What keeps women from saving - and what they can do about it (2023)

You will not achieve any of your financial goals without saving money. Savings play a crucial role in everything from home ownership to easy retirement, which is why theThe New York Life Wealth Watch 2023 surveyis so disturbing. It found that in 2022, women saved an average of just $3,146 a year, compared to the $7,007 saved by men.

While the data may be new, the fact that women earn less (and therefore save less) than men will not surprise many. But the report is a good reminder of what the odds are for women when it comes to maintaining a healthy amount of savings and provides an opportunity to examine the individual steps you can take to make the most of an unfair one to make world.

One of the main reasons women save less than men is that they make less money to save. After 2021 data from theUS Census Bureau, women earned on average 84% of what men earned (when analyzing median wages of full-time jobs). The reasons for the pay and savings discrepancy between men and women are systemic and complex, howeverCNBC selectionspoke withKathryn Anne Edwards, economist and freelance public policy consultant, and Kaitlin Walsh-Epstein, chief marketing officer of Student Refinancing Companylaurel road, on some specific hurdles women face when trying to save.

Women pay a higher price to become parents

On average, women experience a major drop in their income after having children - this is referred to as "maternity penalty." A study byStatistics OfficeResearchers found that the income gap between opposite-sex couples doubles after the birth of their first child, with women earning $25,100 less than men on average.

In addition, many employers still do not offer paid parental leave, but newborns still have to be cared for around the clock. According to theWorld Economic Forum, only 35% of organizations in the United States offered paid maternity leave in 2022 (a staggering decrease from the 53% of organizations offering the benefit in 2020). "There are all sorts of decisions a family has to make regarding the budget and logistical needs of child care," says Edwards. "Women who have children are pushed out of the labor market because they want children."

Reducing their employment to support families means women don't contribute to 401(k) accounts or their own savings. In addition, 32% of women who leave the labor market to look after young children end up never returning to the labor market, according to a study conducted by theUS Chamber of Commerce.

This means the time these women spend actively contributing to employer-sponsored retirement accounts like 401(k) or 403(b) is significantly reduced. And because you have toearn an incometo contributeindividual retirement accounts(IRA's), this means that only a woman's partner can contribute to her own accounts unless they open a spouse IRA.

Women have to finance a longer retirement with less money

data from thePopulation Reference Officefound that women outlive men in both developed and underdeveloped countries. In developed societies such as the United States, women are expected to live as long as 79 years, while men are expected to be around 72 years.

That seven-year difference means women need to save a little more money than men to fund the final chapter of their golden years. Even for someone spending a modest $40,000 a year in retirement, that's an extra $280,000 to cover those final seven years.

Unfortunately, women have, on average, about 30% less money saved when they retire than men, according to a study by theTIAA Institutefound. One way to reduce the risk of surviving your retirement savings is to put more into your retirement savings when you're younger. Here again, however, the wage gap is undermining women's efforts.

"If you're being paid 84% on the dollar, your 6% contribution to your 401(k) doesn't go as far as your male colleague's 6% contribution," says Walsh-Epstein further when you think about women saving for retirement."

That means women must either pay a larger portion of their salary into their 401(k) accounts to increase their retirement dollars, or find a way to cut their expected expenses during retirement.

Women have more student debt than men

A reportof the Education Data Initiative found that women with a bachelor's degree borrow 4.27% more than their male counterparts (the contrast is stronger among associate's degree holders, with women borrowing 24.9% more than men). Larger student loan balances typically mean a higher minimum monthly payment over the same standard 10-year repayment horizon.

Overall, women are also more likely to take on student debt at all. Findings fromAmerican Association of University Womenshow that 41% of undergraduate women are in debt, compared to just 35% of undergraduate men.

"Women are more likely to go to college, so they're more likely to enter the workforce with debt," says Edwards. "They should have higher income as a result - that's the expectation, but the job market isn't as orderly and women's ability to make money has many limitations that we don't see to the same extent in men."

Both Edwards and Walsh-Epstein recognize that many factors related to women's lower income and savings rates are systemic. There may not be much individuals can do to improve their economic mobility, but employers have tremendous influence over workplace systems that make it easier (or harder) for women to achieve their financial goals. When it comes to navigating the workplace, women can best help themselves by keeping the following in mind.

Be sure to consider your compensation package before starting a new job

One important step women can take to increase their savings over the long term is to ensure employers offer them a compensation package that suits their needs.

"It's important to work for an employer that recognizes your contributions — and it shows in your paycheck," says Walsh-Epstein. “Sometimes it's easier if you negotiate in advance. Don't settle for the first number and remember to look at the bigger picture. Look for additional benefits or the work-life balance.”

Along with negotiating salary, make sure you inquire about your team's bonus structure. And if you're planning on having children in the near future, learn about the company's offerings for paid parental leave, child care allowances and reimbursements, and any other parent-oriented programs.

Increase 401(k) posts when it makes sense

Contribute more to your 401(k).is an easy way to save more money. If you plan on having children someday, take the opportunity to maximize your employer's match and contribute as much extra money as possible to your 401(k) sooner rather than later. The earlier you start doing this, the more you can benefit from itpower of compound interest.

There may be instances when you want to use that extra money for other big goals such as: B. Buying a home. If so, you should weigh the trade-offs so you can make a decision that best suits your needs.

"Compound interest is an effective way to build your savings and investments, but you also need to understand what your goals are," says Walsh-Epstein. "So if you're saving for a home purchase in the near future, you might not want to increase your 401(k) contributions. It might be better to use those extra dollars towards your home purchase.”

It's also important to have oneemergency fundwhich can cover unexpected expenses, especially if you have children as your living expenses are higher. If you've saved even a month in expenses, you're less likely to have to scour your 401(k) to pay for a sudden financial crisis.

Work with your spouse to save more

If you are unable or decide not to return to work after having children, you should talk to your partner about setting up a spousal IRA so you can still build retirement savings. As a rule, you need to earn an incomecontribute to IRA, which is an obvious obstacle for those leaving the workforce to become full-time carers.

With a spousal IRA, you can open oneIRA-Kontoand let your partner make contributions for you. This allows you as a couple to save more money for retirement than otherwise your family could be saving as little as $6,500 a year with just one IRA account. With two IRA accounts in the family, that means you'll save up to $13,000 a year.

Exhaust other options before accepting student loans for college

If you're considering higher education, it's a good idea to research free financing options before taking out a student loan. Federal scholarships are generally only available to undergraduate students, but you can apply for scholarships and grants directly with your university.

There are hundreds of scholarships for women that you can find on websites likegrants. comorfett.org. These grants are specifically designed to help women pay for their education and thereby reduce (or avoid) college debt.

If you work full-time, you can also consider whether your employer offers student grants as a benefit or not. Student grants usually help you offset the cost of your studies by refunding part of your tuition fees. This helps make college more affordable to attend and could reduce student loan borrowing.

Although women face a multitude of disadvantages when it comes to earning and saving money, it is more important than ever to promote one's own economic mobility. This means carefully examining the compensation package offered by the employer before accepting a new job - make sure you negotiate your salary, pay attention to the bonus structure you are offered and make sure other benefits ( such as parental leave) meet your needs.

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