In this Q&A, we do a deep dive into why young women are still getting different messages about their finances than young men – and how to change that, pronto.
Jean Chatzky: Carrie, teaching children – and specifically young adults – the right way to manage money has been at the top of your to-do list for as long as I’ve known you, and I’ve known you for, what, 20 years? Why is this such a passion point?
Carrie Schwab Pomerantz: Conversation around money is always a taboo topic. But it shouldn’t be, especially not with our children. Young people want to learn about money – they’re interested in it. They seek their parents for advice and trust them for help. They have the intention and desire to be knowledgeable. But getting information about money in front of young people is hard because a lot of schools don’t teach it.
JC: As you’ve done in years past, you recently fielded a study to take a look at what young adults do – and do not – know about their money today. In other words, a financial literacy study. Tell me about it.
CSP: We surveyed 2,000 teens and young adults age 16 to 25, 1,000 of them were between the ages of 16 and 20, and the other 1,000 were 21 to 25. And we picked them for two reasons. First they’re launching into adulthood so this is a good opportunity to see where they stand with the idea of getting them on the right track as they move toward independence. And second, this is an age where parents can still really influence their lives and use their knowledge to have an impact as well.
JC: What did you see that surprised you?
CSP: Well, to me the first thing that really stood out were the gender differences. The young women in this survey showed more determination to be financially independent than the young men in the survey. When we asked how many of them felt that a measure of success was being able to live independently, without support from their parents, 51 percent of the young women agreed. Only 40 percent of the young men did. But at the same time, the women lagged behind in both their saving and investing. The men had average savings of $2,000, the women just under $1,300. And, while it’s important to note that not very many of the men or the women were investing, the women still trailed behind significantly, too. Only half as many young women had investment accounts as young men.
JC: That’s disconcerting. In part because it’s 2019 – and this research was conducted toward the end of last year. With all we read and hear about women making strides, particularly young women who are graduating from college at greater rates than men and even racking up more graduate degrees in certain fields, what do attribute this to?
CSP: It’s certainly not that the women aren’t trying. More young women than men have second jobs and work additional hours to earn more money. More emphasize the importance of trying to put together a financial plan. More are willing to wait to buy something that they want – or skip travel, which we know is very high on the priority list for this generation – until they think it’s a wise financial move. The fact that young women were doing all the right things and still falling behind was really troubling so we dug in deeper.
We looked at our previous research, a survey conducted by Schwab 20 years ago, that found parents talk differently to our daughters than to our sons. With their sons, they talk about wealth creation and concepts such as debt management and the stock market. And with their daughters, parents are more likely to talk about saving and household budging. That’s important. But not how we create wealth.
JC: Are you saying that nothing has changed?
CSP: I am saying that not enough has changed. Women can have all of the right financial behaviors in the world, but when young men are twice as likely to have an investment account as young women? That adds fuel to the fire.
JC: So, what’s the solution?
CSP: I think there’s an opportunity to get the word out to parents. Because it does start at home. I don’t think any parent wants to set up their daughter purposely to have barriers to financial success. I think it’s subconscious – if we could help people become more aware of our subconscious biases, perhaps we would start talking to our daughter as much about investing as we do with our sons.
JC: And maybe helping our sons understand the basics of budgeting.
CSP: Exactly. But really, hammering home the importance of investing at a young age is really key. A Schwab colleague of mine is a disciplined saver. She had a budget, a 401(k), 529 college savings accounts for her kids. But she looked at where she was recently and came to me totally deflated. She said: “I’m not where I need to be.” And I looked at what happened and realized she had too much in cash. She didn’t invest as much as she should have. We need more people – more women – to be more engaged with how they’re actively investing their money.
JC: Saving is great. It’s the base we need to build so that our money can work for us. But unless you invest the money it’s not going to grow.
CSP: That’s right. But in order to close this economic gender gap and get women to stop keeping so much money in cash we don’t just need education, we need to give them exposure to investing. With my own kids, I made them come to a Schwab branch at 12 years old, fill out the paper work, and talk to a financial consultant about the importance of investing at a young age. It was all about getting them there and helping them realize, it’s not as scary as you think. My kids are all investors now. They’re pretty good about it.
JC: So, bottom line it for me. The evidence is clearly mixed but when you look at financial literacy do you think we’re making progress? Do you think we’re moving the needle at all?
CSP: I think we are. The fact that young women see financial independence as more important than young men – that’s a big deal.
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