The Personal Finance Gap

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By Kleinwort Hambros Bank

Recently, there has been greater focus on the ‘gender pay gap,’ accompanied by the (if somewhat gradual) realisation that this is not fair, productive for business or acceptable.

However, within the world of wealth management, there still remains a ‘personal finance gap’ between some couples.  If one party’s career has generated a larger share of a couple’s combined wealth, this person sometimes takes greater responsibility for making financial decisions, thus taking greater ownership of collective finances.

The extent of any personal finance gap varies across generations and jurisdictions. Historic exclusion from the financial sector has an enormous impact, taking the UK as an example – after all it was not until the 1975 Sex Discrimination Act that discrimination against women seeking to obtain goods, facilities or services, including loans or credit, was finally made unlawful.

Marital status has also had an enormous impact on women’s personal finances. Until April 1977 in the UK, married women could choose to pay a reduced rate of National Insurance contributions, known as the ‘married women’s stamp’ (see: gov.uk/reduced-national-insurance-married-women). What may initially seem like an advantage in fact did quite the opposite, affecting married women’s entitlement to state benefits based on National Insurance contributions. Notably, these reduced-rate National Insurance contributions did not count towards qualification for the state pension.

Furthermore, the full independent taxation of married women was only introduced in the UK in 1990. Prior to this, the underlying principle was that a married woman’s income was simply part of her husband’s income. It may seem inconceivable to a modern reader, but the Income Tax Act 1918 actually categorised married women as incapacitated persons, alongside “infants, lunatics, idiots or the insane.” This categorisation was not removed until 1950.

Any wealth management guidance should reflect position and priorities.

Other factors which affect the personal finance gap include belonging to a generation for whom women’s career opportunities could be limited or less well-paid. Equal pay has only been an aspect of UK sex discrimination law since 1970. Statutory maternity leave for all women was not introduced until the Employment Relations Act of 1999.

Thankfully, over recent decades there have been marked improvements in the contractual working conditions and opportunities for women – but does personal financial awareness reflect this change or address any lingering imbalances? Is it possible that female wealth planning needs are being compartmentalised into the boxes created for their male counterparts?

A wealth planner’s role is to understand each client’s very personal circumstances and discuss what is most important for them to achieve their goals. The female workforce population continues to grow in sectors that were traditionally male dominated. With more women pursuing higher education and potentially increasing their future earnings power, younger generations of women are more likely to accumulate their own assets, including property.

However, it is difficult to simply segment their needs. Having accumulated assets, this younger generation of women may ask to have them protected in case of divorce. Managing pregnancy and any changes or hiatus in career path that this could generate is also key. It is still more common for women to take on caring duties for relatives – including children, elderly parents or both! For such women the practical burden that they (not necessarily unwillingly) bear is likely to impact their future financial status. Any wealth management guidance should reflect their position and priorities. For example in the UK, holding all of your financial assets in a pension could be restrictive if access to funds is necessary before attaining age 55, or age 57 from 2028. Finally, statistically women outlive men, an important consideration for retirement planning.

When giving wealth management advice to women of all ages, it is important that both similarities and differences between genders are championed.

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