Financial success and the 20-something woman

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Last week, there was a little article in Forbes entitled "6 Things That Keep 20-Something Women From Financial Success," by Amanda Abella. I can't remember where I found it--probably someone mentioned it on Twitter--but I read it with great interest, as I've been thinking a lot lately about "financial success" and how the decisions I made, both consciously and less consciously, in my 20s are playing out now.

I thought the article had some pretty large problems, though there were grains of truth in most of the specific pieces of advice. As I started to unpack it in my mind (and in conversation with friends), I thought it might make good blog fodder. As a woman in my (still early!) 30s, in a committed relationship, with a baby on the way, who is in a pretty good (relative to the majority of women my age) financial position, where do I think the article is spot-on? Where does it fail? How closely does it match up with the decisions I made?

Debt

The article's first admonishment is that women screw themselves financially by getting into debt. This one is a no-brainer--getting into a lot of debt early in your adult life will plague you for years. However, the cursory treatment given to the topic doesn't cover it in any meaningful way. The author writes, "we need to start prioritizing our money and cutting our spending habits." Sure. That would help with the consumer debt problem. But to my mind, the bigger issue for a woman in her 20s is college loans. Can you get a college education without taking on significant debt to do so? Some people can, but for an ever-increasing number of us, it's just not in the cards. So is that debt worth it? How do we make that debt work for us? Should we be forgoing college because of the specter of that debt?

I consider myself lucky to have gotten out of undergrad with about $30K in student loans, at a low interest rate, and not to have increased that debt in grad school. Both were conscious choices, though I can't really call them informed. I decided, at 17 and with very little idea of how repayment would really work, that taking on a certain amount of debt was a worthwhile risk to get the elite private education I wanted. It was a lot less than it could have been, given that tuition was already about $27K/year at that point. I got a lot of financial aid. And, even though I've been making payments on those loans for ten years now, I don't regret it in the least. I think, for me, it was the right decision--even if "all" it got me was an unmarketable liberal arts degree (a claim I don't believe, by the way, but that's another topic for another day). However, I think I also made the right choice by refusing to take on further debt to go to graduate school. I had that option--I could have gone to a "better" grad program, and taken on about $20K more in loans to do it. I chose instead to go to the perfectly good grad program I attended for free. Particularly given how little I actually got out of grad school, personally and professionally, I'm very glad I made that call.

The bottom line, for me, is that some debt is worth taking on. No, it's never really "worth" running up a credit card for frivolous, temporary purchases--I've been down that road, too, and can't recommend it. It causes me physical pain to consider how much healthier my savings account balance would be had I never gotten into that trap. But not all debt is created equally, and I think it's short-sighted not to account for debt that may well be necessary, in the service of both education and further income prospects, as something that needs to be carefully considered, but may well give more benefit than harm.

Not Saving for Retirement
The article's second piece of advice is another typical one--save for retirement, starting early. Again, I have no particular quarrel with this advice, but I think the cursory treatment leaves too much unsaid. The financial reality of living on a starter salary, in many places/situations, and particularly in the current economy, doesn't always make saving for retirement as soon as you get your first "real" job a possibility. In some cases, it surely is, and I absolutely agree that those folks should pony up retirement savings as soon as they can. The rest of us have to play catch up.

Having not started any sort of retirement savings until my very late 20s, I am among those playing catch up. It wasn't that the need to save for retirement wasn't apparent to me before then, it just wasn't going to happen when I was in grad school and working part time, or when I was making less than $30K/year and making student loan payments (see that previous debt thing!). While, retrospectively, I could have saved a very small amount, and probably it would be the advice of most financial planners that I did so, it wouldn't have been much, and I have always felt better with that paltry amount in accessible savings vehicles. I'm not saying that's the right way to do it--it's possible I'll be cursing my 25 year old self when I'm 70--but that's been my thought process.

I am, however, saving for retirement now. I'm still not saving as much as I probably should be, but I plan to increase my percentage every year for the next few years, and I'll get up to a better level pretty quickly.

