Financial Solutions For Young Women
By Alan Feigenbaum
Starting long before the teen years, young women and those who are responsible for them should employ many strategies to confront adulthood's impending financial challenges. (We discussed a few of these issues in Being Genderous To Financial Issues.)
Given the high percentage of children now raised by divorced or never-married single mothers, one would think that today's girls would grow up without expectations that their financial roles in adulthood will be secondary. Yet a combination of political, religious, media and peer sources champion and perpetuate the stereotypical notion that the ideal family is one where mothers are the sole caregivers for children, and the fathers provide for them. The notion that girls who act and look right will land a man who will give them a fairytale ending continues in society. In this article, we'll take a look at a few issues young women face and give you tools to help these girls fight back and become self-sufficient adults who can choose the right life arrangements.
Learning, Earning and Returning
Higher-education costs have become such a disproportionate part of American budgets that, in choosing a college, one should focus on how well students "learn to earn", even though ratings emphasize how well students "learn to learn". Evaluate a college's costs as an investment in a future income by considering these factors:
Private Might Not Pay: A long-term study of students who were admitted to both elite and non-elite schools, entitled "Does an Elite College Really Pay?", by economist Alan B. Krueger, showed that, except for minorities who benefited more from new networking avenues, those who chose elite colleges did no better financially than their non-elite-choosing counterparts. Spending $100,000 less for college can mean the difference between burdensome long-term debt and quickly building a nifty nest egg.
Everybody's Business: Women in their 30s and 40s with liberal-arts college degrees, or no degrees at all, are important contributors to today's explosive growth of small businesses. However, even those who are now pursuing degrees that will lead them to structured careers as scientists, physicians or other professionals should consider that a future desire to balance work and family might lead them to become future business owners (who have the ability to work from home).
Boomerang Budgeting: After college independence, it's hard for both parents and kids to imagine graduates moving back in for an extended time. But if it doesn't limit career possibilities - for example, a job with a national or global company that involves a lot of travel - and is handled well, it's a great way to pay off college debts and build strong savings before leaving the family home for good. (To read more on this subject, see Boomerangs: Why Some Kids Never Leave The Nest.)
Building Wealth and Taking Credit
Making budget-conscious college and career choices is a good start, but Generation X and Y women still must navigate numerous wealth-threatening waves as they prepare to drop anchor away from familiar family and friends.
Unlike their mothers, today's young women have easy access to credit at a time in their lives when expenses can run amok if the plastic is treated as play money. Of course, both male and female college students today increasingly graduate with substantial debt - more than $15,000 in student loans and more than $3,000 in credit cards. Unfortunately, some statistics from Smith College's article, "College Students Use Credit Cards To Pay For Their Education"(2005), appear to suggest college women hamper their financial futures by plopping the plastic more often, and women are more likely to incur larger debts than men - perhaps partly due to peer pressure that favors clubbing, fashion frenzy, and regular cruise, beach or other vacation financial flings. (To read how to manage your own credit, see The Importance of Your Credit Rating, Credit, Debit And Charge: Sizing Up The Cards In Your Wallet and Understanding Credit Card Interest.)
On the Job
It's easy - and dangerous - to feel prosperous when going from single-digit-dollars per hour for part-time student work to tens of thousands annually in a first professional job - so here's how to not end up "pauperous":
Compensation: If you're fortunate enough to garner multiple offers, don't be swayed by salary alone. Get details on the benefits - particularly the healthcare plan, including employee contribution amounts and trend, as well as co-pay, deductible and maximum out-of-pocket costs. Also, because you're likely to change employers several times during your career, examine the 401(k) plan features to determine investment options and fees, and the employer contribution and vesting policies: A high employer match won't help if you lose it upon leaving. Also weigh growth prospects that could quickly multiply a lower starting salary. (To read more about planning retirement while you're still young, see Competing Priorities: Too Many Choices, Too Few Dollars, The Generation Gap, Retirement Savings Tips For 18- To 24-Year-Olds and Retirement Savings Tips For 25- To 34-Year-Olds.)
Advancement: That first salary is the base from which percentage raises and bonuses are computed, and it's crucial that women learn to negotiate more assertively, aggressively and effectively for pay and promotion. These negotiating tactics can include using available resources (such as salary calculators) to gauge their compensation vs. national/local trends - both when getting a job offer and once on the job. Furthermore, they must mimic their male colleagues' sometimes greater willingness to relocate for better internal and external job opportunities.
