I paid bills on time. I bargain-shopped like a pro. I watched my wallet. So at age 21, working at my first job, I thought I had my act together when it came to my finances. Until I spoke to Joe, an older coworker, who discovered that I had not signed up for the 401(k) retirement plan offered by our company. He was appalled. Speaking slowly, my well-meaning colleague explained that if I participated in the plan, the company would match my contributions. When I stared at him blankly, he bellowed in frustration, “It’s free money!” Then he tried impressing me with numbers: By investing less than $100 per paycheck, I could eventually accumulate a nest egg of a million dollars or more. Again, crickets. The more he went on about the magic of compound interest, the more he sounded like the teacher on the cartoon Peanuts. I was bewildered. What does 401 even stand for? And, for that matter, (k)? To get my colleague off my back, I halfheartedly promised to look at the paperwork.
I dithered and kept putting off enrolling before finally keeping my word—one decade later. Signing up for a 401(k) was a bizarre psychological hurdle I couldn’t get over. But why?
I was part of a phenomenon that some money experts have dubbed “the female financial paradox.” Translation: Like millions of other women, I was perfectly happy to pinch pennies and hunt down sales, yet I couldn’t muster the slightest interest in big-picture financial planning.
What the heck is going on here? We women are hardly meek and passive in our careers. We have more power and earning potential than ever before. We’re graduating with more college degrees than men, and we’re climbing farther up the ranks in nearly every industry. Nor are we shrinking violets regarding everyday financial affairs. One survey found that a full 90 percent of women identify themselves as the chief bill-payer and shopper for the household. And yet we lag behind men in actions crucial to building wealth and security, such as investing and having a long-term money plan.
“Because we’re fighting against centuries of societal norms in which women were excluded from discussions about finances, many simply aren’t interested in these topics,” says Amanda Steinberg, the CEO and founder of the women’s personal-finance community DailyWorth.com. Eileen O’Connor, the vice president of wealth management for McLean Asset Management Corporation, in McLean, Virginia, agrees. She says that, traditionally, women have had a “head-in-the-sand approach” to long-term financial planning. No wonder a recent survey conducted by DailyWorth.com found that 60 percent of women thought their investing and planning skills were below average.
That lack of engagement has a high cost. According to the Employee Benefit Research Institute, a nonprofit based in Washington, D.C., roughly the same number of full-time employed men and women participate in retirement plans. However, men contribute far more to those plans: Their median account balance is $31,388, compared with women’s $20,877, according to Vanguard, an investment company. One would hope that women’s savings would be inching toward parity now that the gender pay gap is becoming a relic. Alas, no. The female financial paradox has continued unabated.
Experts have identified four key factors underlying the paradox: Women tend to be insecure about the subject of money; we focus on scrimping instead of investing; we rely too heavily on others for financial know-how; and we’re not always adept at translating abstract figures into concrete goals. Read on to learn more about these barriers and how to overcome them.