Here's why women's money decisions will shape the future for the U.S.
- U.S. women control more than $10 trillion, or about a third, of total U.S. household financial assets, and that could jump to $30 trillion by the end of the decade.
- Female investors are particularly interested in Environmental, Social and Corporate Governance investments.
- As wealth begins to move into the hands of women, financial services firms and businesses overall will need to commit and adapt to find ways to better meet the needs of female clients and consumers.
The rising economic power of women in this country is one of the most significant financial shifts of recent decades. The bottom line: Women are generating and managing an increasing amount of wealth in the U.S.
Today, women control more than $10 trillion (about 33%) of total U.S. household financial assets. Meanwhile, an unprecedented amount of assets will shift into the hands of U.S. women over the next three to five years, representing $30 trillion by the end of the decade. Why? Because as men pass away, they will leave control of these assets to their female spouses, who tend to be both younger and to live longer.
This is a wealth transfer of such magnitude that it approaches the annual gross domestic product of the U.S.
"This is a huge transfer of wealth in and of itself but, because women traditionally outlive men, women stand to inherit most of it," said certified financial planner Marguerita Cheng, CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland. "As more and more women have a say in significant financial decisions, it's easy to see they're not adhering to business as usual."
Why is this a big deal and why should you care?
If you are a brand-name consumer products company, a financial services company, or are in the business of selling real estate, for example, women will be making the majority of these decisions in the years ahead. So attracting and retaining female customers will be a critical growth imperative for your business. To succeed, business of all types will need to truly understand women's needs, preferences and behaviors when it comes to spending and managing their money.
Women continue to make more financial decisions on behalf of the household and more women are also turning to the investing decisions. In fact, women are leading the field when it comes to Environmental, Social and Corporate Governance investing, according to a recent article in Fortune magazine.
In general, a higher percentage of women are interested in ESG investing than men, says CFP Cathy Curtis, CEO of Curtis Financial Planning in Oakland, California. A Calvert/Investment News study showed that usage of ESG funds are up 25% year over year and the trend of ESG investing is more pronounced in women, with 53% doing so currently.
"The Covid-19 pandemic has spotlighted our financial and health-care systems' inequities as more disadvantaged and poor people are losing their jobs and lives," Curtis said. "As a result, where the environment was the main focus of ESG investors, social and governance have become critical and are driving the inflows into ESG products.
"As women inherit more wealth from their parents and spouses and sometimes make the investment decisions for the first time in their lives, I predict more money will flow into ESG and Impact investments," she added.
So, with women making financial choices that have a long-term impact on society, the environment and overall business performance, small businesses and major corporations will need to step up and find ways to support social issues such as climate change, racial and gender inequality, and social justice.
Businesses that prepare for the transition of wealth to women could see four-times faster revenue growth, according to a McKinsey & Co. report.
"It will require businesses to understand a woman's needs, preferences and behaviors when it comes to managing their finances, which I'm not sure they're ready for," Cheng said.
In general, women are not only providing to the household income, they are also responsible for managing the money and making a majority of the financial decisions.
To that point, nearly 9 in 10 women who are married or live with a partner said they are involved in spending and investing decisions in their household, up from just 42% in 2012, according to a recent report from Hearts & Wallets, a consumer research firm.
Studies have confirmed that women approach wealth management differently than men. They tend to be less risk-tolerant and more focused on life goals.
The times are changing. As wealth begins to move into the hands of women, financial services firms and businesses overall will need to commit and adapt to find ways to better meet the needs of female clients and consumers.