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My 10-year-old son -- the one whose help I require to turn on our DVD player -- is asking me about interest rates. "So," he says, "if I had $100, I would need a 10 percent interest rate to have $110 by the end of a year, right?"
"Right," I say. And then, "Wait, wait. I'm not sure." The word "compound" drifts into my head like an untethered balloon. But am I thinking of compound interest or compounded quarterly ?"Let's look it up on Wikipedia," I say briskly, and we do. Only when the page unspools into a dozen algebraic formulas do I say, guiltily, "Um, maybe we should ask your dad."
What is it about money? Despite the fact that I'm resourceful, superthrifty, and even reasonably good at math, there is nothing that makes me quite as anxious as talking about financial stuff. My paycheck's bigger than my husband's, but if there's any left over, I throw up my hands and let him figure out what to do with it.
As it turns out, only 40 percent of female primary wage earners take the lead with their families' long-range financial planning. I already knew I wasn't alone: Many of the smartest women I know turn all Stepford-wifey the minute the topic turns to finance. As my friend Kathleen puts it, "Once a week I say to my husband, 'Can you please not get hit by a truck? I don't even know the account passwords!'" (And this is a woman who owns her own wildly successful consulting business.) And forget the bigger picture. As soon as somebody utters the words "Roth IRA" or "money market" or "S&P 500," a great blankness descends over me. It's all wah wah wah, like the mysterious droning of the grown-ups in a Charlie Brown cartoon. It's that same feeling I get when somebody tries to talk to me about baseball. Baseball I can safely ignore. But money? That's a pretty costly form of denial.
And money is a loaded topic -- whether you're loaded or not. As Olivia Mellan, an expert in money psychology and coauthor of Overcoming Overspending, puts it, money represents "love, power, happiness, security, control, dependency, independence, freedom, and more." This might explain why everyone acts so weird about it: getting it, having it, spending it, learning about it. Plus, for better or worse, women tend to have a different relationship to money than men do. "Men are raised to believe they'll be good at money," Mellan explains, "even though in fact they may not know the first thing about it."
Money may symbolize freedom to men, but for us it's much more about security. Often we'd rather know that there's simply enough -- the financial equivalent of bubble wrap protecting us from the hard knocks of destitution -- than gamble our security for a shot at wealth. Maybe testosterone is to blame, but men often seem willing to ride risky financial waves without bothering to check the tide charts. As we know all too well from the country's current financial state, that kind of overconfidence doesn't always produce stellar returns.
But much as I hate to say it, neither does our characteristic lack of confidence. Women's aversion to money matters may be jeopardizing the very financial stability we seek. A lot of women are passive around money, says demographer Maddy Dychtwald, author of Influence: How Women's Soaring Economic Power Will Transform Our World for the Better. "We either defer financial decisions to another person or we just ignore them," she explains. We tell ourselves that we don't have time or that we're too busy taking care of the kids to focus on finance. But eventually, Dychtwald warns, that passivity will catch up to us.
In other words, doing nothing can be as dangerous in the long run as doing something risky. A stable financial future takes work, but it's totally doable, even if you're currently a little finance-phobic, Dychtwald promises. "Financial knowledge really is the key to financial stability," she says. "And as your confidence increases, so does your ability to get good returns."
Once you combine a little bit of knowledge with a natural inclination toward caution, thrift, and generosity, and then factor in skills you already possess (basic math, excellent budgeting, prudence, foresight and, yes, even being able to use a calculator), you've got a terrific recipe for financial health. The only missing ingredient for most of us? Confidence. To increase yours, take these five (baby) steps.
STEP 1: Give yourself a break. You've got some good reasons for being a little freaked out by finances. "Women have been getting the message for eons that they're no good at this money stuff," Mellan says. "They're told that if they're lucky, a man will take care of it." Our dads were in charge, and now we secretly hope that our husbands will be. "Women don't have a long history with big-picture finances -- investing, say -- even though they manage a lot of the day-to-day money in their families," Dychtwald says. That's true for me and, I discovered, for most women I talked to: "I'm all about small-time stuff like sitting down to pay the bills, making sure I record every single check," my friend Judy said, "but long-term planning and investing just seem too overwhelming. I'm ruled by caution."
But this isn't just about us being too tentative or believing, in the words of the infamous 1992 talking Barbie, that "math class is tough!" Historically, men have earned and controlled more money than women have. The lack of job flexibility and affordable child and health care have also been felt most acutely by women, who do the bulk of unpaid housework and child care, even if they work outside the home. So yes, anxiety over money and a lack of financial knowledge are your problems -- but it's not your fault. And you can fix it.
STEP 2: Face your fear.
It's like shining a light into the closet of a scared child: Whatever she sees in there is going to be less frightening than the scaly thing with all the heads that terrorizes her imagination. For me, the fear about money is two-pronged. On one hand, I'm afraid that I just can't understand any of it. I bought Personal Finance for Dummies but felt so overwhelmed by how much I didn't know that the book simply sat on my bedside table, taunting me with its bright yellow cover, which screamed dummies. "There's so much jargon involved that women get put off and don't want to know," Dychtwald explains. "Women would rather do nothing at all than make a mistake." Yet learning the financial ropes, says Mellan, "takes something like third- or fourth-grade math and occasionally a calculator." Hey, I can do that!
