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Personal Finance

What holds women back from saving — and what they can do about it

According to New York Life's Wealth Watch survey, women saved an average of just $3,146 in 2022.

Dougal Waters | Getty Images

You won't reach any of your financial goals without saving money. Savings play a crucial part in everything from owning a home to retiring in comfort, which is why the New York Life's 2023 Wealth Watch survey is so disturbing. It found that in 2022, women on average saved just $3,146 annually compared to the $7,007 saved by men.

While the data may be new, the fact that women earn (and therefore save) less than men won't surprise many. But the report is a good reminder of how the odds are stacked against women when it comes to maintaining a healthy amount of savings, and provides an opportunity to explore the individual actions you can take to make the best of an unfair world. 

Why women save less than men

One of the biggest reasons women save less than men is that they earn less money to save. According to 2021 data from the U.S. Census Bureau, women earned an average of 84% of what men earned (when analyzing the median wages of full-time jobs). The reasons for the discrepancy in pay and savings between men and women are systemic and complex, but CNBC Select spoke with Kathryn Anne Edwards, an economist and freelance public policy consultant, and Kaitlin Walsh-Epstein, the chief marketing officer of student refinancing company Laurel Road, about some specific hurdles facing women trying to save. 

Women pay a bigger price for becoming a parent

On average, women take a big hit to their income after having children — this is known as the "motherhood penalty." A study conducted by Census Bureau researchers found that the gap between opposite-sex couples' earnings doubles after their first child is born, with women earning on average $25,100 less than men.

Additionally, many employers still don't offer paid parental leave, yet newborn children require around-the-clock care. According to the World Economic Forum, only 35% of organizations in the United States offered paid maternity leave in 2022 (a staggering decrease from the 53% of organizations offering this benefit in 2020). "There are all kinds of decisions a family has to make in terms of budget and logistical needs of caring for children," Edwards says. "Women who have children tend to be pushed out of the labor market because of their childbearing needs."

Cutting back on their employment to raise families means women aren't contributing to 401(k) accounts or savings of their own. What's more, 32% of women who leave the workforce to care for young children end up never re-entering the workforce at all, according to a study conducted by the U.S. Chamber of Commerce.

This means that the amount of time these women spend actively contributing to employer-sponsored retirement accounts such as 401(k)'s or 403(b)'s is significantly shortened. And because you need to earn an income in order to contribute to individual retirement accounts (IRA's), it means only a women's partner is able to make contributions to their own accounts, unless they open a spousal IRA.

Women have to fund a longer retirement with less money

Data from the Population Reference Bureau found that women outlive men in both developed and under-developed countries. In developed societies like the United States, women are expected to live for 79 years while men are expected to live around 72 years. 

This seven-year difference means women need to save a little more money than men to fund the last chapter of their golden years. Even for someone who spends a modest $40,000 a year in retirement, this amounts to an additional $280,000 to cover those final seven years. 

Unfortunately, women on average have saved about 30% less money by the time they retire compared to men, research from the TIAA Institute found. One way to mitigate the risk of outliving your retirement savings is to contribute more to your retirement accounts when you're younger. However, this is where the wage gap undercuts women's efforts yet again. 

"If you're being paid 84% on the dollar, your 6% contribution to your 401(k) doesn't go as far as your male counterpart's 6% contribution," says Walsh-Epstein "The pay gap is systemic but it also continues to escalate when you think about women saving for retirement." 

This means women must either contribute a higher portion of their paychecks toward their 401(k) accounts to make their retirement dollars go further or find a way to cut back on their expected expenses during retirement.

Women have more student debt than men

A report by the Education Data Initiative found that women who hold bachelor's degrees borrow 4.27% more in loans than their male counterparts (the contrast is starker among associate's degree holders, with women borrowing 24.9% more than men). Larger student loan balances typically mean having a higher minimum monthly payment over the same standard 10-year repayment horizon.

