Financial planning and retirement tips for mums
Dr Pushpa Wood urges mums to start saving for retirement – for the sake of their own wellbeing as well as the next generation of savers.
A recent study by Australian consultancy group Rice Warner (commissioned by not-for-profit organisation Women in Super) revealed that retirement savings for men aged between 30 and 60 are 42 percent higher than women of the same age. The gender gap was biggest for women in their late 30s and mid-40s. We have always known that this gap in finances exists, but to see it in writing is sobering!
As women we play multiple roles throughout our lives and each of these roles presents us with various challenges. In this article I will be focussing on our role as mothers and looking at what we can do to build our ‘nest egg’, while at the same time fulfilling all our other responsibilities. The article reflects my personal experiences, my observations over the years and knowledge acquired during teaching, research and writing articles on the topic of financial capability. It incorporates some of my previous writings.
Being a parent, especially being a mother, presents us with a long list of things to do each day. This to-do list includes day-to-day decisions regarding what we should be teaching our children about life, their role in this world, their responsibility as a global citizen and, of course, mundane (yet important) things like how to manage their money. Financial capability – feeling confident about money management – is a valuable asset to pass on to our kids. Over the years, I have acquired a friendly title of ‘Aunty Pushpa with money tips’ and I wear this title with great pride!
My first message to all mothers is that we need to make looking after ourselves a priority – physically, emotionally, spiritually and financially. Put your own oxygen mask on first, so to speak. I know it is easier said than done but we need to start somewhere, right? In some ways we are our own worst enemies. I say this with all sincerity because having been through this phase myself (though a long time ago), I know that our inherent nurturing and caring nature encourages us to take care of others first.
Research from around the world shows a considerable financial gap when it comes to preparedness for retirement and actual savings/wealth accumulated by women at the time of their retirement, especially in OECD countries. I’ve been involved in many discussions around the factors that contribute to this gap, and I will share some of the ideas here.
WHAT CONTRIBUTES TO THIS SAVING GAP?
A few key factors play an important role in perpetuating the gap:
🤍 In some cultures women trust their husbands to provide for their financial security in retirement.
🤍 In some cultures women generally sacrifice their own financial future for that of their family, focussing on collective wealth creation instead of individual financial security.
🤍 Women, overall, have fewer working years and therefore less time to save compared to their male partners. This is because in their traditional roles, women are expected to have career breaks in certain stages of their lives.
🤍 Pay gap between genders is well recognised and an accepted fact in almost all societies, thus further limiting a woman’s earning and saving potential. This is further heightened by the ‘glass ceiling’ culture still present in workplaces. In other words, women historically earn less than men throughout their earning life span.
🤍 In most cases women also become caregivers for their sick and/or aging family members. This work is mostly unpaid and in the long run further reduces their net worth at the time of their retirement.
🤍 Women are also often less involved with decision making for long-term financial goals — like saving for retirement. “Many woman run the household budget but take a backseat when it comes to the larger financial decisions,” comments Stephany van der Werf, a wealth management advisor at Fisher Funds and also a new mum. Stephany encourages women not to be afraid to get involved with larger financial decisions, such as retirement savings and mortgage planning.
🤍 In general, women live longer than their male partners, which further complicates matters financially.
The reality is that despite the recognition of this disparity and some changes in policy, the situation for women won’t improve overnight. Therefore, we need to take some actions now to make things better for ourselves, while governments and societies work out a way to reduce this saving gap!
Having regular conversations about money in your home needs to be encouraged. Talking about money is no different to talking about how to keep healthy, how to keep safe or how to make important decisions.
If your child thinks money is something that ‘Mum and Dad get from a machine,’ then their worldview about money is distorted. This essentially means that they don’t understand how hard their parents work to generate an income for the family and meet their expenses. You need to burst that bubble, and fast!
The biggest challenge parents face when talking to their children about finances is the increasingly ‘invisible’ nature of money. By that I mean that money has lost its physical presence in our lives, having been replaced by plastic cards (like credit and debit cards), and by layby and buy-now-pay-later types of opportunities. Thus the current generation of children is growing up without the physical experience of handling money or dealing with the process of ‘money coming in and money going out’ in practical terms.
A simple but effective way we can counter this invisibility of money is by moving money from an abstract concept back to something tangible. In my experience, children are more intelligent than we often give them credit for. I encourage you to get strategic and think of pocket money and cash in your wallet as invaluable learning opportunities.
FUNDS FOR THE FUTURE
As parents, we need to remember that children really appreciate honesty, consistency and facts. So if, as a family, there are some financial challenges coming our way, depending on their age, let’s bring our children on board and discuss the real issues. Seek their views/suggestions/solutions for the challenges ahead. You will be pleasantly surprised at their creative, and at times pragmatic, solutions. Remember, if they own the solution, they will implement it.
