5 Reasons Why Young Women Need to Think About Financial Independence Differently

5 Reasons Why Young Women Need to Think About Financial Independence Differently

Listen to this post instead.

There's many reasons why I wanted to start this site. You can find that here. After reading many personal finance books for women, written by women (and men), I don't think these five reasons are addressed enough. While I am all for equal gender pay, there are still some areas where men and women differ and these reasons are why we need to be addressing women's personal finances differently.


1. The "Girls Shop, Boys Build" Effect

I'm making a generalization here, but given my personal experience, girls are taught to spend money. I don't have kids, but for many years I volunteered at a Saturday school (I was a teachers aide for first graders) and one common thing I noticed was that girls are taught to look pretty, stay silent and play with dolls. Boys on the other hand are taught to build, run around, get curious and make mistakes. Young girls carry their purses around and know that if they are in a bad mood, a shopping trip will cure that. I don't think our parents intend for it to be that way, but it's just the nature of culture, of media, of family. Early on, we hear comments like "You like so pretty" and "Let's have fun and go shopping". What we don't realize is that it enforces a cycle that shopping is the answer to many of our problems. By the time girls grow into women with high paying, amazing jobs, they continue to use shopping as therapy. The reality is that this sets many women to believe that they are not meant to handle their own finances.

Growing up, I played with Barbies and Legos. For each new structure my sister and I built with Legos at night, we received a candy reward in the morning. In my 20s, shopping was not only a past time, but the cure all for everything. Heartbreak? Shop. Bored at work? Shop. Need a pick-me-up post workday Friday? Shop. By the time I was in my mid-20's, I had a walk-in closet full of stuff that I never wore. I did my monthly Target runs spending a few hundred dollars on things I didn't need. For a period of time, I personally was just doing what I knew to do since high school or middle school. That was to spend money. I was slightly curious though and delved into the stock market partly because I worked in a field (IT) dominated by men and they exposed me to investing. My mom too had a lot of investment books lying around, but she did really ask us to read it. I just browsed and started getting exposed to some of the lingo. The more I listened to the Choose FI guys, all of the things I had been reading about personal finance started clicking into place. 

Unfortunately, this is not going to happen for most other women. They will continue on this cycle of work, spend, sleep, not because we aren't capable of managing money, but because we are unprepared to do so. We aren't taught early on to understand how money works, how it can be used to buy us time, and how it doesn't have to be spent.                                                                                                                                                                                                                                                                                 


2. The Child Effect

American moms are entitled to zero weeks of paid leave under federal law.
— Christopher Ingram, Washington Post

Women have kids. That's the nature of it. When women have children, women must take time off from work to take care of the baby. This can be as short as 3 months or 6 months. If you are lucky, your employer may cover and provide partial income during this time, but this is rarely the case especially in the U.S. The U.S. is the only "rich" country that doesn't mandate paid maternity leave under federal law.

What happens when you are out of work for 3 to 6 months? You lose out on income. This is income that could be saved for the future or income that could be used to pay for current needs. If a woman has multiple children, this time could add up to years. Imagine not earning money for a few weeks, let alone for a few years, but this is exactly what is happening with women. The opportunity to save and grow that savings early on disappears. Single mothers living solo are most at risk here.

Note the income for women as they near birth and after and note the huge difference between single mothers and all births.

Note the income for women as they near birth and after and note the huge difference between single mothers and all births.

Recently, there was another article in the NYTimes about The 10-Year Baby Window That is the Key to the Women's Pay Gap. It seems, we keep writing about it, but not doing enough to change it. In short, the article states that it is in the years when a woman is likely to have a baby, between 25-35, that the salary divide begins to widen in part due to the fact that women must leave the workforce to care for children. Before children are in the picture, men and women tend to follow the same career paths and earn the same income. The years between 25-35 are typically the years when both men and women increase salary earnings and move up the corporate ladder. When the children are in the picture, women automatically lose 3 months in the workforce to care for a child and maybe more if they decide to stay home or go part-time or not accept a promotion with more responsibilities.

So we can talk about the Pay Gap, but I think it's equally as important to talk about the fact that leaving the workforce to care for children affects women's financials more than men. We need to educate women on this. This is not to dissuade you from having children, but to plan for it. We know income will decline during the time period when a child first enters the picture, so let's plan to make up for this income dip before it happens.


3. The Care Taker Effect

It's normally women that act as care takers for children and family members. In an article published by the World Journal of Psychology, women accounted for 57%-81% of caregivers across various countries. Women as care takers for children, for the aged or for those with a mental illness might be especially true if they come from a societal and cultural background where women are likely to stay home. So while many of us may work today and may be earning income, there is a chance that if someone in our family gets ill or our parents need a caretaker, that responsibility will fall on women as the daughter or wife. Family care giving is unpaid work.

