The Language of Finance: And Why Most Women Don't Speak It

Step into the average American household and ask who handles the family finances and there's a better than 50/50 chance it's the woman who will say "I do." Yet despite statistics showing women now control the majority of wealth in America, women are rare in the halls of high finance and less likely than men to express confidence in their ability to understand the stock market and other financial vehicles.

"In 2010, for the first time in the nation's history, women controlled the majority of American wealth -- 60 percent," says Carolina Fernandez, a VP of investments at Source Capital in Westport and author of the upcoming book, What Color is Your Handbag?, which she hopes will help women, in her words, "decode the language of Wall Street."

"Women most likely hold the purse strings, but they don't understand Wall Street," Fernandez says. "It's not women's fault. Wall Street is dominated by males, who have done a horrible job of communicating to women ¦ they'll use analogies that women aren't likely to get: `Use a rifle or a shotgun approach,' football metaphors -- most women have never played football." This may explain women's relative lack of interest in finance, compared to men: "three out of five men, and one out of five women, will read the business section (of a newspaper)," she adds.

Elizabeth Cox, a certified financial planner with Westport's Cox Financial Services, suspects that traditional male/female gender roles also share some of the blame. "In a traditional relationship, women are not the primary earners, and an earner is more empowered financially. As a consequence, women feel it's not their issue ¦ women are left out of the financial system unless they jump in."

And maybe, just maybe, women's relative absence from the financial realm has to do with certain qualities innate in our gender. "One main difference along gender lines is risk," Fernandez says. "Women are more risk-averse than men. Not sure why; something in our DNA? The fact that we have children? Hands down, studies show over and over than women are more risk-averse."

Women might also be more likely to put caring for their children ahead of investing in their own financial future. Cox shares the story of a 55-year-old client who still had no savings despite being only a decade away from ostensible retirement. "But she doesn't see it as a crisis. She says, `Look what I've done! I've put my kids through college.'"

Paying for your child's college education is a worthwhile financial goal but cannot be your only one. Stephen Nitz, an executive with Infinex Investments in Ridgefield, says people should "have a financial plan that will outline what their financial goals and objectives actually are. When do they want to retire? What kind of lifestyle do they want in retirement? Are they planning for their child's education? How much do they need to save?"

Any reputable financial planner will tell you: saving is non-negotiable. "If I can give only one message, it's this: save before you spend," Cox says. "Every month I pay myself, depositing into a savings account. It requires discipline, continually saving. If you can afford cable, you can afford to save."

But saving, though important, is not enough. "A common mistake people have is that they haven't really taken a strategic look at how their current investments and assets are allocated," Nitz says. "They just have an accumulation of different investments. A 401K, maybe two or three 401Ks from when they left old jobs and didn't take their 401Ks with them."

Fernandez agrees with this assessment. "I always make sure my clients can answer this question: do you know what you own, and why you own it? It's your money, not your financial adviser's. Know why you own stock A instead of stock B ¦ my goal is to educate my clients enough so that they don't need me."

Short of going back to college for a degree in finance, how can women get this education? Fernandez recommends beginners start by reading Bloomberg's financial news. "Start getting familiar with the language (of finance). Ninety percent of it will be over your head at first -- that's OK." When you look for a financial adviser, "make sure you know the fee structure -- how are these people paid?"

Cox elaborates. "There are three (fee structures). The first is fee-only -- that's what I am -- paid for the time people actually spend in my office. The second is commission-based, which is like a real estate broker -- if you don't sell a house, you don't get paid. The third is fee-based, which is like a hybrid of the two; the client pays a percentage of assets, but (the broker) also charges commission."

None of those three choices are bad, she says, but advisers who depend on commissions "are really salespeople paid to sell you a product, not give you advice. They're not bad people, but the incentive system can work against the client."

Savings and investments are not the only requirements for a healthy financial balance sheet. Nitz points out that "It's also important to have the right types of insurance. Life insurance, disability insurance, long-term care insurance; there are risks that need to be covered."

Financial health is almost as important as physical health. The average woman, compared to the average man, is more likely to take proper care of her body, watch what she eats and visit a doctor when things go wrong; the next step is to be as conscientious about our wallets as we are about our waistlines. HL

Top 6 Tips Every Woman Should Know About Finance

1. Learn the language: Finance is like any foreign language; immersion is the best way to learn it. Read Bloomberg News, the business section of your own paper and other financial publications. You may not understand them at first, but understanding will come in time.

2. Save first, spend later: Make regular deposits into savings, the same way you pay any other bill. Put money in savings before you spend money on fun.

3. Consolidate: If you have a random patchwork of investments, say multiple 401Ks from past jobs, bring them together.

4. Intelligent insuring: The importance of health and life insurance is well known, but don't forget disability, long-term care and other forms of insurance. Better to have it and not need it than need it and not have it.

5. Understand investments: Why do you own stock A instead of stock B? Why this mutual fund rather than that one? Make sure you know the answer and make sure the answer is not "because my financial counselor recommended it."

6. Understand incentives: Does your financial adviser recommend a stock or other financial vehicle because it's a good investment for you, or because she stands to gain a good commission from it? Incentives matter.