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The Biggest Financial Challenges Women Face in the Covid Crisis

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Managing anxiety and making sense of what can seem like an endless scroll of bleak statistics have become part of daily life in America during the Covid-19 crisis, and personal finance is included in that new paradigm. New data on the financial literacy of women paints a troubling portrait of the gender gap when it comes to money matters, and at a time of widespread financial insecurity.

Existing national studies show that women are more likely than men to say they have difficulty making ends meet, dealing with unexpected expenses and saving for retirement. They also are more likely to express a lack of confidence in their ability to achieve financial goals. Now the latest numbers on financial literacy highlight the difficulties women face in acquiring the knowledge to overcome these hurdles.

Women are able to answer less than half (49%) of financial literacy questions correctly, compared to 56% of questions among men, according to a gender-based analysis of an annual study from the TIAA Institute and The George Washington University Global Financial Literacy Excellence Center, to be released later this week. Only 12% of women demonstrate a high level of financial knowledge, compared to 27% of men.

Confidence is a big issue. Women answered one-quarter of all questions with an "I don't know" response.

Gender, age and ethnic gaps

Age, ethnicity, job status, education and income all are important factors within the gender gap. Among African American and Hispanic women, 38% of questions were answered correctly, versus 54% of questions among White women. Overall, financial literacy tends to be lowest among Gen Z women (37% of questions answered correctly), by a significant margin, and lower among unemployed women, those with lower levels of education, and those in the lowest income brackets.

This year's gender gap data, based on responses from 1,000 women nationwide, was collected in January, before the pandemic, but the findings take on new resonance given the ways in which women have been negatively impacted by the crisis. Women are leaving the workforce in greater numbers than men due to family care challenges, and facing greater child-care costs related to remote work and school. Federal Reserve chair Jerome Powell has cited women and children as a particular point of national concern as it monitors the U.S. economy. 

If the numbers are to be put to the best use, it's as an opportunity to help women take more control of their financial situation rather than retreat from the challenge. "We don't want to paint a bleak picture, put women in a place where they feel stuck. It is more about what can we do to make a change," said Annamaria Lusardi, professor of economics and accountancy at George Washington University and the founder and academic director of GFLEC.

It is important to highlight the data, but focus on the solutions.

"We need to tell women to be fearless, because we do see this lack of confidence," Lusardi said.

Without increased financial knowledge, women can only learn in the worst way possible, she said.

"To learn by making mistakes is an expensive way of learning. ... Women with higher financial literacy are better able to shield against financial shocks, and lack of knowledge makes people more fragile."

Women lag men in understanding across all areas of finance, with the gap most pronounced in the areas of investing and saving. Where women score highest is in the areas of borrowing and consuming. This is not a surprise, Lusardi said, as women are more likely to make day-to-day money decisions in a household and less likely to make bigger decisions in the areas like investing. But women also score lowest on their understanding of risk and risk management, which translates into a lower likelihood of having emergency savings.

Lusardi said women spend so much time taking care of others, it is easy for them to forget about themselves, but the ripple effect of this thinking is often a lack of precautionary savings, and without that security in the short-term, it comes harder to plan for long-term financial health.

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"Women will be really left behind in this pandemic, and even more so if they leave the labor market or have to work less because they have to care for children and relatives, or aging parents or people who are sick," she said, adding that the fact her study's data was collected when the economy was booming pre-pandemic magnifies the challenges that many women are facing now. "They are already financially fragile and this crisis has made them even more fragile. It's striking how fragile they were in a booming economy. Women need to better protect themselves and their finances."  

Steps to improve financial literacy

Lusardi said the education needs to begin early and, in some cases, it will be children who are provided with a personal finance education curriculum in school who bring home learning to parents never provided with that opportunity. The number of states offering financial education in primary schools is growing, but greater emphasis is still needed.

"Education in school is a great place to start and can have a feedback effect," she said. "Children can then bring knowledge back to parents, to their mothers, which we know works."

Financial advisors who work with women clients noted several other key actions women should take to gain greater control over their financial lives.

1. Women need to help each other

One key, according to female financial advisors, is for women to communicate more openly and formally with each other on the topic of finance, especially when they were deprived a financial education earlier in life.

"I am seeing clients with low confidence not having had conversations in their household growing up and now feeling like they don't have anyone to turn to," said Lauryn Williams, founder of financial firm Worth Winning and a member of the CNBC Advisor Council, who has been coordinating conversational circles with women.

