(Originally featured on the Washington Post)
“I need to feed my pig!” my daughter said as she ran with the coins to her beloved purple piggy bank many years ago.
Firmly fixed in family lore, we invoke the line every time we talk about money. Want to go on a family vacation? “Feed the pig.” Want a new bike? “Feed the pig.”
Now that both of our children are teenagers and closer to living on their own, feeding their “pigs” has become a lot more complicated — and not so cute. Especially for my daughter. The statistics show that, in her lifetime, she will end up having less money than my son, and feel more uncomfortable dealing with it.
Women live longer than men but, on average, make less money in similar occupations, according to the Bureau of Labor Statistics. Add the potential of leaving the workforce to raise children, maybe a costly divorce and higher health-care expenses than men, and you get a cocktail of factors that lead to a hangover of lower lifetime income, less personal savings and lower Social Security benefits than men.
Does this mean my daughter needs a pig twice the size of her brother’s?
Adding to this, a study conducted by Financial Finesse in 2015 concluded that a high percentage of women are uncomfortable with crucial areas of financial planning, such as money management and investment planning. “The areas where women are furthest behind are arguably the most important,” says Liz Davidson, the company’s chief executive and founder.
At first, I thought this money-discomfort in the survey was because the pool included mixed generations. Older women, after all, often had their husbands manage the finances for them. Imagine my shock when I discovered that, according to a Women & Money Magazine survey, only 10 percent of women ages 25 to 34 had a detailed financial, plan compared with one-third when it included all women.
Do I need to tell my daughter about these depressing dominoes stacked against her? Do I tell her she needs to save double what her brother does? That she should spend only half of what she wants to spend? Do I have to treat my children differently and instill fear in my daughter about her financial future, which statistics imply will be doomed? Maybe there is another way. Perhaps teaching financial literacy at a young age could help mitigate the problem.
A long time ago, we decided not to give our kids an allowance. This idea originated with a conversation my husband and I had during a rare and precious date night.
“You know, I find it interesting that we have the same work ethic and respect for saving money, yet we grew up in very different households.” I had said.
I grew up in the Midwest, the eldest child of two very young parents who were working multiple jobs to finish college and support the household. Bringing in take-out food for dinner was an extravagance. My husband was the youngest child and was raised in Hong Kong. Let’s just say his experience was different.
The common denominator, we discovered, was that neither of us received an allowance. If either of us wanted to go out with friends or buy something, we had to cut someone’s grass, wash cars or babysit. That motivated both of us to start working odd jobs and saving money when we were young.
We gave it a try and so far, this strategy has worked well. It’s perhaps been even more effective because we also insisted that our children save 20 percent of all earnings. At the time, we weren’t thinking about statistics. We just wanted to give our kids some life skills.
At first, they wanted to make purchases, but a funny thing started to happen. They often changed their minds at the last minute, when faced with parting with the cash. An addictive quality — a Midas effect perhaps — started to take over as they accumulated wealth.
We opened savings and investment accounts as my children’s “pigs” became full. But over time my daughter started to fit a worrying stereotype that is another danger area for women. Research suggests that females are more risk-averse in investing, leading to additional lower returns over their lifetime.
My daughter was having a hard time understanding the difference between investing and gambling. My son had the opposite problem and wanted to throw everything into Tesla.
Sallie Krawcheck, co-founder and chief executive of Ellevest, says that perhaps women aren’t more risk-averse than men, but instead more risk-aware. “They want to understand risk and what it means: not in the ‘standard deviation of returns’ way, but in the ‘if the market wobbles, can I still reach my goals’ way. That’s what holds so many of us back from full investing.”
So we made the case that abstract middle school algebra can be shockingly relevant to real life.
The power of three is so much greater than the power of two, yet you are led to think that the difference is just one. It’s not. If your 10-year-old invests $100 today, earns 5 percent a year and doesn’t touch it, it will be $1,464 when she’s 65. If instead you start with the same $100 but only add $5 every year without investing at 5 percent, it will only be $375. The numbers, of course, become drastically different if you spend any of the savings along the way.
My daughter got it. She created reachable goals and found some low-risk investments she could live with. She usually checks in on how her “portfolio” is doing and adds a few dollars monthly. She even said a few weeks ago, “I want that shirt, but I don’t need it.”
And so I cross my fingers, hoping that I might never need to have a talk with my daughter regarding the rocky financial road that awaits her, according to statistics. We won’t know for years how this will turn out. But if she gains control over her financial freedom and is empowered to set goals, she will — I hope — make smarter decisions regarding her growing pig.