Worldwide, nearly 70% to 80% of the impaired elderly are cared for at home by their family members. Varying estimates across different countries indicate that 57% to 81% of all caregivers of the elderly are women. In most cases female caregivers are wives or adult daughters of the elderly person.
— Sharma/Chakrabarti/Grover, World Journal of Psychiatry

This is another reality that we must understand and again plan for. We sacrifice ourselves, our jobs, sometimes our well being to care for others. We may even forgo saving for retirement so that we can save for our children's college education, but we need to be careful because if we are too busy caring for others, it normally means we are not caring enough for ourselves, and who will take care of us in the future?


4. The Social Security Effect


Many people, particular women, probably don't know this but if they leave the workforce without enough Social Security credits, they may not have Social Security later in life. I think we always assume, when people get old, they will receive SS benefits, but that is not the case. People put money into Social Security from their earnings. For 2018, you must earn at least $1,320 to earn one credit. Doesn't seem like much, but if you are a stay at home mother with no income, you don't get this credit.

The good news is that if you stop working before you have enough credits to qualify for benefits, your credits stay on your record. If you return to work, you can add more credits. Social Security requires at least 40 credits to be entitled to a retirement benefit.

Credits are the “building blocks” we use to find out whether you have the minimum amount of covered work to qualify for each type of Social Security benefits. No benefits can be paid if you do not have enough credits.
— Social Security Administration

This is the double whammy. First you stop working to care for children or another family member. This results in no income. No income to save and grow. Second, because you aren't earning any income, you are not adding credits to Social Security so there's a risk that you may not get SS in retirement. There are options if your spouse is deceased, but in the case that you are not planning to get married, this is something to think about. Note that some of these benefit will not be the maximum allowed so there's still a risk there of not having enough money in your old age.

I would encourage you to check your Social Security status early on. There's no guarantee that there's going to be money left when we retire, but it's something that we have to consider because we may then need to save in other ways today.

Learn more about Social Security Credits on the their website: ssa.gov.

Learn how to calculate your Lifetime Wealth Ratio which takes into account your earnings over time against your current savings.

Here's an example of the SSA Earning Record. Note years there is no income, there is no SS being taken out.

Here's an example of the SSA Earning Record. Note years there is no income, there is no SS being taken out.


5. The Women Live Longer Effect

On top of all of these, women tend to live longer. "Females in the United States outlive men by five years — 81.1 to 76.1 years." In a study done by PNAS where they analyzed multiple groups across severe famine and epidemics, with one exception, women outlived men. Girls are more resilient than boys so let's teach them early on to plan for the long-term. There's many theories as to why women live longer, but if we statistically based our financial planning on this longer timeline, we can better prepare ourselves to have a more financially secure retirement.

Women are the life-expectancy champions: They can expect to live longer than men almost anywhere in the world today.
— Zarulli et. al., PNAS

Given all of these reasons, it seems that we should be teaching women to think about money differently early on. We have to start re-thinking retirement. If retirement means 20 or 30 more years of life, we want to make sure that those years are not only productive, but also secure. One way to do this is to build strong a financial security early on. With strong savings, women will be more apt to take risks to do the things that needs to be done.

Living in the present is great, but we shouldn't be too shortsighted with our financial planning. I don't necessarily agree with accumulating stuff today in the hopes that you'll have the time to enjoy it later. There has to be balance.


Choose Financial Independence Early On

We just aren’t taught that the money we are earning today can actually buy us time in the future. Time to spend with our kids, with our aging parents, with other family members.

So what's the solution? I believe part of the solution is to shift our mindset on what it means to be a working woman. Statistically, many of us will become mothers or caretakers one way or another so we must plan for it. We have an idea early on that we will become mothers, that it entails a few sacrifices, but what are those sacrifices specifically? For those of us who love to work and love to earn our own income, being a working mother is all about balance, but ultimately though in the end, it's finding the balance between having the time to be with children, having security (money) and doing something valuable.

We have to start thinking about the exchange between time and money. For many of us, me included, I've worked since I was 18, but sadly for a period of many years, all I had to show for the income I was raking in was a closet full of unused clothes. I'm not saying there's anything wrong with going shopping, but early on, we just aren't taught that the money we are earning today can actually buy us time in the future. The money that we earn today doesn't have to be spent. Instead, we have to adopt a new mindset, about how to make the money we earn today last longer, not just for retirement, but earlier in life.

The goal with Financial Independence is to be able to reclaim your time to do what you want to do. For many women, this will be spending time with kids. If we shift our mindset to think that instead of buying this new handbag today, I can instead save it and buy myself one whole day in the future with my kids without guilt or worry about money, that is a powerful idea to plant in our minds.

On the flip side too, I know there are many women out there who also do not want kids, but it's the same concept. Save money today to buy YOURSELF time in the future.

5 Reasons Why Young Women Need to Think About Financial Independence Differently

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