Financial security harder to achieve for Black, Latina women, report finds

Advisers might want to consider the unique economic hurdles faced by women, two recent reports suggest.

It is well-documented that women are compensated at lower rates than men in similar roles and that they face the challenge of saving for longer retirements given their higher average life expectancies. But new research shows that Black and Latina women face greater financial challenges than white women, and that Covid-19 has hurt retirement prospects for women in general.

Reaching financial security can be more difficult for Black and Latina women in part because of lower overall wealth and a higher frequency of debt, a paper published last week by the TIAA Institute found. Contributing to those discrepancies are differences in education, employment, financial literacy and family structure.

Because of those factors, “a ‘one-size-fits-all’ approach is unlikely to address financial well-being differences across the board, in view of the very different patterns we have uncovered by race and ethnicity,” the authors wrote.

“Financial education programs and research must direct more attention to the specific needs of Black and Hispanic women in terms of their financial well-being,” they said. “For example, a financial education curriculum can inform participants about the costs associated with alternative financial services or credit cards, but it will succeed better if it acknowledges the particular constraints facing Black and Hispanic women, such as access.”

Financial education should cover “precautionary savings,” as opposed to retirement savings alone, as some households plan on support from their adult children later in life, the researchers noted.

“Having financially dependent children is negatively correlated with financial well-being for white women but not for Black or Hispanic women,” the report stated. “This could be due to differences in family support structures and differing expectations about financial obligations within the family.”

The researchers also found differences in how education contributed to financial well-being. White women, for example, were slightly more likely to have a less positive view of higher education because of the negative effect that student loans have on financial security. Meanwhile, Black and Latina women had more favorable perceptions of education’s effect on financial security, due to the career opportunities it presents, according to the report.

The authors evaluated data from the Financial Industry Regulatory Authority Inc.’s National Financial Capability Study, which included information from 27,000 U.S. adults in 2018. The authors of the report were Robert Clark, professor of economics at North Carolina State University; Hallie Davis, senior research associate at the Global Financial Literacy Excellence Center; Annamaria Lusardi, professor of economics and accountancy at George Washington University; and Olivia Mitchell, International Foundation of Employee Benefit Plans professor at the University of Pennsylvania.

COVID EFFECT

A separate report from The Nationwide Retirement Institute found that 72% of women feel that the pandemic has negatively affected their retirement savings. Thirty-six percent of women said that protecting their assets is an increasing concern, up from 26% who said so in 2019, according to the report, which was based on a Harris Poll survey over the summer of about 1,800 advisers and 800 investors.

Women were more likely than men to cite fixed annuities and fixed indexed annuities as safe spots for their money, at 39% versus 34% and 26% versus 15%, respectively. Men were slightly more likely to cite diversification as a hedge against market risk (59% versus 52%), as well as liquid alternatives (27% versus 16%), market-linked certificates of deposit (22% versus 10%), registered index-linked annuities (16% versus 3%) and smart-beta ETFs (12% versus 6%), the survey found.

Last year, women were more likely than they were in 2019 to say they were concerned about a recession in the next 12 months (82%, up from 60%) and about an ongoing bear market (74%, up from 57%), according to the Nationwide report.