Wealth Management: Closing the Pay Gap

Author, speaker, and financial expert Maddy Dychtwald explains why the pay gap is even more insidious than you thought and, more important, what you can do about it.

By Vanessa Jo Roberts
Unequal pay


Women can be funny when it comes to money.

“We’re willing to talk about sex. We’re willing to talk about what’s wrong with our kids, what’s wrong with our career and problems at home,” says Maddy Dychtwald. “But when it comes to our salary or our money, suddenly we get very quiet.”

What’s more, many women avoid issues of personal finance and investing. That’s made clear in a far-reaching research report, “Women & Financial Wellness: Beyond the Bottom Line,” which Dychtwald co-led for Merrill Lynch.

“It’s a hurdle that affects their lifelong well-being, especially in light of the fact that women live longer than men,” says the co-founder of Age Wave, a think tank on aging-related issues. Dychtwald is also the author of Influence: How Women’s Soaring Economic Power Will Transform Our World for the Better.

42% of women are afraid they will run out of money by age 80

Merrill Lynch, “Women & Financial Wellness,” April 2018

“Women are biologically superior to men in that they outlive them by, on average, five years,” Dychtwald points out. “Yet they typically retire two years earlier than men and enter retirement with three times less money. That is not a recipe for financial success.”

Women also face challenges that men, by and large, do not: career interruptions and choosing family over work at the expense of career advancement and the accompanying financial perks.

“Eighty percent of women have children — and many make work accommodations to do it,” she says.

Dychtwald understands this well. Her now-adult children were quite young in the early years of Age Wave, a company she built with her husband, Ken, to help Fortune 500 companies better understand and serve people throughout the second half of their lives.

“When my kids were young, I was faced with hard choices: If I was at work, I felt like I ought to be at home. If I was at home, I felt like I ought to be at work.”

Dychtwald opened up to us about the need to shake up the status quo when it comes to personal finance and wealth management for women, whose careers and family lives often put them at odds with traditional (read: male-focused) investment strategies.

WORKS: Let’s start off with the Merrill Lynch report, “Women & Financial Wellness.” What did you find most shocking?

DYCHTWALD: On one level, you would think younger women are savvier and more engaged when it comes to finances, and older women are more “old-school” — traditional, not very involved with finances.

But that just isn’t the case. Older women are more experienced and, as a result, more confident when it comes to money and investing. Go back to 2008, when we had the financial crisis. At that point, a lot of women decided that they were going to take a more active role in their financial future. This was a surprise.

But the bigger surprise — the one that I can’t stop thinking about and focusing on — is that the way we look at the pay gap doesn’t really tell the whole story.

How does this impact women as investors?

DYCHTWALD: We think about the pay gap as a moment in time: Women earn 82 cents for every dollar a man earns. But what does that mean over the life of a person?

If a man and a woman both enter the workforce at the same age and they both stay in the workforce earning average income, with the pay gap in place, by the time they reach retirement age, the woman will have earned more than $400,000 less than the man.

That’s real money. The pay gap compounds over a lifetime, and we need to be aware of that.

But there’s still more to the pay gap issue, right?

DYCHTWALD: Yes, because women in general are more likely to have career interruptions than men. Not all women take time off temporarily or permanently to care for family, but when they do, the impact can be dramatic.

Again, let’s imagine a woman and a man enter the workforce. She’s earning 82 cents for every dollar that he earns. She has a baby, let’s say in her late 20s or early 30s, and takes off time to care for her child or children. (The average woman has two children.) She might take off eight years.

Then she re-enters the workforce. In her late 40s or early 50s, she’s back in the workforce when she gets a call from her mom or her dad, or maybe it’s from her in-laws, saying that they really need help. So she takes off time from work to care for her parents or her in-laws — maybe four years.

And then, because a woman, on average, marries a man who’s a couple years older than she is, she might retire earlier than planned to care for her partner.

If she retires in her early 60s, what we would see is that a woman who takes off those three moments in time — those career interruptions — on average earns $1,055,000 less than a man.

That’s huge financially.

DYCHTWALD: Plus, there’s a third thing that’s jaw-dropping. It’s the wealth gap that nobody’s even talking about.

People think the word “wealth” is a dirty word. They think it is about being rich. Wealth is not about being rich. Wealth is about accumulated assets from all financial resources. This includes earnings but also includes investments, retirement savings and other assets such as property.

What we determined by reviewing all of the data is that, on average, women have an even larger wealth gap with men than they do a pay gap. And it’s very hard to measure because we measure accumulated assets in terms of households.

But if you were to take the average single woman and measure her wealth against the average single man, that woman will have three times less wealth than the man.

What are the factors at play in the wealth gap?

DYCHTWALD: There is one piece of the puzzle that factors into this wealth gap that women need to think about. It’s what are called wealth escalators.

Wealth escalators are on-ramps for individuals to build wealth beyond income. They include fringe benefits from employment, such as stock options and car allowances, government benefits and favorable tax codes — all of which have been proven to be more easily accessible to men than women.

Wealth escalators derive from career choices and promotions that men are more likely to take advantage of or be offered. This is something that women can, first, be aware of and then act upon by taking advantage of wealth escalators whenever they can.

It’s interesting you brought up a financial adviser a little earlier. Does the financial services industry cater to women?

DYCHTWALD: In study after study, women say that they feel like the financial services industry overall is patronizing and unwelcoming and that they really cater to men’s life paths, salaries and life expectancy. And there’s a lot of validity to those claims.

Take a simple thing like retirement calculators. Almost all financial services companies have these available online. As part of our study, we looked at many of these online retirement calculators. None of them take into account the possibility of career interruptions, something far more women than men experience. This needs to change.

16% of financial advisors are women

Cerulli Associates, “Cerulli Edge–Advisor Edition,” Q1 2017

How do women and men think differently about investing?

DYCHTWALD: It’s not like men and women are from two different planets when it comes to the way they think about money. They share a lot of similar attitudes and values. For instance, they both care about performance and both seek financial security.

But men tend to think about investing in terms of the numbers. I know my husband, for instance, wants to know the percentage we’re up or down when he speaks with our financial adviser.

In contrast, like many women, I see money as a vehicle for financing the life I want to live. To generalize this, women see money and investing as a tool to help them meet their commitments to themselves, the people they love and the issues they care about.

Their number-one priority is family. Seventy-seven percent of women say they see money in terms of what it can do for their family: Will I be able to afford to send my kids to college? Will I have the resources to care for my mom and dad? Right behind that is the desire to invest in causes that really matter to them.

So, if you choose to use a financial adviser, make sure you find one who takes the time to understand your individual values, needs and desires. Yes, he or she may show you graphs and charts, but those graphs and charts need to be amplified by examples and stories that explain what those graphs and charts mean in terms of your life, your values and the causes you care about.

For most financial tasks — when it comes to budgeting, planning, paying bills, paying off debt — women are just as confident as men. But the one place where they do fall off is when it comes to managing investments. Only about half of women say they are confident in managing investments.

Financial confidence can be built by exposure to the subject and through education. In fact, almost all women surveyed say they wished they would have more education around finance and money.

In some ways, the industry’s practices are doing more harm than good.

DYCHTWALD: That’s the status quo, and we need to start changing the status quo. And, frankly, the best way to do that is to raise awareness of it for people in the industry and for women. A great example is the #MeToo movement.

It’s a great thing. It’s a fantastic way to influence society. And if we could expand the conversation to include not just financial wellness, but financial power, it would be a way to influence overall culture.

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