Money Tools Women Need for a Secure Financial Future

by Gary Foreman

What Women Need to Know to Have a Secure Financial Future photo

Women relate differently to money than men. And they need different financial tools. We explore the money tools that can help women achieve a secure financial future.

An article in Wall Street Journal a about 10 years ago called Clients From Venus pointed out that women are becoming increasingly involved in personal finance. It appears the article was right. As of 2019, women controlled $14 trillion in assets in the U.S., according to Fortune.com.

Naturally the financial services industry has been trying to figure out how to capture their share of this market. And as part of that attempt they’ll study women to try to find out what works for them.

The same WSJ article provided an interesting glimpse on how women relate to money and personal finance. According to the article, a Boston Consulting Group study found that “women globally identified financial services as the industry they are most dissatisfied with on a service and product level. Those surveyed said the industry doesn’t understand that women view money and wealth differently from men. For example, women don’t seek to accumulate money, the study reported, but see it as a way to care for their families, improve their lives and find security.”

As someone who has worked in the area of personal finance for decades I can verify that women do look at money differently from men. And that there are some tools that can make it easier for women to manage their financial affairs. So let’s look at some of those tools women need for a secure financial future.

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Women should should have their own money goals.

Begin by selecting your money goals. For most of us, this is easy. Providing for our ongoing monthly needs. Saving for a vacation, car, house or baby. Saving for a college education for our child. Saving for retirement. Some are short-term. Others may be decades away.

But, they all have something in common. You can estimate how much money you’ll need and when you’ll need it, so you have a goal and you know how much time you have to achieve it.

There are a wide variety of online calculators to help you figure out how much money you’ll need and how much you’ll have to save to get there. Some of my favorites come from Bankrate.com. They’ve been an unbiased research source for decades.

Why is it important to start with goals? Let’s state up front that not all women are the same. But, for many the study is right. Finances are about security. That means that the recognition of goals is especially important for them. Picturing their baby getting a diploma is the kind of motivation that will cause them to take the necessary steps to make it happen.

Women should learn asset allocation management.

Working as a financial planner back in the 1980s I noticed that on average women weren’t much interested in beating the market or having water cooler bragging rights for their latest stock pick. What women wanted was evidence that they and their families were financially secure (or at least becoming financially secure).

That meant that their investment style was different from men. Guys were much more willing to be aggressive. More willing to take risks if the possible rewards were big enough.

Women were much more likely to choose a slow but steady path. They were happy playing tortoise to the men’s hare. In fact, more than once I heard a wife suggest her husband’s investment ideas were ‘hare brained!’

As a financial planner I was always more comfortable with the ladies’ approach. There are fewer surprises and disappointments on the slow but sure road. To that extent, I often encouraged them to use a strategy that’s commonly known as ‘asset allocation management.’ When used with mutual funds, it becomes a two layer diversification strategy.

Women should learn the concept and levels of diversification.

The concept of diversification is important to successful wealth accumulation. Diversification is a way of saying that all your investments are not the same. They’re diverse or different. The fact that they’re different is the key. Because they’re different they won’t go up or down together.

If you were a stock investor you might own ten different stocks. If one stock ran into trouble, the other nine would cushion the loss. One way to easily achieve diversification among stocks is to invest in a mutual fund that holds many stocks. So-called index funds are an excellent example.

Now while a fund protects you from one stock performing badly, what heppens when the whole stock market collapses? Something that we’ve seen twice in the last 15 years. In that case a stock mutual fund would drop.

That’s where the second level of diversification comes in. The asset allocation model. Different types of investments respond differently to changes in the economy. For instance, inflation is bad for cash and bonds. But it’s good for hard assets like real estate and metals.

By diversifying your investments in different types you protect yourself from surprises. An example was the stock market crash of 1987. At the time I was a financial planner. Asset allocation protected clients throughout that turbulent year. While one type of mutual fund went down, another went up to offset the loss.

We don’t have space here to get into how to allocate between different asset classes. The Securities and Exchange Commission (SEC) has a pretty good explanation here.

You’ll want to adjust your allocation as your age and goals change. Economic situations can also be a reason to tweak the allocation.

The approach is cautious, but one that works well. Especially over a number of years and in uncertain economic times.

Bottom line? Part of sound personal finance is understanding how you relate to money. And then tailoring a plan that works with your personality and the uncertainties of the world we live in.

Reviewed April 2020

About the Author

Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's the author of How to Conquer Debt No Matter How Much You Have and he's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com. Gary shares his philosophy of money here. Gary is available for audio, video or print interviews. For more info see his media page.

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