BLOG: How to offset the impact of the gender savings gap
Covid-19 has brought huge financial implications to many, both on an economic and personal scale. Unfortunately, it has also shed a light of the financial challenges faced by women into sharp focus.
The London School of Economics highlighted that women were more likely to lose their jobs in the recession and the International Monetary Fund also warned that the pandemic has jeopardised any progress that women have made over the last three decades in closing the economic gender gap.
For many, working later, longer, or harder, or even just buying less, may seem like the only answers to this issue, but there are other ways that women can build a healthier savings pot and close the economic gap:
- Build a safety net
The global pandemic has taught many a big lesson about savings. It’s often recommended that individuals have between three and six months’ worth of their regular expenses saved in a “rainy day” fund as a protection for unforeseen emergencies. While it’s not possible for everyone to save this much, trying to save a little here and there can build up to a bigger pot over time.
- Save sooner
Saving to be financially secure shouldn’t just be a short-term consideration. It’s important young women are thinking about their long-term financial future from an early age. Whatever goals you have will usually need to be saved for and getting into the savings habit as early as possible will help you benefit from compound interest. The longer you wait to start saving, the more you could be missing out on the potential benefits of compounding.
- Save more
Most people don’t realise just how much they’ll need to save in order to plan for the retirement they would like. While auto-enrolment has meant that the majority of employees are saving into a pension, it may not necessarily be enough for a comfortable retirement, particularly if you take into consideration career breaks. Even contributing just 1% extra of your salary into a workplace pension from early on could close the gender pension gap, according to research by Fidelity.
- Avoid too much cash
One key reason for the expanding gender savings gap is that women tend to hold cash savings rather than investing. Although it’s essential to hold some cash for a rainy day, when deposit interest rates are consistently below the rate of inflation, you may find you lose some of the spending power of your money by holding savings in cash.
- Consider investing
Many women are concerned about their financial stability, but only one in five currently hold investments versus one in three men. At a time of exceptionally low interest rates, it’s important to understand how inflation can nibble away at your savings, reducing purchasing power. Over the long-term, stock markets have shown historical returns above inflation – the added risk has the potential for added reward, and longer-term investments are more likely to weather the ups and downs of the stock markets.
You can lower the level of risk by spreading money across different types of investment, known as a ‘portfolio’. This is called diversification – a diversified portfolio helps reduce the risk of your overall investments underperforming or losing money. Although it is important to remember that all investments are inherently risky.
Hollie Curtis and Kate Palmer and investment managers at Rathbone Investment Management