Other social changes are taking place more discreetly, but they are no less revolutionary.
More than 60% of Britain’s assets will be in the hands of women by 2025, according to a forecast by the Center for Business and Economic Research. This means that older women in particular will need to engage in more financial planning.
Several factors contribute to this change. There are twice as many women as men aged 90 or older, for example, and divorce rates among retirees, known as “money splitters,” are rising even as the total number of divorces falls. This often leads to older women taking on greater financial responsibility at a stage in life when many are looking to make things less complicated.
Among the myriad of issues older women can face, two stand out.
The most pressing issue is usually how to generate retirement income. In the past, there might have been pension income from the spouse to inherit, as well as a share of their partner’s state pension. Nowadays, a pension is more likely to take the form of a lump sum from which cash is withdrawn. It places a lot more burden on individuals to ensure that they are not living beyond their means.
For all its flaws, it’s worth remembering the 4% rule, which involves withdrawing 4% of your nest egg in your first year of retirement and increasing the drawdown in line with inflation thereafter. Many advisors today, however, consider that to be rather high. It also assumes that 50% of your fund is exposed to the stock market.
The second issue is that the default UK Inheritance Tax (IHT) advice is that all assets should pass to the surviving spouse after death. Indeed, a widow, or a widower, can inherit the estate of her partner totally free of inheritance tax and also assume her IHT allowances. Yet while this is tax efficient, it places a significant management burden on an often elderly partner.
For young women, the financial challenges can be very different. Income imbalances begin to be corrected by the better educational results of women. In the UK, women are now 35% more likely to apply to university than men, and according to the country’s Joint Council for Qualifications, 46.4% of girls achieved A* or A grades at level A in 2021, compared to only 41.7% for boys.
Women also tend to make better investors, but are attracted to more conservative savings vehicles, such as deposit accounts and individual savings accounts (ISAs). While useful for short-term savings and emergency funds, these products are not suitable for building longer-term wealth.
Historically, women have opened six times more cash ISAs than ISAs allowing for investing in stocks and shares; meanwhile, men are 25% more likely to invest in stocks and stock ISAs than women. Helena Morrissey, president of financial platform AJ Bell, once described this preference for conservative savings accounts as “recklessly cautious”.
As a general rule, the longer your investment horizon, the greater your exposure to stocks and funds should be. Thus, for young women who invest for their retirement, it is advisable to have a significant exposure to the stock market. There is plenty of time for suitably diversified investments to recover from any mid-market volatility.
However, a big problem for men and women is which investment fund to choose. The Hargreaves Lansdown investment platform alone offers more than 3,000 funds. The variety can be overwhelming to the point of paralysis. Faced with so many choices, many novice investors choose to avoid the problem altogether.
Although a financial adviser can help you solve this problem, there are cheaper options. Many online brokers offer what is called robotic advice. A short survey determines your investment objectives and your appetite for risk and offers you a selection of suitable funds at low cost. For most people, simply starting to invest is far more important than precisely what they invest in, especially if the alternative is lengthy procrastination.
Comprehensive financial advice is essential for more complex issues, however, especially for people, usually women, who suddenly find themselves inheriting sole control of assets previously managed by their partner.
Many financial advisors recognize that their traditionally male industry has a problem with how it communicates with women. Consulting firm Schroders commissioned a report with several specific recommendations. The most basic is involving spouses in the conversation from the start and taking the time to understand a woman’s story and her support infrastructure.
At a broader level, the industry would benefit from recruiting more women as consultants. Although the situation is slowly improving, the Personal Finance Society estimates that only 22% of registered financial planners in the UK are women.
The Euro is just one demonstration of how, with enough support and enforcement, change can happen faster than people realize. The world of finance has some serious catching up to do to reflect the growing wealth of women.
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Stuart Trow is co-host of “Money, Money, Money” on Switch Radio and author of “The Bluffer’s Guide to Economics.” Previously, he was a strategist at the European Bank for Reconstruction and Development.
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