In her book, Lean In, Sheryl Sandberg states, “We hold ourselves back in ways both big and small, by lacking self-confidence, by not raising our hands, and by pulling back when we should be leaning in.”
Unfortunately this isn’t unique to women’s professional lives. It can be true in women’s financial lives as well.
A study by Merrill Lynch found that, 55% of women they surveyed believe they “know less than the average investor about financial markets and investing in general”. This compares to about 27% of men who were asked the same question.
Most of my financial planning clients are married couples in which both individuals make financial decisions together. However, there are also a percentage of families that I work with in which women are not actively engaged in their finances.
Other research supports this. A study conducted by Blackrock, a major investment company managing over $1 trillion, found that among women between aged 55-64 only 46% had any interest in investing.
While that doesn’t describe all women, I find it to be a very interesting parallel to many of the things Sheryl Sandberg talks about in her book.
Following are 7 ways in which women can take control over their financial lives.
Get Engaged. I am not talking about getting engaged to a man, but getting more engaged with your personal finances.
While women often manage the family’s day-to-day finances, in other words, they write the checks and pay the bills, they sometimes are not as involved in the family’s long-term financial decision making as they should be.
One of the biggest mistakes I see some married women make is that they often assume their husband is “taking care of it all”.
Recently I met with a married client couple of mine. Their names were Sara and Tim. (By the way, none of the names I use are ever real.)
When I would look Sara in the eye and ask her a direct, financial question like “How do you feel about investing in the stock market? Or how do you feel about the amount of life insurance you own? She would look at her husband, then look at me, shake her head, and say, “Whatever he says. I don’t know. He takes care of all that.”
Obviously not all women defer financial decision making to their husbands in this way, but a surprising percentage of women do. A PEW Research Center study found that one in four women say their “partners are responsible for managing the family finances”.
Sharing of responsibilities is a natural part of married life. And financial planning and investments is definitely not everyone’s “thing”. My experience suggests that plenty of men are not engaged as well.
Regardless of your gender, taking control of your financial life starts with being engaged in the process.
If you work with a financial advisor, attend all the meetings. Read the emails and other communications that are sent. Peruse your financial statements from time to time.
If you don’t work with an advisor, sit down once or twice a year with your spouse or significant other and review your financial plan and investments.
To take control of your financial life, you must choose to be engaged in your finances.
Establish the right beneficiaries on your retirement accounts. The most valuable asset you will ever inherit or pass on to another is likely to be your IRA, 401(k) or other retirement account. Establishing the right beneficiary designations will ensure that you are in control of who receives these assets.
Being the beneficiary on your spouses retirement plan ensures that you receive those assets and not someone else.
Let me give you an example of how the wrong beneficiary designation can ruin your life.
Half of all marriages end in divorce, but many people remarry. Imagine that your new husband (or in many cases, even not-so-new husband) still has his ex-wife listed as beneficiary on his IRA or 401k.
Who do you think gets that money goes when he dies? The ex-wife!
What can you do about it after he dies? Probably nothing. In a 401(k) or other ERISA protected retirement plan you might have some recourse, but at a minimum you’ve got big problems.
With an IRA it’s game over. Numerous court cases have ruled in favor of the beneficiary regardless of who that person is or how much time has passed since they were listed as beneficiary. If you are not specifically listed as the beneficiary on your husband’s IRA, you will lose all rights to those assets the moment he dies.
Got your IRA and 401(k) beneficiary squared away? Great. What happens if you both die? Who gets the money then? In this case, your retirement plan (or his) would go to the secondary or contingent beneficiary(ies).
While it’s unlikely that you and your spouse would both die within a short time of each other it’s not out of the question. Known as the “widow effect”, researchers have found that widows and widowers experience an increased risk of death during the first 12 months following the death of a spouse. This effect is even more pronounced in older couples.
If your beneficiary designations haven’t been updated, it’s possible your IRA or retirement plan could be entirely taxable upon the death of the primary beneficiary or that these monies could go to someone other than whom you would normally prefer.
All these problems can be avoided by making sure the right beneficiary is listed on these plans in the first place. In most cases, that person should be you.