On the other hand, I'm afraid that if I take a hard look at my finances I'll discover an unmitigated disaster. But no matter how bad it is (and it's rarely as bad as you think) there are concrete steps you can take to change your situation. Take it from Nancy Trejos, a Washington Post financial journalist and author of Hot (Broke) Messes. Despite the fact that her job was financial reporting and counseling, Trejos amassed enormous credit-card debt. Her book details the six months she spent educating herself and mopping up her financial messes. "I was in complete denial," she says, "and the first thing I had to do was understand my own situation." You can fix it; you just have to know what it is first.
STEP 3: Get educated.
"A lot of times women think they are supposed to know through some kind of osmosis what they should do with their money," says Gail MarksJarvis, financial columnist for the Chicago Tribune and author of Saving for Retirement Without Living Like a Pauper or Winning the Lottery. "I find that really laughable. The reason we know how to cross the street without getting hit by a car is because at some point when we were young, someone told us that a green light means go and a red light means stop."
Most of us never got that kind of financial coaching. As my friend Emily puts it, "I realized at a certain point that I had never learned a lot of fundamentals: what a money market account is, when it makes sense to have savings bonds, those kinds of things." Indeed, they teach geometry in high school (for all those occasions when you need to figure out the area under a bridge) but not basic financial management. So you have to study it on your own.
Whatever information you're seeking (financial terminology, getting out of debt, retirement accounts), go slowly and set reasonable goals. Translation: It's boring, so take it one step at a time. Mellan recommends spending an hour a week improving your financial IQ: Read a simple book, ask questions of a trusted friend, find a financial adviser (a recommendation of almost every money expert I talked to), or research a topic online. "Do something to make yourself feel more empowered," she says. And ditch the perfectionism. "Women don't think they're good at something unless they know everything," says Mellan. "They're afraid to make mistakes." That attitude can be crippling. "Rather than being afraid of making a mistake with, say, a 401(k), realize that avoidance is a mistake in itself," says MarksJarvis.
Dychtwald recommends signing up for a money-management class with your mother, daughter, sister, or friend. Chances are she could use the financial education, too, and it makes for a terrific bonding opportunity. Or seek advice from coworkers, since they're likely to be in the same financial boat. Remember, talking about money is not crass, and believing that your finances will sort themselves out while you're sleeping is magical thinking: It makes for great novels but poor financial planning. Information is your friend. You know the stereotype -- that men will drive in circles while women will actually stop and ask directions? Exactly.
STEP 4: Take charge.
Even if you're lucky enough to have a Prince Charming at home who figures out everything and gallops up on his stallion to hand you wads of cash, you should cultivate and use your financial knowledge. For one thing, sharing fiscal responsibility is part of being a healthy couple. "When two partners are equally invested in family and career, it really changes the game," says Dychtwald. Besides, the hard truth is that we will probably need to do this stuff on our own at some point. At the risk of pointing out the obvious, nearly half of first marriages end in divorce, and women have longer life expectancies than men do. "When we asked women over the age of 50 if they had one piece of advice to give to younger women," Dychtwald reports, "it was to learn to be financially independent."
STEP 5: Recognize what you're doing right. Just because a financial adviser wouldn't recommend your methods doesn't mean they're wrong. Does your system actually work for you? Then stick with it. For me, that means organizing my giant shopping bag of freelance receipts only at tax time because I can't bear for it to be a part of my daily life. For my friend Emily it means consciously donating a bit more than she can afford to charitable organizations because that investment in the world makes her feel rich with hope. For you it might mean enjoying a daily latte, even though experts are fond of saying that if you invested that money you could become a millionaire. Maybe you could, but you'd be a cranky caffeine-deprived millionaire with a wicked decades-long craving. Smart financial decisions may appear quirky to others, but you don't have to change who you are in order to be more financially adept.
Your current skills and perspective may actually enhance your money-management abilities. So hunker down, study up, and move forward. Financial confidence doesn't mean you'll be scouting stock tips, investing billions, and debating Roth IRAs at dinner parties. It just means you'll be you -- getting information you need to have the relationship with money you want.
In attempting to reach that goal I've consulted friends about their financial advisers, asked coworkers about saving for college and returned to my Dummies book to read one chapter a week. To my surprise, it's not as complicated as I thought. In fact, now I can explain to Ben that, yes indeed, he'd need a 10 percent interest rate to have $110 at the end of a year. I don't show off by explaining that, at the end of two years, compound interest would mean that he'd have $121. But I could.
We asked our favorite finance bloggers how to get started. Several suggested Suze Orman's Women & Money and Jane Bryant Quinn's Smart and Simple Financial Strategies for Busy People. Here, more ideas.
Millionaire Women Next Door, by Thomas J. Stanley, PhD. "The approach here is more about psychology -- getting yourself to the point where you want to have a financial plan!"
- Cathy, chieffamilyofficer.com
Why Women Earn Less: How to Make What You're Really Worth, by Mikelann R. Valterra. "Includes realistic action plans regarding retirement savings and investment planning."
- Sharon Harvey Rosenberg, frugalduchess.com
PocketMoney (iPhone) - "I think tracking your spending habits is one of the best things you can do to take control of your financial life."
- Madame X, myopenwallet.net
Garage Sale Rover (Android) - "It links with Craigslist, tells me the quickest route to save gas, and it's free!"
- Dawn Cadwell, frugalforlife.com
Mint.com - "An excellent free budgeting tool that's also packed with personal-finance and money-management content."
- Silicon Valley Blogger, thedigeratilife.com
Thesimpledollar.com - "It's helped me learn a lot of the basics, like how to calculate interest."
- Kelly Rigotti, almostfrugal.com
Originally published in Ladies' Home Journal, November 2010.