Good money habits can minimize the effects of an unequal salary
Women may be the fairer sex, but they’re not the recipients of fairer pay. As a result, they must work harder to maximize their money.In 2014, women earned only 79 cents for every $1 earned by men. That means a woman entering the workforce today will earn about $300,000 less than her male peers by the time she turns 59 – “a lot of money over one’s lifetime,” says Chandra Childers, postdoctoral research fellow for the Institute for Women’s Policy Research (IWPR).
The good news is woman appear to be making wiser financial choices, according to a 2016 Experian study. Women have 3.7 percent less average debt than men, and their average credit score of 675 is slightly higher than men’s average score of 670. However, there is more that women can do to level the playing field.
Here are five ways in which the financial playing field is tilted against women, and five ways women can lessen their effects.
If women are having more trouble paying off student loan debt, they’re less financially secure in general.
|— Kevin Miller|
American Association of University Women
1. Women start off in the hole. Nearly 70 percent of college graduates in 2014 had student loan debt, and the average amount owed was $28,950, according to the American Association of University Women (AAUW). But for women graduates, student loan debt takes a larger toll. Four years after graduation, men had paid off, on average, 44 percent of their student debt while women had only paid off 33 percent, according to an AAUW study. Not only that, but 53 percent of women spent more on student loan payments than they could comfortably afford to spend, compared to 39 percent of men.
The more women are spending on loan payments, the less they have for major purchases such as a car or a house, says Kevin Miller, a senior AAUW researcher. “If women are having more trouble paying off student loan debt, they’re less financially secure in general,” Miller says.
How to lessen the impact: Social activism web sites such as Sponsorchange.org and Zerobound.com let college graduates volunteer in exchange for student loan payments. Loan forgiveness programs can make a huge impact in debt repayment if you are willing to spend the first 10 years of your career in a qualifying job, such as in the public service sector, says Melinda Opperman, chief relationship officer with Springboard Nonprofit Consumer Credit Management. And, as you earn salary increases or are lucky enough to incur any financial windfalls, such as a tax return or inheritance, put the extra money toward student loan debt so you can “consistently pay more than the minimum required payment,” Opperman says.
2. Women have less access to credit. One of the biggest factors in being approved for a loan is your debt-to-income ratio – the amount of debt you owe in relation to the amount of money you make. Generally speaking, the higher your debt-to-income ratio, the more of a credit risk you pose. Since women, on average, have lower incomes, a woman may be less likely to be approved for a house, a car or a high credit card limit than a man with the same amount of debt. A 2015 study conducted by the nonprofit policy organization Woodstock Institute found that Chicago-area women were more likely than men to be denied mortgage loans because of their credit histories and their debt-to-income ratios.
Many women are looking to work longer and retire at an older age than 65.
|— Catherine Collinson|
Transamerica Center for Retirement Studies
How to lessen the impact: To determine your debt-to-income ratio, divide the sum of your monthly debt payments by your gross monthly income. Women should aim for a ratio below 36 percent, Opperman says. When using credit cards, try not to carry a balance, but if you do, make sure it’s no more than 30 percent of the credit limit. So on a card with a $10,000 limit keep the balance to $3,000 or below, Opperman says.
3. Women struggle more under credit card debt. Just as women are taking longer than men to pay off their student loans, they also take more time to pay off credit card debt. A 2015 study by National Debt Relief found that 63 percent of women between 18 and 24 carried credit card debt compared to 36 percent of men in the same age group. Among older women, 66 percent of women ages 55 to 64 carried credit card debt compared to 33 percent of men. A 2014 survey by BMO Harris Bank echoed those findings, showing that 39 percent of men always paid off their monthly credit card balance compared with 27 percent of women. So why aren’t women putting more money toward their debt? They’re struggling with basic expenses and don’t have money left, suggests a 2015 study by the Transamerica Center for Retirement Studies. In fact, the highest percentage of women surveyed said their greatest financial priority was \u2018just getting by.’
How to lessen the impact: If you’re already in credit card debt, call your card issuer and ask for a lower interest rate so you can pay it off faster. A CreditCards.com survey found that 78 percent of credit cardholders who asked for a rate decrease got it. If card debt is crushing you, it may also be time to visit a nonprofit credit counselor affiliated with either the National Foundation for Credit Counseling or the Financial Counseling Association of America. A counselor will help negotiate with your card issuers for lower rates and put you on a repayment plan that may help you free up some cash.
4. Women have less money to save. While saving is crucial to financial success, a 2016 America Saves Week survey found that women are less likely to put money away for a rainy day. Seventy-two percent of men said they spend less than they make and save the difference compared to only 60 percent of women. Furthermore, 54 percent of men said they save at least 5 percent of their income compared to only 45 percent of women. Stephen Brobeck, founder of America Saves and executive director of Consumer Federation of America, blames the difference on the fact that men typically have larger incomes, making it easier for them to squirrel some of their earnings away.
How to lessen the impact: Write down monthly savings targets. America Saves found that those who follow concrete steps toward specific goals save more than those without a plan. Instead of spending salary increases, tax refunds and other cash influxes, save them. Studies show that women tend to give more to charities than men, so volunteer time instead and bank the money you would have donated, Opperman says.
5. Women have less to retire on. Men have more than twice as much in retirement savings as women, with median savings of $88,000 for men compared to $41,000 for women, according to the Transamerica Center for Retirement Studies. Not only do women have less money to put into their retirement plans, but less money in proper investments means women aren’t benefiting from compound interest as much as men. “That creates an even wider retirement income gap over time,” says Catherine Collinson, president of Transamerica Center for Retirement Studies. Lower income also equates to lower lifetime earnings, which could potentially affect a woman’s Social Security benefit, Collinson adds. As a result, “many women are looking to work longer and retire at an older age than 65.”
How to lessen the impact: Start making retirement contributions as early as possible and get a deeper understanding of investing. “Go to a local community college or extension program and sign up for a class,” Collinson says.
While everyone can benefit from good financial habits, women stand to gain so much more, Collinson says. “How you manage your money can have a potentially greater effect than how much you may be missing out on due to the wage gap.”