Not Starting a Side Hustle
This was where the article kinda lost me. "Women tend to be creative, whether we're freelancing for clients or running our own Etsy shop," Abella writes. "We also own about 67% of all at-home small businesses. Pretty nice chunk, eh? Women clearly already have it in them to be their own bosses, so why not join the ranks and set yourself up with an extra source of income? Not only can it make you extra cash while working a traditional job, it can also be your safety net in case that traditional job doesn't pan out."

I think this advice is just...bad. First, comments like "women tend to be creative," send me around the bend. What does that even mean? Secondly, how many of those "67% of at-home small businesses" are turning a profit? Abella doesn't say, and the source she uses for that claim? Pretty sketchy. My anecdotal evidence is that most women who attempt to go the Etsy or similar route in starting a small side business end up spending more than they make, even before accounting for the value of their time. Craft-based businesses are very, very difficult to make financially successful, and doubly so if you are doing them as a sideline, rather than as your main job.

Another problem with this advice is that it doesn't take into account that every hour, every minute, of a person's time has opportunity cost. Is it better to spend time in your 20s building a "side hustle," or increasing your skills/working hours in your main job? What about time spent building that all-important network you're supposed to turn to when the employment chips are down?

I'm not again side work--I've had at least one and often two part-time side gigs for the past several years, and mine have been profitable. However, they've also been based on the experience and skills I have built at my regular, full-time jobs. And now, in my 30s with a baby on the way? I'm giving them up. Frankly, 40 hours a week is enough.

I think better advice for a woman in her 20s is to build a variable skill set. You don't want to have to depend on sporadic freelance work or your Etsy store when you get laid-off--you want to find another full-time gig, and the more things you're qualified to do, the easier that's going to be. This is one of those areas where I think I've been really lucky (and I do think it's luck, more than any advanced planning on my part). When I need to find work, I can look in multiple sectors (non-profit, education, technology, etc.) for multiple job types/titles (technical writer, editor, grant writer, grant administrator, researcher, etc.). This makes it easier for me to find opportunities and gives me more geographic flexibility, as I'm not tied to a given market. Building this type of variable skill set/experience set is the advice I'd give a young woman--not start a side business based on your inherent female "creativity."

Not having "the money talk" when a relationship gets serious.
I was glad to see this piece of advice included in the article. Your 20s is often a time when people get into serious relationships, and those relationships often come with a co-mingling of finances. People can be amazingly naive about this, and I am stunned by how many women I know who have been bitten in the ass by it. If you are going to share money with someone, to any degree, you have to work out the logistics of it--in advance--and you MUST protect yourself. It's really that simple. Nobody is going to do it for you, and it's not heartless or mercenary or any of those other words that get leveled at people (particularly women) who are together enough to do it. It's just good sense.

My advice would be not to mingle money any more than is necessary to achieve joint goals (buying a house, for example). I think it's better (safer, mostly) for folks in general to have control of their own personal finances. However, I realize that I hold the minority opinion on that, and that most married or long-term partnered people do share finances. There are more and less safe ways to do that. Your emergency fund (see the next point), should, to my mind, always be accessible by you only. Nobody wants to think about it, but when the shit hits the fan, it is MUCH harder to deal with a crisis without any accessible cash.

On a less dire note, it's important to be able to talk plainly about money with someone with whom you share your life just because so much of what we do and what we think about is money-oriented. Your attitudes about money will shape what jobs you take, how you spend your time, where you live, what you eat, and so on. Many things we don't think of as financial decisions are, ultimately, financial decisions, and you don't want to have to fight about every one of them, or be blindsided by your differences with your partner.

I feel like Mark and I have a good balance on this front. We've always been able to discuss money pretty openly, which I'm told is generally even more difficult for folks who come from such different class/financial backgrounds as we do. We've elected to keep our finances largely separate, though we have combined them more and more as time has gone on. In part, this has been due to the necessity of joint purchases, like our house in Austin and our vehicles, and in part it's been because we're not married and have to use joint financial accounts to prove our partnership in order to quality for domestic partnership benefits. However, we still keep our primary checking accounts separate, have separate credit cards, and have separate savings accounts as well as a joint one. The bookkeeping is a bit more complicated this way, but I believe it's worth it.

