To set them up for success, it’s vital you pass on your lifetime of hard-earned financial experience to your daughters. Here’s how.
It’s never too early (or too late) to start to talk to your daughters about finances. And it matters – more than ever.
Why? Because, despite the improvements to gender equality across the board, a daughter is still likely to earn less than a son. While the gender pay gap in Australia’s workforce has hovered between 13.4 per cent and 19 per cent for the past two decades, according to the Workplace Gender Equality Agency, it’s been well documented that women continue to earn less than men1. They are also less likely to advance their career as far and, partly as a result, more likely to spend their final years in poverty2.
This income discrepancy shows up in women’s superannuation balances. According to the Association of Superannuation Funds of Australia (ASFA), there’s a 42 per cent difference: men aged 55 to 64 had an average super balance of $270,710 in 2017-18, compared to women’s average balance of $157,0503.
Even more worryingly, one in three women across all age groups have no super at all2. That leaves them particularly vulnerable in the case of divorce, which remains a reality for many4.
Start the conversation…
The disparity in super starts early. Women aged 25 to 34 have accumulated $33,750 in super, compared to $43,580 for men. That’s already a difference of 22 per cent3. While the challenge of lower pay is a reality, there are strategies women can put in place to ensure they’re not left too far behind in future wealth terms. Indeed, it’s all the more reason to talk finances to your daughter as early as possible.
As MLC Senior Finance Adviser Debbie Fing says, education is the key to preparing young women to take control of their finances and build wealth for their future. “While financial literacy can be taught at any age, educating our girls from a young age is a sure-fire way to future success.”
Talking openly about money is the first step to setting young women on the path to financial success. “Starting early will help create an open dialogue between you and you daughter,” Fing says, “which will hopefully last well into adulthood.”
…then start out simply
But what advice should you impart early on? It might seem too early to talk to your 10-year-old daughter about squirreling money away for her retirement. Yet it’s never too soon to talk about being careful with money and ensuring you save some along the way. The fact is, old adages like ‘living within your means’ and ‘saving for a rainy day’ remain relevant.
If your daughter is earning money – whether through pocket money, part-time work or full-time work – encourage her to save some. For the very young, that might include Scott Pape’s three jars approach – a jam jar for saving, one for spending and one for giving5.
Talk to her about setting goals, and even set a savings target together, whether that’s a toy, device, first car or home, depending on her age. Regardless of age, be frank. Demonstrate the benefits of saving – and the pitfalls of spending all your income. Don’t be tempted to pay for everything, even if you can afford it.
The incredible power of compound interest
It’s also a good idea to talk compound interest to your daughter – to show her the power of investing your money in a saving account and watching it grow over time, simply because it’s receiving interest on top of interest.
Take a look at the MLC Small change big savings calculator together. It shows how much money an 18-year-old can accumulate if she just gives up one takeaway coffee a day and saves that money. Better yet, if she also foregoes one takeaway lunch and one glass of wine a week, she could be looking at close to $100,000 extra by the time she retires.
Set her up for financial independence
While women are already behind in their savings in their twenties, it’s concerning that this differential doubles by the time they retire. The problem is, circumstances see many women take time out of the workforce and/or work part-time.
Your daughter needs to know that these challenges can be overcome through strategic planning and smart money choices. In fact, it’s imperative our daughters understand the need to maintain their financial independence, whether they step out of the workforce or not.
Communication is key here. Talk to your daughter about your own experiences leaving and/or re-entering the workforce to demonstrate the benefits of planning for the future. Again, she needs to know that the earlier she starts to secure her wealth, the greater choices she’ll have later.
Share your successes
While saving is a sure-fire way to grow your money, there are other ways for your daughter to invest that might be a great wealth creator.
If you’ve made successful investments, share those with your daughter. If you haven’t, talk about that too.
You could even set your daughter up with her own investment portfolio, whether that’s through an investment fund or something known as insurance bonds.
While any of these will be in your name while she’s under 18, it’s still a good idea for her to help choose the assets you’ll be investing in. Use it as an opportunity to explain the pros and cons of each – assuming you understand them yourself. If you don’t, now’s your chance to educate yourself.
But remember, investing does have risks as well as benefits, so it’s important that you and your daughter proceed with a comprehensive understanding of what’s involved. Some investments might not suit the level of risk your daughter should be taking on. For a breakdown of asset classes, see our article Your smart money plan to build and pass on wealth or our free comprehensive workbook on women building wealth.
Planning for the future
It might seem like a long way off, but it’s important to talk openly and honestly about retirement with your daughter.
Explain to her what it involves and how it’s vital to have the means of supporting herself comfortably through those later years. With a lifetime of savings under her belt, retirement shouldn’t mean giving up the quality of life she’s accustomed to.
Start talking about super early, in terms she can understand – and remind her that investing the cost of one weekly coffee can have a significant impact on her future.
See how a financial adviser can help you, call us on Phone (03) 51 433 450.
1 https://www.wgea.gov.au/
2 https://www.uow.edu.au/the-stand/2019/what-it-means-to-be-an-older-single-woman-today.php
3 https://www.superannuation.asn.au/
4 https://aifs.gov.au/facts-and-figures/divorce-rates-australia
5 https://www.abc.net.au/news/2018-09-28/barefoot-investor-scott-pape-on-pocket-money-for-kids/10306234
Source: MLC
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