Have an estate planning attorney draft your will. Of course, by now we’ve all heard the news that when Prince died he had no will. While this is almost unthinkable for a person of his net worth, it’s not unusual. According to some reports over 50% of people die without a will.
Even if you don’t have a vast empire worth millions of dollars, your will and related documents should be updated every few years or so.
Having a will allows you to decide who raises your kids by establishing a guardian. If it includes a trust for the benefit of your children, your will can also determine what money they get and when they get it.
Your will also identifies an executor to manage your estate after you die. Generally this is someone you know and trust to act in your interest upon your death. When you create a will you get to decide who this person is. If you don’t have a will, the court will decide.
Having a will also provides for a Health Care Directive. This is a document that indicates who will make medical decisions for you on your behalf in the event that you are unable to do so. In other words, who gets to pull the plug and when, and under what circumstances? Even though the future you may be incapacitated, creating a will now puts you in control of these important decisions in the future.
Taking control of your financial life means having the proper will and trust documents in place before you or your spouse die.
Have the right amount and type of insurance. With insurance you transfer the risk of loss to a third party – the insurance company. You pay an insurance premium in exchange for the promise that they will pay a benefit in the future under certain, specific situations.
While the odds of some risks are relatively small, the consequences can be devastating.
If you are going to take control of your financial life, you need to make some decisions regarding the type and amount of insurance you have.
For most workers your biggest asset is your ability to earn an income, but what happens if you become disabled and can’t work?
Many people have at least some disability coverage through their employer. A typical plan might provide a benefit equal to 60% of your base salary. Depending on your plan these benefits could be taxable. Could your family get by on 60% of your take home pay? How would this loss in income affect your ability to send your kids to college or for you and your spouse to retire?
According to the Social Security Administration 2/3 of workers believe they have a 2% chance if suffering a disability lasting 3 months or more. In reality 25% of all Americans will experience a disability of 90 days or greater at some point in their careers.
Life insurance is another area where you need to take control. Over the ages, one of the surest ways to a lifetime of poverty has been the death of the primary breadwinner. Maybe you are the primary breadwinner.
The odds of dying while you are still working is small, but it happens all the time. That’s why term insurance is so cheap. On the other hand, because term insurance is so cheap and the consequences are so great, why not transfer this risk to a third party?
How much should you have? That depends on your situation: your mortgage and other debts, goals like college and retirement, other assets you may own, etc.
Create a financial plan. Ask yourself the following questions:
- Can you produce a list of all the investments and other assets you own?
- Can you identify the primary and secondary beneficiaries on all your retirement accounts? If so, are you able to produce documentation to back that up?
- Are you able to describe what investments you own and why you own them?
- Do you know how much life and disability insurance you have on yourself? Your husband? Do you understand how those policies work and what the benefits are?
- Do you have a will and or trust? Is it up to date?
- Do you know who will raise your children and manage your assets if you and your husband die?
If the answer to any of these questions is no, then you may not be in control of your financial life.
Obviously, life doesn’t always go according to plan, but having a financial plan gives you greater control over what happens to you and your family.
Commit to lifetime financial education. You don’t have to be a financial guru, but taking control of your financial life means knowing the basics. Know what you own and why. Understand the risks inherent in your investments as well as the outside risks to your family’s long-term financial security.
Taking control of your finances, requires making an effort and it takes time. But it’s not as difficult as you might think. Designate a few minutes each week to your financial education. Little by little, over time you will learn what you need to know.
Start with your company retirement plan website. Most retirement plans have information regarding your accounts, your investment options and other information intended to educate you on how to make the most of these benefits.
Visit the website where you have your brokerage account, IRA or investment accounts.
If you work with a financial advisor, ask what resources they have to help you become a more well educated, and well informed client.
If you don’t do so already, subscribe to my blog where I write about personal finance for an audience that is approaching retirement. Every week you will get information that will help you become more financially savvy.
As you lean in and begin to take greater control of your financial life, consider this quote from Sheryl Sandberg’s book, Lean In:
“Women need to shift from thinking ‘I am not ready to do that’ to ‘I want to do that and I will learn by doing it’.
Now go do it.