"They don't feel as educated and a collaborative effort is a way to turn it around, getting women in circles to discuss money," Williams said. "Just talk, let's just talk money stuff, period. Because there's no space to be able to do that, ask crazy questions and things on your mind and talk about it all in a circle, in a friends' group. ... At the beginning of solutions, it's just getting comfortable talking about money."

Without that conversation, confidence will continue to be low and feelings of shame and embarrassment high. Williams has learned from watching the process unfold that, "they want a room full of other people talking about woes, what they did and didn't know. It was a collaborative feeling in the room of 'let's get this conversation going, we are all in uncomfortable place. I am not the only one who doesn't have it all together and now I can go figure it out."

2. Don't let investment jargon scare you away

Stacy Francis, president and CEO of wealth management firm Francis Financial, and also a member of the CNBC Advisor Council, said the first step to become more comfortable with investing is to ignore the "huge myth propelled by the industry that it's rocket science to build a diversified portfolio and only the smartest people can do it."

"It's just not the case," said Francis, who also has been hosting money circles with clients.

"Anyone can learn about adding a mix of stocks and bonds," she said. "It's not about choosing a hot stock or the best investment. It is a lot more boring than people believe. You choose an ideal asset allocation, and stick with it."

She said women should be encouraged by the fact that long-term data shows women to be better than men at doing this. Staying with a long-term plan and not making changes when the market is way up, or down, are the most important behaviors for long-term returns. "Women have all the behavioral traits to be great investors," she said. "They just don't feel like they are qualified. You don't have to know all the answers. It is OK to not know everything about the stock market and everything about S&P 500 and Russell 2000."

3. Save, even just a little

Williams said she encourages people, even those facing financial hardship, to save "just a little" because creating the habit of saving is more important than the total amount saved.

She said it can be difficult during a pandemic for women who lost work, and at the same time, have greater expenses related to child-care, to save anything. "The last thing on their mind is investing when they have to buy computers for their children for remote school and have no emergency fund and might be taking on debt to do that. Making ends meet is enough for a lot of people," she said. 

But it is critical to find a way to save in any situation.

"Mindset is a key part of it," Williams said.

If women don't save, even a little, because they think they don't have enough to save, they will be stuck operating from a mindset of scarcity rather than abundance, and are less likely to ever take the actions that will result in greater financial security. "I've had people say putting as little as $5 in a savings account is not significant, but it is creating the habit and confidence so when things change, when you income improves, you can continue to bump up the amount," she said. 

The good news from the Covid crisis

Francis said the current environment is an opportunity for everyone to learn about what they can live without and that might lead to more opportunities to save on the margins. She has been eating out and ordering out less as a result of the crisis and it is daily lifestyle changes like this that can lead to greater budgeting opportunities to put away money. She has been increasing her own emergency fund and the emergency fund of her planning business, as well. After going through the crisis, "I want to make sure, god forbid whatever happens, we are in a better position going forward." 

Asking an individual who has lost their job and has higher child-care expenses to put away more money can feel like pouring salt on a wound, but Francis said in the event it is impossible to put any money away for the future, women need to at least carry the pain, and learning, from this experience with them.

"When things do turn around, you can make that commitment, as many dollars as you can put aside for three to six months of expenses," she said. "The biggest challenge is we forget about the painful times and that's natural. The thing I tell women is not to forget the pain you are feeling because you don't have an emergency fund, carry that with you so it motivates you to put the emergency fund together."

There is good news in the sense that more women who need help are now being proactive, according to Francis. In addition to her planning firm Francis Financial, which caters to women with a high net worth, she is involved with the Savvy Ladies nonprofit which helps women with financial challenges become more financially secure.

During the earlier heights of the pandemic in the spring and early summer, very few women were reaching out. "It was almost as if they were more in survival mode ... it's been more recently we started to see women reach back out to the help line," Francis said.

The Covid crisis has brought the message to many women that "it's not just them ... it's not your fault. It's been difficult for many many women and that is giving them courage to reach out," she said. That can be related to many events: job loss, child-care stress, sickness or death of a spouse, a spouse losing a job, or a divorce.

"All of a sudden they are being forced to deal with finances, and finding themselves in the driver's seat of finances, and they need more of an operational manual," Francis said.

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