It’s pretty hard to avoid the financial headlines, especially these days. Between social media, the 24-hour news cycle, and the screens that seem to be everywhere, most of us are bombarded constantly with the latest dire predictions about the economy or the most recent assurances that the top is about to blow off the financial markets.
With the constant barrage of financial and other information, it can be difficult to sort out the important from the trivial, especially where our particular financial circumstances are concerned. But it has never been more important for individual investors (or would-be investors) to not only hear, but understand what the daily shifts in the financial and economic landscape mean for their savings, their investments, their retirement plans, and all the other aspects of life that are affected by things like interest rates, the stock market, inflation, employment trends, and the other topics the media shower us with each day.
What we’re talking about is financial literacy: the ability to understand and make sense of not only events and trends, but also how our personal finances and goals are affected by the decisions we make—and the ones we fail to make. And, while the term “financial literacy” is often used to describe day-to-day money management like budgeting and paying off debt, there is so much more to know about money if you want to build a strong financial foundation for your life and your future. The problem is, of course, that, like most important things in life, financial literacy isn’t one-size-fits-all; its priorities differ for each individual.
This matters especially to those who, because of their career or lifestyle circumstances, may be in portions of the population that are often overlooked. Independent women, professionals working in STEM fields, small business owners, and LGBTQ+ persons often fall into this category. In this article, I’ll suggest some areas of personal finance that may be especially important for those in such underserved groups to consider.
Independent Women
Though women have made tremendous strides in the past few decades, a number of special challenges to their financial wellbeing remain. For one thing, professional women are still compensated at roughly 83% of the rate of their male counterparts who are doing the same work. Add to that the fact that the average woman spends 8.6 years in the workforce for every ten years logged by her male counterparts (due chiefly to child-rearing and other caregiving responsibilities, both of which fall disproportionately on women), and it becomes easier to understand the gaps in not only career earnings but also retirement account funding that most women face.
Partly because of these hurdles, women also typically have a harder time with navigating career transitions, especially when that also requires them to juggle caregiving responsibilities with maintaining on-the-job performance expectations. Finally, because women statistically live longer than men, they must often plan for a longer retirement and the healthcare concerns of extended longevity, but with less financial resources to employ.
Financial literacy for these women, then, should include a focus on understanding retirement funding, including Social Security and Medicare choices. They need to understand, for example, how to integrate Medicare claiming decisions with medical benefits that may be available to them as retirees to optimize both coverage and cost. They should also seek to manage taxes in retirement to minimize Medicare premium increases. Concerning Social Security, they may benefit from careful analysis of the income implications of delaying their claim beyond full retirement age to increase benefits and the negative implications of drawing down retirement savings in the early years while they wait for Social Security to begin. It may also be important for them to look at the need for more growth-oriented investments; while women are sometimes perceived as more conservative financially, they frequently respond well when other options are explained in terms of how a more aggressive strategy can help them achieve their goals. This means that it may be advisable for these women to focus on financial tactics that will give them more time for the things and people who matter most in their lives.
STEM Professionals
With our society’s current focus on technological and scientific advances, one might think that STEM professionals would be lacking for little in the way of financial security. But the fact is that many researchers, scientists, academics, and even entrepreneurs involved in scientific and technical fields have some special needs with respect to financial planning that often go unaddressed.
The fact is that compensation in STEM can often be complex. Especially for those involved with private-sector startups and other growing companies, equity compensation (stock options or restricted stock units, for example) often makes up a large proportion of the overall pay package. Equity compensation typically calls for a number of special considerations to avoid the vulnerabilities that come with concentrated risk, capital gains tax liability, and other potential pitfalls. Understanding these risks and how to mitigate them is an essential aspect of financial literacy for these individuals.
Many STEM professionals like to manage their investments themselves, which can be a great way to really know what is going on with your money, and without a doubt can provide for a successful retirement. They may also benefit from balancing Roth (after-tax) retirement accounts with pre-tax contributions to traditional retirement plans and adding some taxable retirement savings to help to balance the taxation profile of the overall portfolio and allow for dynamic, tax-efficient management in retirement. A balanced tax strategy can also help reduce lifetime taxation and help to better manage required minimum distributions (RMDs) when they begin. They should also make themselves familiar with employee benefits like life and disability insurance or the potential benefits of funding a health savings account (HSA).
LGBTQ+ Persons
In many ways, the LGBTQ+ population shares some of the same challenges as other populations: keeping up with all the tax changes, knowing how to optimize their retirement savings, and other financial decision-making skills. But other, more complex challenges must also be reckoned with that extend the need for financial literacy into the sphere of special legal matters that have direct financial implications.
For example, because family formation among the LGBTQ+ population does not typically follow traditional norms, estate planning (especially construction of wills, healthcare proxies, and durable powers of attorney) should be proactive and specifically determined for the individual and family situation. Beneficiary designations may be a related concern (for life and disability insurance, annuities, and retirement accounts). Unique healthcare challenges may also exist, which require decisions about funding options (such as a health savings account) and caregiving (where a long-term care insurance policy might be applicable). Understanding and attending to these legal and funding matters can help to ensure that hard-earned financial benefits are directed as the individual intends.
Also, though certain cohorts of the LGBTQ+ population statistically earn more than the average American worker, others lag behind. Those who face such earning shortfalls may need to pay extra attention to retirement funding options.
Small Business Owners
The 2022 SECURE 2.0 Act provided a leg up for many smaller business (those with 100 employees or less) by making 401(k)s more accessible and affordable. This has created an opportunity for more small business owners to establish retirement plans that can benefit not only them, but also their employees. As owners approach retirement, an employer-sponsored retirement plan can also help them diversify their retirement funding sources by saving into an employer-sponsored retirement plan, rather than continuing to reinvest all profits back into the business.
Small business owners also often face unique questions with respect to efficient cash flow, succession planning, and eventually selling the business. Here especially, most solutions will require them to think carefully about the business, its customers, its employees, and other stakeholders. Especially when passing along a family enterprise, care must be taken to preserve both the viability of the business and the security of the owner’s eventual retirement. Navigating these two challenges can be especially critical for small business owners among the 40% of those (in some surveys) who expect to fund their retirements through the sale of the business. For these, key financial literacy questions involve getting an accurate valuation of the enterprise and working through the legal and taxation issues.
Values Dictate Advice
No matter which of the above groups (if any) you find yourself in, one keystone principle applies: Your financial literacy rests on an understanding of your core values and priorities. When it comes to sound financial planning, “financial literacy” often translates as “people literacy.” Only by thinking about what matters most to you can you begin to form the individualized action plan that can help you arrive at your desired goals.
Can STEM professionals benefit from Roth retirement account conversions?
Disclosure: Investment advisory services offered through Equita Financial Network, Inc. an investment adviser with the Securities and Exchange Commission. Registration does not imply a certain level of skill or training. Equita Financial Network also markets investment advisory services under the name Equila Financial. The foregoing content reflects the opinions of Equila and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as tax, legal or investment advice or a recommendation regarding the purchase or sale of any security. Speak with a qualified professional prior to implementation. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.
