🎙 Investing is often thought of as something reserved for rich, older white men. But that's just not true. Investing is super important for everyone - especially for women. But why? 🤔
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Hello friends, and welcome back to the Girl on FIRE podcast.
On this weeks’ episode, we’re going to be talking about investing and why it’s so important, especially for women and even if you aren’t chasing FIRE.
What is investing?
So, really briefly, what is investing? It’s basically growing your money.
It’s important to understand the difference between earning money and growing money.
When you go to work and get a paycheck, you’re earning money. You’re getting paid for work that you’ve done.
Investing is when you allocate your money with the expectation that you’ll receive some kind of income or profit in the future.
Why is investing so important?
Investing is super important for everyone — regardless of what you do for a living, how much money you have now and what your family looks like.
Unless you want to be working and earning an income to pay the bills literally until the day you die, then you need to be investing.
Now, we’re going to cover the details of different types of investment in future episodes of this podcast.
We’ll cover stock market investing, retirement accounts, bonds, real estate and things like that.
But for now, before we go into how to invest, I really want you to understand why it’s so important, especially for women.
The first reason why you need to invest is because I’m pretty sure you don’t want to be working literally until the day you die.
Investing allows you to provide a future income stream for yourself so that, one day, you can retire.
When you’re setting money aside for retirement, you’re expecting that money to grow so that you have something to live on when you stop working.
Because, let’s be honest, without that retirement income, you will be working until the day you die.
Yes, governments may issue you some form of pension but in most cases, that isn’t going to be anywhere near enough.
Let’s take a look at it through two different scenarios
Scenario 1: Working until death
On one hand, we have Annie. She doesn’t have any money invested for retirement like superannuation or a 401(k).
But even in old age, Annie still has bills to pay — for housing, food, utilities, medicine.
She gets an old-age pension from the government but it’s barely enough.
And since she has no money put away for retirement. She needs to keep working to pay for all these expenses.
She’s going to have to continue working until she dies because she needs to keep earning money to pay the bills.
That sounds like a pretty sad way to spend your life, right?
Scenario 2: Living off retirement income
On the other hand, we have Judy. She’s been investing money in her retirement accounts all throughout her working years.
When she turns 65, she’s ready to retire. And all that money she’s been putting aside for retirement has been growing.
So, when Judy retires, she has a nice sum of money to live on for the rest of her life. She doesn’t have to work and earn money anymore.
So, that’s the first reason why investing is so important.
Unless you want to be working until you die, you need to be planning ahead so that you have some income to cover your expenses in retirement.
And I’m not just taking about FIRE and early retirement here. I’m talking about traditional retirement at 60 or 65.
But the biggest reason why investing is so important is because of inflation.
Inflation is the rise in prices over time. It means that something that cost you $100 in 1990, might cost you $150 in 2021. And that same thing would cost you $200 in 2030.
Money loses its’ value and its’ purchasing power over time. It means that your money is going to worth less as the years go by.
And you’re going to need more and more money to buy the same things.
So, when it comes to retirement, inflation is a real killer. It eats away at your money.
You can’t just save money in the bank for retirement. Because that money is going to lose its’ value over time.
You need your money to be growing at a rate that’s faster than inflation to preserve its’ value.
If you have $1,000 of cash sitting in the bank today, then with an inflation rate of 2%, your money will only be worth about $500 in 35 years.
It’s like having an apple in the fridge instead of planting it in the garden.
If you keep the apple in your fridge, it doesn’t have a chance to grow. Then later, when you’re ready to eat it, half of it has begun to rot.
And no matter how hard you worked for that apple, you only get a small piece of it.
But if you had planted the apple in the garden, you would have grown a little apple tree that gives you more apples as time goes on.
And that’s what investing does for your money. It grows it so that it outpaces inflation.
Why is investing so important for women?
Now that we have a general idea of why investing is so important, I want to take a second to talk about why it’s so important for women in particular.
The general idea with investing for retirement is that you go to work for 40 years and earn an income. You invest some of that income into retirement.