As a whole, it's also more likely women take on student debt in the first place. Findings from the American Association of University Women show 41% of undergraduate women take on debt compared to just 35% of undergraduate men.

"Women are more likely to go to college so they're more likely to enter the labor market with debt," says Edwards. "They should have higher earnings as a result — that's the expectation, but the labor market is not so neat and women's ability to earn money has lots of constraints that we don't see happen to men to the same degree."

How to take back some financial security

Both Edwards and Walsh-Epstein recognize that many factors surrounding women's lower earnings and savings rates are systemic. There may be only so much that individuals can do to improve their economic mobility, but employers have a tremendous influence on the workplace systems that make it easier (or more difficult) for women to reach their financial goals. When navigating the workplace, women can help themselves most by keeping in mind the following.

Be discerning about your compensation package before you start a new job

One important step women can take to increase their savings long-term is to make sure employers are offering them a compensation package that aligns with their needs.

"It's important to work for an employer who recognizes your contributions — and that shows up in your paycheck," Walsh-Epstein says. "Sometimes that comes easier when negotiating upfront. Don't settle for that first number, and remember to consider the whole picture. Look at any additional benefits or the work-life balance."   

In addition to negotiating your salary, make sure you ask about your team's bonus structure. And if you plan on having children in the near future, make sure you know what the company offers in terms of paid parental leave, childcare benefits and reimbursements, and any other programs aimed at parents.

Increase 401(k) contributions when it makes sense

Contributing more to your 401(k) is one simple way to save more money. If you plan to have kids one day, make use of the opportunity to max out your employer's match and contribute as much extra money as possible to your 401(k) sooner rather than later. The earlier you start doing this, the more you'll be able to benefit from the power of compound interest.

There may be some instances where you want to put that extra money toward other big goals, like purchasing a home. In this case, you'll want to weigh the trade-offs so you can make a decision that best suits your needs.

"Compounding interest is an effective way to build your savings and investments, but you also need to understand what your goals are," says Walsh-Epstein. "So if you're saving for a home purchase in the near future, you may not want to increase your 401(k) contributions. It may be better to put those extra dollars toward your home purchase."

It's also important to have an emergency fund that can cover unexpected expenses, especially after you have children as your cost of living expenses will be higher. Having even one month's worth of expenses saved makes it less likely you'll have to raid your 401(k) to pay for an abrupt financial crisis.

Work together with your spouse to save more

If you're unable to, or choose not to, return to the workforce after having children, you might consider talking to your partner about setting up a spousal IRA so you can still build retirement savings. Typically, you need to be earning an income to contribute to IRA's, which is an obvious roadblock for those who leave the workforce to be full-time caregivers.

With a spousal IRA you'll be able to open up an IRA account and have your partner make contributions for you. This allows you to save more money for retirement as a couple since your family would otherwise only be able to save $6,500 per year with just one IRA account; with two IRA accounts in the family, this means you'll save up to $13,000 per year.

Exhaust other options before accepting student loans for college

If you're considering higher education, it's a good idea to look at free funding options before taking on student loans. Federal grants are typically only available to undergraduate students, but you can still seek scholarships and grants directly from your university.

There are hundreds of scholarships geared towards women, which you can find through sites like Scholarships.com or bold.org. These scholarships were created specifically to help women pay for their education, and therefor lessen (or avoid completely) taking on student debt.

If you're working full-time, you may also consider whether or not your employer offers tuition assistance as a benefit. Tuition assistance usually helps you offset the cost of college by providing reimbursement for a portion of your tuition. This helps make attending college more affordable and it could reduce how much you need to borrow with student loans.

Bottom line

Although women face a multitude of disadvantages when it comes to earning and saving money, it's more important than ever to champion their own economic mobility. This means being discerning about the compensation package offered by employers before accepting a new job — make sure you negotiate your salary, pay attention to the bonus structure you're being offered, and make sure other benefits (like parental leave) align with your needs.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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