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How Big Is the Financial Wellness Gender Gap?

A new report quantifies the persistent, if shrinking, gender gap in financial wellness.

According to the 2016 Gender Gap in Financial Wellness study by Financial Finesse, that gap has closed to 8.9 percentage points, a 37% improvement since 2012. However, the report cautions that part of the closure is due to men’s backsliding.

Retirement Underpreparedness

The report cites an estimate that the median 25-year-old worker who works full-time for 40 years, retiring at age 65, needs to save between $1.5 million and $1.7 million in order to meet the projected average annual expenditures for a person age 65 and older. Due to increased longevity and health care costs, women need to save more than men as a rule to ensure they have adequate savings to fund their retirement. In fact, the report says that in considering the savings a typical 25-year-old man and woman may need in order to cover average projected expenses in retirement, they found that women lag 28% behind men, and that in order to save enough to cover projected expenses, women need to save 12.6% of their income, compared to 11.1% for men.

Impact of Career Breaks

The report cautions that young women who anticipate taking a career break in their thirties to care for children or for any other reason should especially prioritize savings in their twenties in order to overcome the loss of savings while they are not working. The authors calculate that the median 25-year-old woman should save about 25% of her income in order to stay on track for retirement at 65 if she plans to take a 10-year career break in her thirties.

For those who take a mid-career break (age 45-55), the report says that translates into an approximate $1.1 million retirement savings shortfall, which would require a savings level of just under 20% to overcome, while a woman who leaves the workforce at 55 to take care of family members or friends would need to save 16% of her income during her working years to avoid the potential $955,000 shortfall at age 65.

Confidence Gap

The report finds that the largest difference between men and women in their Financial Wellness Scores that remains is in investing and money management, although the difference continues to narrow. This “confidence gap” is due to men demonstrating much more confidence in their financial decision-making than women. Moreover, according to the report, this is one of the more dangerous gaps, as it can take much more to close than just women changing behaviors.

For example, the report cites the example of a man who has a good year investing, and that he is more likely to assert that he is satisfied with his investing knowledge and outcomes. “Women, on the other hand, tend to take a more long-term view so even when a woman has a particularly good year, if she doesn’t understand why or how, she still may not agree that she has investing knowledge or confidence.”

The authors note that this overconfidence of men can lead to less favorable outcomes, as men are more likely to engage in excessive investment trading, which harms long-term performance. Women, on the other hand, tend toward caution, which leads to less unnecessary risk taking and a higher likelihood of achieving investing goals over the years. Other key points from the report:

  • The gender gap in financial wellness narrows with age.

  • The gap is smallest where it comes to issues related to taking care of kids and family: protecting the family through insurance and estate planning, and preparing for college expenses.

  • The percentage of women who have taken a loan or hardship withdrawal from their retirement plan has fallen by almost a third.

  • Millennials have the lowest gender gap when it comes to having an emergency fund in place — and this gap grows with age.