Assessment: It's equally important for women to gauge their overall financial progress independent of their financial growth within their careers - to determine whether they're falling short of their ultimate financial goals and needs given their current skill sets and job situations. This could mean modest investment in further education related to their current careers, or more substantial investment in preparing for a new career.
Residences and Relationships
In the USA Today article, "It's time to grow up - later" (2004) social observers differ on both the legitimacy of a Gen-Y "quarter-life crisis", and whether it is nothing more than a coddled generation delaying adult responsibility or the front end of a permanent societal change. Regardless, today's young women can exploit the independence of deferring the establishment of residential or relationship roots by taking wealth-wise steps to build their own solid financial foundations:
Paycheck Priorities: Make sure your budget includes significant monthly credit-card pay-down and at least enough 401(k) contribution to get the full employer match. Nurse whatever car you have as long as it's still running; if you must replace it, avoid borrowing and pay cash for a no-frills, highly reliable, fuel-efficient used vehicle. Make someone else pay the full price for a new vehicle and pick up that used vehicle a few years later when the depreciation slows its huge down curve.
Student Loans: Delay paying off more than is necessary, so that you can take care of other priorities. However, if your loan payments are still high, explore the possibility of a one-time consolidation opportunity that could lower your interest-rate substantially. Caution: Make sure you understand consolidation's complexities and potential pitfalls, and the predatory traps lurking from less-reputable private lenders. (Find out more about this subject in Getting A Loan Without Your Parents.)
Additional Savings/Investing: Try to squeeze additional cash to more fully fund your 401(k) and IRA. Unless you're lucky enough to have a salary that puts significant income in the 25% or higher brackets, reject the potential current deduction and choose Roth options for both so that you'll ultimately pay no tax on your withdrawals - and get an early-withdrawal tax-free bonus toward your first home purchase. (To find out more about purchasing a home, see To Rent or Buy? The Financial Issues - Part 1, Mortgages: How Much Can You Afford? and Understanding the Mortgage Payment Structure.)
Mortgage and Marriage: By prematurely or excessively falling into these "dual money traps", you can potentially endanger your prospects of future financial security. Resist the rhetoric of not wasting rent and buying a house to build equity until you've wiped out non-student-loan debt, have established solid savings, know where you want to live for at least the next five years and have a salary high enough to make the mortgage-interest deduction attractive for tax reduction. If you do get married, don't borrow to pay for a wedding or honeymoon - and even if you have the funds for it, or parental subsidy, reject the lavish touches and toss the extra cash in the bank to save for a future house or other needs. (To read more about marriage, see Revealing The Hidden Costs Of Weddings and Marriage, Divorce And The Dotted Line.)
Finally, help is available for men and women of all ages to ask financial questions and get some answers. Here are a few of the places where help is available:
Non-Profit Organizations: The Girl Scouts, Boys and Girls Club and JA (formerly Junior Achievement) are among those offering comprehensive financial-literacy educational programs.
Schools: The NEFE High School Financial Planning and National Coalition of Girls' Schools and Financial Fitness For Life are among curricula offered for in-school use. As of early 2007, only nine states had some kind of financial-literacy course requirement.
For-Profit Organizations: Practical Money Skills stands out as the most comprehensive among numerous financial-institution programs that vary widely in breadth and quality.
Most importantly, though, from the earliest possible age, all children should be involved in the family finances. That starts with them understanding their role in sharing limited family resources in earlier childhood, to increasing input in the family financial planning as they approach teen years, to extensive involvement in and knowledge of the family's financial situation as they start to think about cars, college and the years beyond. All through that time, they should get increasing responsibility and opportunity to earn and manage their own money - first within and then outside the family.
To learn how to teach your kids about money, see Use Allowances To Create Financially Sound Kids, Close The Bank Of Mom And Dad and Teach Your Child About Investing.
By Alan Feigenbaum
Alan Marc Feigenbaum, CFP®, is a fee-only financial advisor affordably serving non-wealthy clients nationwide via MyFinancialAdvice.com. He's authored A Complete Guide to Protecting Your Financial Security When Getting a Divorce (McGraw-Hill), A Parent's Guide to Money: Raising Financially Savvy Children (Mars), and Alpha Teach Yourself Retirement Planning in 24 Hours (Macmillan). Alan has also contributed frequently to Bloomberg Wealth Manager, CBS MarketWatch, WORTH Interactive, Raleigh News and Observer, and Chapel Hill News - and has been published in the New York Times, Boston Globe, LA Times Syndicate, and the Journal of Financial Planning. Reach him at MyFinancialAdvice.com.