This is a guest article by Charlotte Ransom, the CEO of wealth manager Netwealth and a former partner at Goldman Sachs.
We’re usually actively engaged in wellbeing across different areas of our lives. We take time to find good doctors to look after our health, trusted carers to help with our children or elderly parents and great beauty and lifestyle products to boost our confidence.
Our finances also affect our mindset directly. There’s peace of mind in knowing that our finances are in good shape – and the gnawing feeling of stress when they’re not, or when we’re not sure.
So, isn’t it time we started vetting our finances with the same attention to detail that we apply to other areas of our lives and put ourselves in control of our financial wellbeing?
The gender financial divide is getting worse
The past year has been difficult financially for many – and the pandemic has only exacerbated the already significant financial gap between men and women.
Our recent research showed that a greater number of women have been worried about their finances during the latest lockdown compared to men (46% vs 36%). But women were less likely to have actively engaged with their finances to address these concerns.
Fewer of us sought financial advice, and we also fall behind when it comes to investing our hard-earned cash; only a quarter of women (24%) plan to increase their investments in 2021, compared to over a third of men (35%).
So, why are women not taking charge of their finances?
In some ways these figures are, sadly, unsurprising – the finance industry has largely been built by men, for men. It wasn’t until 1980 that women could apply for credit cards without a male guarantor in the UK!
Historically, the wealth management companies looking after our money have used alienating, jargon-laden terminology that can feel unwieldy and inaccessible, with a focus on ‘benchmarks’, ‘alpha’ and ‘outperformance’. There’s been a lack of emphasis on goal-based investing and support to help us reach our targets, whatever they might be.
This is improving, but change won’t happen overnight. That is why it is important to take ownership of our finances now and ensure greater wellbeing in the years to come.
Cash isn’t always king
Traditionally, women are more likely to keep money in cash, preferring to save rather than invest. Cash feels safe. We like to see it in our bank balance, it is accessible to us when we need it, and we believe that it’s not going to lose its value. It’s a form of safety blanket.
But it’s a false and costly sense of security.
If we take a past example, savings of £100,000 held in cash would have dwindled to £84,000 over the space of 10 years, eroded by inflation. Alternatively, that money could have grown in value to £130,000 if invested in a balanced portfolio. This could have been invested as a contribution to a pension, for example, helping to secure a more comfortable retirement in the long term.
Financial empowerment often comes from better understanding and education. But not enough of us seek help in financial planning, despite the advantages it can give.
Want to seek financial advice but don’t know where to start? Here’s what to look out for:
- Modern technology: An offering that helps you visualise how your savings could be optimised through effective financial planning can help you both understand how your cash could grow, and also provide you with the confidence and access you need to take control of your finances.
- Choice of access to financial guidance and advice: Guidance, rather than formal financial advice, may be sufficient for many. If you prefer to take regulated advice, consider whether you want to pay for this on an annual fee basis or if one-off advice, charged hourly, is sufficient. Too many people are charged for annual advice when it’s more than they actually require, and this increases overall charges unnecessarily. Watch out for this.
- Lower fees: Significant numbers of investors are giving away their money unnecessarily due to outrageously high – and sometimes hard to find – account fees that eat away at their returns. Be sure to understand exactly how much the all-in charges are and compare different offerings’ relative costs and charges. You will find there can be a huge variation in charges that will have a direct impact on your financial outcomes.
While the pandemic will likely have a lasting impact for years to come, the power to take charge of our wellbeing through our finances is in our hands today and can make all the difference for the future.
Learn more about how Netwealth can help you start your investment journey here.