilities involve taking care of others. This is more unpaid work given by females. More than 75% of caregivers are female spending 21.9 hours a week on average. The value of this unpaid work exceeded $470 billion in 2013, which is certainly higher today. Spending 22 hours anywhere week in and week out will affect her ability to earn income. We also know that caregivers spend their own money to help those they care for extending the economic impact further.
Many people understand that building a successful and saleable business can create the largest financial asset for the owner. Being a business owner can also provide the kind of schedule flexibility a woman needs as she juggles all her responsibilities. Women owned businesses generate $1.8 trillion a year. 40% of US businesses are women-owned. Women of color started 64% of the businesses started last year. Latina women-owned businesses grew more than 87%. Pretty exciting, right? Except that just 25% of women business owners seek business financing, just 7% receive venture funds for their startups. This matters because women business owners are a very good bet.
We have a long way to go before there’s gender equality in the entrepreneurial space, but the fact that women-owned businesses consistently outlast male-owned businesses demonstrates female entrepreneurs’ strength and perseverance.
In more good news, women own than 11.6 million firms in the U.S. These firms employ nearly 9 million people and, as of 2017, generated $1.7 trillion. Things are looking up for female small business owners. So, think about joining the ranks of successful business owners – we can help.
For those who will work for others (helping that owner to increase the value of their saleable business!), here are salient items to consider:
- Competitive pay for comparable work.
- Benefits that pay for expenses you would otherwise pay out of pocket.
- Flexibility in scheduling and planned time off.
For the woman who, at say age 26, has been working for four years and decides to have her first child, there is some math she and her partner should review. Here are the assumptions:
- She will leave the workforce for the first five years of her child’s life until he/she is in regular school.
- She will come back into the workforce after 5 years and retire at age 67 and contributes 5% to her work retirement plan while her employer matches with 5%.
- Her current salary is $44,000.
The total financial loss to her (and her partner) is over $700k. Lost retirement benefits are $222,179 (her Social Security math is also affected), Lost wage growth is $264,599 (because it tracks exponentially throughout her career). Lost wages are $220,000. Now let’s look at the woman who chooses primary caregiving for her child for 18 years.
Here are those sobering numbers:
Lost retirement benefits = $538,681
Lost wage growth = $456,450
Lost wages = $792,000
Total impact on her family = $1,787,131
We are not suggesting women should make any decisions other than the ones that are right for them. We do, however, want them fully informed on the financial impact of those decisions. When we know the impact, might we make other decisions such as getting an agreement from our partner about what might be needed to re-enter the workforce such as additional training or certification? What if they divorce when the children leave for college? We hear all the time that it is not romantic to get agreements around money, working and other issues before or during marriage. I invite you to spend a week with me as I can assure you not only is divorce not romantic, a marriage where one party cannot leave and cannot speak up due to inequality in the marriage is no way to live well. This has been my work for over 30 years. It is hard to get the money back across the aisle regardless of what we can all agree would be “fair”.
So, when we think about the world for women and their wealth, it is important to have context. Make it a priority in your life to become financially fluent in your own life. Then reach back and pull another woman or girl forward on to the path of financial freedom.