While demonstrating great financial confidence, they often prioritize immediate needs over long-term planning
by Kate Warne, Ph.D., CFAMs. Warne is Principal and Investment Strategist with Edward Jones, primarily serving U.S investors.
Women have compelling reasons to take a long-term approach to planning for their financial future. They live longer than men, a growing number are their family’s primary breadwinner, and they stand to inherit a substantial portion of the $68.4 trillion in wealth that will be transferred over the next 25 years. Yet a recent survey by Edward Jones found that many women prioritize immediate needs over long-term goals. Retirement planning in particular remains an afterthought. The Female Financial Empowerment survey revealed that while women are demonstrating greater financial confidence, challenges persist.
For example, when asked to choose what best defines financial empowerment, the most popular answer was “becoming debt free,” followed by “living a desired lifestyle.” These choices underscore how women may focus on short-term priorities over long-term needs.
As financial advisors seek to better serve their current and potential female clients, the survey findings offer insights into how to attract and empower clients to help them achieve their financial and life goals. The survey showed seven out of 10 women say they feel confident in their financial knowledge, but research shows that 66 percent of women have never consulted a financial advisor.
One reason that woman may focus on immediate rather than long-term needs is that they may be waiting for the “perfect time” to invest. In fact, there will always be competing priorities and the best time to start is sooner rather than later. Financial advisors can use facts and figures to show how waiting too long can have serious consequences.
What Does Financial Empowerment Mean to Your Clients?
One thing financial advisors can do is to help clients understand what financial empowerment means to them and how they might achieve it. Survey respondents varied on what factors would make them feel more financially empowered. Perhaps not surprisingly, the top choice – selected by a third of women – was getting information on how to increase their income to reach their financial goals.
The second largest group – 18 percent of respondents – said learning how to budget for unexpected emergencies would help them feel more empowered. Just 16 percent said saving for retirement would make them feel more empowered.
By taking the time to get to know clients and understand their lives, financial advisors can help women develop a strategy and stay on track toward achieving important milestones for themselves and their families.
Increasing engagement is also a key concern, and women had different ideas about what would motivate them to become more engaged in their finances. Nearly half of women said that access to additional income would be a top motivator while 20 percent cited experiencing an unexpected financial emergency. A smaller percentage – 12 percent – cited an economic event, such as a recession.
Taking Action Now May Lead to Better Life Choices
While women had different routes to empowerment and engagement, one thing was clear: taking action now helps free them up to make decisions that are in line with their goals. Nearly four out of 10 survey respondents (38 percent) said that a lack of confidence in their financial knowledge had a negative impact on a major life choice such as starting a family, buying a home or pursuing an education. This figure jumped to 55 percent for millennial women, and to 47 percent for women with children in the household.
While many women acknowledged that a lack of confidence had already limited their life choices, they expressed an interest and ability to educate themselves. Of the women who reported they weren’t yet confident in their level of financial knowledge, 40 percent said they believed they could become more financially savvy in one to three years.
The majority also said they have already taken or plan to take steps towards becoming more financially empowered, including self-educating through financial tools and resources (37 percent), meeting with a financial advisor (22 percent) and enrolling in financial education courses (10 percent).
An Opportunity for Financial Advisors
Financial advisors can help their clients and prospects understand that sitting on the sidelines too long before committing to a financial strategy can adversely affect their ability to make sound financial decisions and generate long-term wealth. Taking action is often the best course both financially and psychologically.
Women appear to be definitely on board when it comes to planning and saving. When asked about their most important financial goal in the next 3-5 years, nearly two-thirds (63 percent) said overall savings was their No. 1 goal.
Still, even their savings goals appeared to be focused more on the here and now, with women choosing “having an emergency cushion of at least $5,000” as the most important financial goal.
As financial advisors look for ways to inspire and motivate female clients, one approach is to focus on goals-based investing and help women apportion their resources among immediate goals such as building up an emergency fund, and long-term goals such as a comfortable retirement. To feel financially empowered, women need to feel comfortable they are addressing the full spectrum of their goals.
Goals-based Investing is Empowering
Clearly, when it comes to building financial empowerment, many women could benefit from an empathetic financial advisor who can offer strategies for dealing with common life challenges such as paying down debt, budgeting, and retirement planning. One key to getting truly in sync with what clients need and want is to think like them, not just about them. Many women are motivated by setting and working towards a goal. They want to engage fully in the process and understand the details of how they can secure their financial future.
With women increasingly breaking barriers, they are feeling optimistic about the future. A personalized, goals-based approach can help establish a trusting financial advisor-client relationship that will endure over time, and help empower women toward what matter most to them now and for the future. ◊