Let’s take a practical example to further this line of forward thinking – if you don’t have enough money to buy something your child has asked for, be honest and put the facts in front of them. Explain the difference between the things the family need and the things they want. Compromise plays a worthy role here. Explain to your children that the family budget allows for some things, but not all things. “Ask children to choose between A and B and guide them on how to make choices,” suggests Stephany van der Werf.
As a parent, it is our responsibility to prepare our children for the future and if we are not equipped to do this, then it is also our responsibility to seek expert help and guidance, as and when we need it. Stephany van der Werf offers a great suggestion: “Soak up information from your KiwiSaver provider, insurance provider and bank to find out how they can help with your children’s financial goals. Quite often providers have solutions that we have not thought of ourselves.”
It is important to understand that what your child needs to know at the age of four or five is very different to what they need to know at the age of 10, 15 or older. Research by the Westpac Massey Fin-Ed Centre shows that most young people get their financial information from their parents, so it is important that parents provide a good foundation for future financial well-being from an early age.
If you teach one financially themed lesson to your child at an early age, make it the priceless lesson of delayed gratification. Delayed gratification is a powerful way of teaching children about the benefits of waiting for things. Children need to know that not every demand they make is going to be fulfilled instantly. Every family has a limit to its available resources – even the very rich need to have plans in place to manage their money. The good money habits you practise and teach your children now will create a very valuable legacy for their future. In the meantime, good luck with your ever-growing nest egg.
AUNTY PUSHPA'S TIPS TO GROW A NEST EGG FOR YOUR FUTURE
Set yourself a saving goal but be realistic – it doesn’t have to be a huge ‘out of reach’ amount. Start small, get into a regular saving habit and gradually increase the amount as your financial situation allows. Small and regular saving is one of the most effective ways to increase your nest egg. Some of you might be running your household on one income and, therefore, considering every dollar that you have. Here are some practical tips for meeting your saving goals:
🤍 Make sure you have a budget. Budgeting doesn’t have to be a complicated exercise and there are several free tools available to help you with this. In addition to the banks’ calculators, you can also use the Sorted.org.nz website to access free budgeting tools.
🤍 Once you have a budget, make sure you revise it regularly and keep track of your spending.
🤍 One of the tips I have used most of my working life is that I give myself pocket money at the beginning of each week. Before putting my pocket money in my wallet each week, I empty out any leftover money from the previous week and put it in my savings account. Then I start fresh with the full weekly amount.
🤍 Which leads to my next tip – I still carry cash and try to deal in cash with my day-to-day spending. Every time I get a five dollar note I put that aside in my ‘saving wallet’. You would be surprised how much it all adds up to at the end of the year.
🤍 Value your time and pay yourself – whether you are in employment or on parental leave, remember you are still working extra hours to meet this additional responsibility of motherhood and it needs to be rewarded! So, when preparing your budget, do include an allowance for yourself (the size of this allowance will depend on your income stream) and then spend it wisely with a savings goal in mind.
🤍 Have the best retirement plan in place. If you are not already in KiwiSaver, make it your goal to enrol in a scheme at your next pay day. Even if you are not in employment at the moment, you can try and save $20 a week to put in your KiwiSaver and at the end of the financial year, the government will contribute 50c
🤍 Learn about financial products and services. Try and keep yourself up to date with the saving products and services on offer. This information will help you make saving and investment decisions. There are a lot of free tools available to guide you when it comes to saving and investing. If this all seems too much, take one step at a time! Set saving targets, plan and look for appropriate products.
🤍 Check your entitlements – depending on your work status, have a chat with the IRD and Work and Income about Working for Families tax credits, Best Start payments or any other allowances you may be entitled to. Remember, it doesn’t cost to ask questions!
🤍 Prepare your children for the future early. In addition to safeguarding your own future, you also have a responsibility (along with your partner) to help your children develop good money management habits. I am a great believer in teaching good habits to your children as soon as you are able to.
🤍 Have open, constructive and frank discussions with your partner – money can be a sensitive topic for some couples, especially when both partners have different views and beliefs about money. It always pays to work together on things like setting a budget, keeping track of spending, having collective and individual saving goals and the importance of you, as a mother, having financial security regardless of your employment status. Remember, you are doing one of the most important jobs in this world – you are bringing up the next generation and you need to be rewarded for that!
Dr Pushpa Wood is Director of the Financial Education and Research Centre at Massey University and has one daughter. Fondly known as ‘Aunty Pushpa with money tips’, she is passionate about financial capability for the next generation.
AS FEATURED IN ISSUE 49 OF OHbaby! MAGAZINE. CHECK OUT OTHER ARTICLES IN THIS ISSUE BELOW