Forgoing the Emergency Fund
The article's fifth piece of advice is to set up an emergency fund for the unexpected-but-inevitable car repair, move, health emergency, etc. This is gold-star advice, in my opinion, and though it may be obvious, it can't be repeated enough. You have to have a cushion to fall back on. If you don't, you end up in debt (see #1) or even more screwed if that option isn't available to you. (The credit card trouble I got into in my 20s began with a huge emergency vet bill that I didn't have savings to pay and spiraled from there, so I'm way familiar with this one.) I believe a stocked emergency fund is the single most important savings you have--more than saving for retirement, more than a savings dedicated to a trip or buying a house or whatever.

The article doesn't suggest an amount to sock away in your emergency fund. For me personally, the amount has been variable depending on what I'm making, how well I'm saving, and how recently my emergency account has taken a hit, but I think the typical "3-6 months of living expenses" advice is probably pretty sound and that's what I shoot for these days.

Paying Yourself Last
The author's final critique of women in their 20s was that they so often refuse to "pay themselves first," i.e. to put money in savings before they do anything else. "For some reason," Arbella writes, "it seems to be really difficult for people to save their money. Granted, it's not completely their faults; after all, when bills pile up it can be difficult to make sure you put some money away in a savings account." This lip service irritates me, as it is nothing more than a condescending head-pat to those who simply are not making enough income to cover basic expenses (this is a problem with the article in general, actually). While the advice is good--save first, ideally automatically, even if it's a small amount--the execution is simply not always a possibility for those who are to-the-penny budgeting, which is what it's like for a lot of people right now.

Paying myself first is something I have never been good at. I'm better now, and have been doing automatic savings for the last couple of years, but, like retirement savings, it took me quite a while to get there. This is a financial mistake, I know, and it's one I regret (again, I know how much bigger my savings balances could/should be). However, I think more useful advice would be on how to make savings work. For example, I've read the suggestion that you automatically save whatever raise you get if/when you get a raise or change jobs, and I think that's brilliant. Similarly, the tactic of continuing to pay a bill once it disappears, but making that payment to savings? Love that. (For example, after your car is paid off, keep making your car payment to your savings account.) These specific ways to save help with the transition between not having anything to save and having money to save, and I think that can really helpful, particularly when you're first starting out.

There are things I'd have liked to see included in the article that were simply not mentioned. Given the state of employment (I heard on the radio this morning that 50% of college graduates are unable to find jobs within three months or something like that?), advice on how to deal with unemployment would be helpful. I still remember the first few months after I graduated from college as one of the financially scariest times I've been through, and it wasn't something I felt all that prepared to deal with at the time.

The article also skirts around one of the most controversial, but important, topics in female financial security--children. Having kids is a financial risk for women, full-stop. Writing for the National Bureau of Economic Research, Elizabeth Ty Wilde, Lily Batchelder, and David Ellwood found that having a child "costs the average high skilled woman $230,000 in lost lifetime wages relative to similar women who never gave birth." Though the actual paper is a bit too complicated to analyze here, the group's basic finding was that having children costs all women, financially, and that the higher the financial prospects of the woman in question, the higher the costs. In comparison, "men's earning profiles are relatively unaffected by having children although men who never have children earn less on average than those who do." Clearly, most women are going to have children regardless of this financial risk. However, a discussion of ways in which this risk can be moderated, both on a personal level for an individual woman and on a societal level, would be very welcome in articles like Abella's.

This analysis is, perhaps, overkill for such a short article. I should probably be glad that this discussion is happening at all, however cursorily. But I think it does a disservice both to young women who need and want this advice and to the more experienced women who can share their experiences to be so matter-of-fact about these difficult subjects. There is almost always a chasm between what you should do, what you can do, and what you are doing. We need to recognize that chasm and figure out how to bridge it, not just ignore it or pithily write it off. Further, a full discussion of women's financial issues can't be had without talking about the complicated effects of partnerships and children on women's financial health, and to do so strikes me as disingenuous. Finally, I'd love to see pieces like this one address not just the college-educated, middle-class woman to whom Abella is clearly speaking, but to a wider range of women as well.

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