Credit: In a recent gathering of business owners, the participants avoided taking a stance on whether a woman’s way of running a business is better or worse than a man’s approach. But there was one subject on which the women didn’t mind admitting they felt a bit behind their male counterparts: Money.
You may be familiar with the studies that say women actually do better than men (especially single men) at investing, which is among the most complicated money decisions anyone faces. But when you dig deeper, it all ties together. The research, led by University of California, Davis professors Terrance Odean and Brad Barber, found that the reason women did better was that they traded less. And they trade less because they are less confident (or, more precisely, less overconfident) about their investing skills.
But a lack of confidence that is prudent in one aspect of her money life can create problems in others, if it leads to her being passive or paralyzed. So here are five tips to help you provide great advice for women business owners.
1.Help women focus on their personal financial goals, and co-create their roadmap. Women business owners may spend more time on business plans than on a specific blueprint for personal finances. Whether it is getting to zero debt by 2016, or building a $1 million house by 2025, setting written goals is the first step in getting there. Only when she knows the number she is aiming for can you help her calculate the savings required. Odds are she has more goals than she can afford all at once, so help her set priorities based on how much time she has to reach the goal and how important it is to her.
2.Encourage her to save like a man. Or better than a man. Statistics from the UC Davis research show that women save only half of what men save toward retirement. However, since she is likely to live longer than the average man, she will actually need to save more -- approximately 20% more. A good rule-of-thumb saving target is 12% of a woman’s income vs. 10% for men.
3.Focus on Smart Debt Planning. The women (and men) who have paid off all their liabilities by the time they call it quits are often the ones who can retire early and enjoy it the most. Show her how to calculate how much extra she needs to apply monthly to pay off the debt by a specific date, such as target retirement age or the year kids go to college. And have you encouraged her to refinance her mortgage in the past few years? Help her take advantage of today’s historically low rates.
4. Create space for conversations about money values. After many years of helping people manage their finances, I’ve come to accept one unhappy truth: Everyone has hang-ups about money. She may not have a clear idea of how her husband or partner feels about money, and the ignorance is likely mutual. Provide guidance and a forum for couples and families to talk about money decisions and money mistakes they have made. Don’t let money drive them into the two most expensive of family financial disasters: divorce and financially dependent children.
5.Persuade her to save for two rainy days. In good economic times, we advise clients to keep three to six months’ worth of expenses in safe and secure holdings such as CDs or money market funds. Given today’s economic uncertainty and a typical owner’s balance sheet with substantial equity in the business, a more appropriate cushion is double that — six to twelve months.
When all the bad economic news in the media may seem overwhelming, help her to take a deep breath and focus on what she can control. The planning we do for clients provides predictability, clarity and ultimately confidence. Women generally appreciate this more, and women business owners will benefit hugely if you can help them close the confidence gap.
Heather Locus, is a wealth manager and an owner at Balasa Dinverno FoltzC, an independent private wealth management firm based in Chicago and Itasca, Ill. The firm manages approximately $3 billion in assets for business owners, women, individuals and families, and institutions.
This article was originally published at OnWallStreet.com.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
