Why and how women should protect and grow their money

8th March 2022 09:35

by Katie Binns from interactive investor

Share on

As we observe International Women’s Day today, Katie Binns explains why women need to be pragmatic and pushy when it comes to their finances.

Where to begin with women’s finances? There are lots of ‘gaps’: the gender pay gap, the gender pension gap, the gender investing gap, the funding gap for female entrepreneurs (only 2% of venture capital goes to women-led start-ups!) and the scandal of more than 100,000 women whose state pensions have been underpaid .

There’s also the little-discussed gender housing gap. It takes prospective women homebuyers on average 3.7 years longer to get on to the property ladder than their male counterparts. And housing isn’t brilliant if you’re a tenant either: when you look at average median salaries, there’s officially nowhere in England where rent is affordable for single women, according to research by the Women’s Budget Group.

“Women need to know that it is probably going to be harder for them to accumulate wealth. It isn't right or fair, but this is the reality,” says Becky O’Connor, head of investing at interactive investor.

As someone who has been talking to women about their finances for years, I know that focusing on making the most of your money when times are good, putting aside money when you can and creating options for your future self is incredibly empowering. Here are some ideas.

Define your financial priorities

There are many ways to live. Traditional goals such as buying a home are not affordable for everyone, so get savvy about the ways your personal circumstances could allow you to build wealth.

If you know you’ll inherit a family home much later in life, you may prefer to forgo saving for a house deposit and instead maximise contributions to your pension and an investment portfolio. If property ownership is a deep desire, it will usually involve making a commitment to saving for several years - and possibly at the cost of investment opportunities.

Minimal rises to your pension contributions count

It’s obviously beneficial to contribute as much as you can to your pension. The tax relief you get – 20% for basic rate payers, 40% for higher rate payers and 45% for additional rate payers – is a brilliant boost to your total pension contributions.

But when times are leaner, it’s heartening to know the impact of even the smallest of increases to your pension contributions. For example, if you earn £30,000 a year and get a 1% pay rise, rather than have an extra £20 in your pay packet, increase your pension contribution from 8% to 9% and end up with an impressive £20,928 extra in your pension pot by the time you retire. This kind of token effort from time to time over your working life can be a significant boost to your pension.

Invest

Women are increasingly turning to the stock market as a way to grow their money but, according to NFU Mutual, cash accounts are more appealing to women (31% of respondents) than men (22%) and shares are more appealing to men (23%) than women (9%). Anyone - man or woman - leaves themselves more vulnerable to the erosive effect of rising inflation when they have cash holdings.

Let’s say you have five years to save or invest. And those years are lean years. Here’s how the numbers compare. Free regular investing with interactive investor at £100 a month after depositing £500 in the investment account with returns of 7.5% equates to £7,800. Meanwhile, if you have that same £500 in a savings account with a 1% interest rate and add £100 a month for five years, the pot will grow to £6,680. Investing via a stocks and shares ISA leaves you with a source of tax-free income that is accessible at any age.

Ask for help

Women need to be vocal about their personal finances. A tweet about a woman laying out the financial toll of having a baby and her partner’s discomfort about her proposal to share that toll was shared tens of thousands of times.

Whether it’s speaking to your partner more often about money, asking for a pay rise or being comfortable saying no to friends, seek ways to overcome any mental hurdles blocking you from having these conversations. One momentarily awkward chat could lead to long-term change to your finances.

Set up other financial security nets

When you can't save and invest as much as you would like, tackle areas of personal finance that are little thought-of but still add to your financial security, such as writing a will or setting up a Lasting Power of Attorney (LPA). TV presenter Kate Garraway couldn’t access bank or credit cards or joint savings, nor refinance the mortgage, and had to depend on friends’ financial help when her incapacitated spouse Derek Draper didn’t have a LPA.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Get more news and expert articles direct to your inbox