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The pay gap: Managing finances looks different for women than it does for men

Evergreen Credit Union financial counselor Brenda Pollock said there are many reasons women aren't banking away more money. One is the gender gap in pay.

PORTLAND, Maine — When it comes to managing money, women tend to struggle more than men do. Brenda Pollock, a financial counselor with Evergreen Credit Union, talked through some reasons for that, and what women can do to be more astute when it comes to their financial well-being. 

Why do women tend to struggle more than men do when it comes to money?

One of the first reasons why is women only earn $.82 for every dollar a man earns. According to the latest study in 2020 by PayScale, the uncontrolled gender pay gap, which takes the ratio of the median earnings of women to men, women are still being paid less than men due to no attributable reason other than gender.

Not only do women earn less, but they are also more likely than men to live below the poverty line during retirement. 

Not only do women earn less, they also are more likely to work part-time and sacrifice their career to take care of their family. The gender pay gap and maternity penalty aren’t without consequences. This can undermine women’s financial independence.

Over a lifetime of earning and saving, unlike men who have continuously stayed in the workforce, the impact of lost wages found, over a 40-year career, a woman could lose up to $900,000 on average over a lifetime.   

The career breaks women take can put a serious dent in their financial resources. That not only impacts their potential wages, but their Social Security checks as well. 

That is something most women don’t take into account. Social Security checks are calculated based on a person’s 35 highest earning years. Women are twice as likely as men to have a least one zero earning year, and for many women, even more. As a result, the wealth gap continues even when Social Security kicks in.  Because of this, for women, they may receive, on average $4,000 less annually than men.

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Even though women are talking more about money, we still have a long way to go. What can women do now to help better manage their finances?  

First. Set some financial goals. You need to set goals that are right for you. Instead of saying I’ll save more money each month, say, I’ll save an additional $100 each month. Then give yourself something to work towards. A goal with a deadline so you’re less tempted to procrastinate.

Second. Create your financial plan. With your goals in mind, create a plan of action by listing all of your monthly expenses, and debt repayments. Pay yourself first, at least 10% which is the amount you are setting aside each month to achieve your goals. Stick to your financial plan and track your spending.

Third. Build that emergency fund. These are funds you set aside that will be there to cover any unexpected expenses. Start with a $1,000, then build your emergency fund to at least 3 months of living expenses. Any amount you can afford to put aside into this fund is better than nothing.

Fourth. Don’t create debt. Buying things on credit and assuming too much debt will never help you build your personal wealth. Having debt doesn’t allow you to make your money work for you.

How do women compare to men in relation to investing their money?

Investing is critically important to achieving long-term financial goals, yet fewer women than men invest their money. What I’ve found when working with women, is that cash can feel more secure, but it also has limited growth potential.

We encourage the women we work with to invest in ways they are comfortable with, like a 401(k) plan. If your employer offers this program, absolutely take advantage of this. Your 401(k) contributions are taken out of your paycheck before taxes are deducted from your paycheck. That means your gross income is reduced, so you pay less in income taxes.

Also, as your 401(k) grows in value over time, you don’t pay taxes on those gains. Because you’re not paying taxes on any gains from the account, your 401(k) money can grow more quickly, year after year, than many other types of savings.

Most people have a hard time setting aside money for savings each month, but a 401(k) plan can take care of that by forcing you to save. 

It’s one of the best ways to start saving. Also, if your employer offers a matching contribution, that’s free money to you. The more your employer matches, the less you have to save on your own. Always take advantage of an employer match and contribute at least the amount they will match up to.

Women often live longer, make less money, are still the primary caregivers, and tend to save less for retirement. Sounds like we have a long way to go.

Change is happening – It’s women who continue to bring the topic to the forefront and advocate for equality. It’s about programs that will reach more young women, educating them about money and teaching all women that it’s within their grasp to take charge of their finances.

Whether you are up to your ears in high-interest debt, tackling retirement savings, or need a financial wellness refresher course, there are free resources available to anyone. Go to egcu.org/money.

You can access financial wellness information or click on contact us. One of our financial wellness team members will reach out. And their financial wellness information and counseling is free. 

Where to find free financial advice: https://www.nerdwallet.com/blog/investing/free-financial-advice/