That money grows over time and when you turn 65, you can retire and use your retirement nest egg until you die.
The idea of retirement funds like this came in because government couldn’t support people on old-age pensions forever.
People needed to plan ahead for their own retirements. And it’s a system that can really heavily disadvantage women.
The risk that a woman will end up in poverty in retirement is huge. Its’ sad and honestly, it’s disgusting that in 2021 this is still what we have to deal with.
In preparing for this podcast I read a report created by Australian Super. It’s called ‘The Future Face of Poverty is Female’.
I’ll leave it linked in the show notes and I highly recommend you check it out.
It’s a collection of stories of women living in poverty in retirement. And it’s heartbreaking, it really is. This is a huge problem that really needs to be addressed.
Because our journey through the workforce, into retirement and ultimately to the end of our lives looks very different than it does for men for 3 key reasons.
Reason #1: The gender pay gap
While women are earning more now than we have at any other time in history, the fact remains that we’re still being paid less than men.
This is the gender pay gap. It means that women are being paid less than men when we work.
But getting paid less also means that less money is being put into our retirement throughout our working lives.
And that’s a huge disadvantage. Because we still pay the same price for everything that we buy. We don’t pay less because we earn less.
So having less invested into retirement means that our retirement nest eggs will be smaller.
Reason #2: Breaks from the workforce
Another major factor that hinders the growth of our retirement funds is maternity leave and child-raising.
Women are still more likely to take time out of the workforce to raise kids than men are.
We’re also more likely to take time out to look after elderly patents or other family members.
On average, women in Australia take 5 years out of the workforce to raise children.
And when you’re in your 20s and 30s, that break has a huge impact on your retirement funds.
And as if that wasn’t enough, this time out of the workforce slows down your career progression and future earning potential. It’s known as the ‘double penalty effect’.
Now, there are some provisions in the superannuation scheme that can help combat this but they usually depend on having to use your spouse’s income.
That’s something we’ll get into in another episode.
The bottom line is that Australia’s retirement system doesn’t recognise the unpaid carers’ role that women take on and it leaves us vulnerable in retirement.
The current system favours higher income earners who work full time and uninterrupted until retirement.
But women are more likely to work part time and take breaks for their caring responsibilities.
Reason #3: Longevity risk
Longevity risk is the risk of running out of money before you die. And it’s a risk that’s super prevalent for women, more so than men.
Why? Because we generally have a longer life expectancy. On average, we live 5 years longer than men do.
We can still retire at 65 but it means we need more money in retirement because we’re going to live longer.
So tell me then, how are we supposed to do that if we get paid less and need to take breaks to bring new life into the world?
The Superannuation Gender Gap
Now, in Australia, this is a well known fact. The ABS actually gives statistics on the average balance people should have in their super at different ages.
And it’s always lower for women than it is for men. Women currently retire with about 42% less in super than men.
It’s a known and, in my opinion, accepted fact that women will retire with less money than men — even though we’re going to live longer.
Yes, there are movements to close this gap but change is slow and hard and we don’t have time to wait for it.
This is why investing is so much more important for women. We’re going to need more in retirement so that we don’t run out of money.
The statistics show that 40% of single women live in poverty during retirement and 44% of women need to rely on their partners’ income as the main source of their retirement funds.
I don’t want to be one of those women and I’m guessing you don’t either.
This is a systemic feminist issue that we’re not going to solve in this podcast.
And as much as it breaks my heart to say it, I don’t think I’m going to see this issue solved in my lifetime.
And I sure as hell am not going to wait around for it.
So, that’s why it’s important to invest and grow your money. We need enough.
And the government won’t help. They’ve actually rejected a number of senate recommendations to improve the equality of the system — it’s going to be up to us.
Next weeks’ episode
And that’s all I have for you guys today!
On next weeks’ episode we’re going to be talking about the 7 key things you need to look for when you’re choosing a brokerage.
It’s going to be super interesting so you’re definitely not going to want to miss it.