True financial literacy begins with closing the gender-gap
By Kris YamanoMs. Yamano is a Vice President and Regional Leader of Wealth Planning with BMO Private Bank. Connect with her by phone: 480-556-8393.
Millennials, once referred to as “Generation Y,” are poised to inherit a rapidly changing world. They are reaching adulthood in the midst of incredible technological advances and an ever-changing environment.
Although they will have some unique challenges to face, channeling their skill set and higher education strategically will provide them with a great opportunity to bring forth positive change.
Since millennials now outnumber baby boomers in the population and make up the largest component of the labor force, they are well positioned to have an extensive impact on the global economy. As a result, it is absolutely imperative that their financial literacy keep up with the coming waves of change.
And while there may be some commonalities among the members of Generation Y (they tend to be socially conscious, philanthropic and more willing than previous generations to devote their time and energy to helping others), it’s also important to note that not all millennials are built the same. Striking differences between men and women are observed when it comes to how they approach their finances, and there is substantial evidence that a gender gap exists when it comes to financial literacy – with women clearly at a disadvantage.
Obtaining Financial Literacy & Closing the Gender Gap
Although financial literacy is critically important to the future financial success of all millennials, a recent study indicated that only 24% of millennials demonstrate basic financial literacy (defined as the skill set and knowledge base that enables a person to make informed and effective financial decisions).
An even smaller percentage (only 8%) demonstrate a high level of financial literacy. Millennials cite their current financial situation as their most concerning personal matter, indicating that they worry more about money than love. Their highest financial priorities include: paying down accumulated debt, finding more meaningful/better paying work and purchasing a home. Retirement savings appears to be on the backburner for millennials as they focus on improving their immediate financial situation.
While millennials as a group have a huge opportunity to increase their base of financial knowledge, there is also a substantial need to bridge the financial literacy gender gap that currently exists. Despite all the advances women have made in the past few decades, when it comes to things like financial literacy and saving for retirement, women still fall well behind their male counterparts.
It is no secret that females continue to earn less in the workplace, are more likely to work part time or spend less overall years in the workforce and tend to live longer than their male counterparts.
Furthermore, although women are obtaining educational degrees at a higher rate than men (46% compared to 36%), they are generally less concerned about their level of financial literacy than their male counterparts (29% vs. 37%). Moreover, only seven percent of women are prioritizing saving for retirement compared to 14 percent of men.
If these trends continue, many female millennials could end up in a tenuous position. If they are not proactive about their finances, they may end up saving less for retirement despite potentially having to incur higher expenses associated with their own health care or the caregiving of others in their later years.
In order to start bridging the gender gap, it is imperative that women begin by taking control of their finances, and it is never too early to start. Higher financial literacy may be tied to better financial planning behaviors, which are a key component to financial success. While many women continue to relinquish control of their finances to the men in their lives, it is becoming increasingly crucial for them to play a major, and more active, role in their own finances. Additional steps towards increasing women’s financial literacy include: clearly defining their financial goals, gaining the appropriate knowledge (through research and sound advice), and developing a reliable plan (roadmap) to achieve those goals.
Prioritizing Financial Goals – Focusing on the Right Things
As the statistics make clear, many millennials are directing the bulk of their attention on the financial concerns and goals that are closest on the time horizon, and not necessarily on the ones that could make a significant impact on the future. A focus on paying down existing debt and saving for a large purchase (i.e. a home or wedding) are displacing a disciplined approach to retirement savings and other equally important goals.
One of the most important steps millennials can do is take the time to set realistic financial goals and prioritize them. Preparing a budget may provide some insight as to where financial resources are being allocated and allow the individual to determine whether they are spending on the things that really matter. Paying off debt (whether from credit cards or student loans) should also be a reviewed as a priority in order to minimize the cost of borrowed cash.
Saving money, for both a rainy day fund and retirement (at least up to an employer matching amount), should also take priority when considering where to allocate funds. The key is to understand that not every goal will be easy to achieve or accomplished in the same time frame. Setting realistic short-term goals, while still keeping an eye on the long-run, may go a long way in helping Millennials reach their definition of financial success.
Who to Talk to – Seeking Reliable Advice
One common misconception about millennials is that their decisions are highly influenced by others. Although many Millennials are regular users of social media platforms, this is not where they usually seek advice. When asked where they obtain the information needed to make important life decisions, most millennials (73%) indicated that they prefer to do their own internet research. And although many in this generation also discuss important decisions with family or friends, a much larger percentage of females (70% compared to 55% of males) generally go this route.
Research has also shown that in the decision-making process, females are much more likely to rely on their own gut feelings and less likely to consult with an expert than their male counterparts.
Working with the right financial advisor can go a long way in providing millennials much needed support and education in their quest for financial literacy. They may be able to answer questions about making the most of their financial resources and allow them to efficiently pursue their financial goals. For millennials who choose to work with a professional financial advisor, the three qualities that they most look for include: personalized advice, knowledge or years of experience and level of service and communication. From a personal standpoint, they strongly value honesty, loyalty and responsibility in their dealings with people. Since women are significantly less inclined to work with advisors, it is crucial that advisors find ways to establish trust early on.
Conclusion- Creating a Roadmap for Financial Success
Developing a financial plan may truly set the stage for financial success and help millennials to both prioritize their goals and determine the best set of action steps to achieve them.
After goals have been prioritized, it is important to put together a path that provides the right steps to get to the finish line, which is where that trusted financial advisor plays a key role. Even the brightest and most highly educated of millennials should seek to close gaps in their financial knowledge and work collaboratively with a financial advisor to improve their own financial skills.
Effectively utilizing the right resources to improve their financial literacy will provide millennials with the confidence to make the most of their financial resources, and permit them to address their own financial goals while also making a positive impact on the world around them. ◊