Closing the financial literacy gap

Many gender gaps persist, but one that puts women at a disadvantage is the gap in financial literacy.

Today, more women are financially independent: for example, through their careers, they are building up significant personal and pension wealth.  More women are pursuing entrepreneurship – building businesses and being bought out at a level that makes them and their families very wealthy.

But still, making progress with financial literacy remains a challenge.

That’s why in October 2021 Goodbody teamed up with The Gloss to launch the Funds Night In Investment Club – a series of monthly virtual events to promote education about investing and to support dialogue on topics that matter to women, such as pensions, inheritance, divorce, and illness.

Six months on, more than 1,700 women have joined the Funds Night In Investment Club events – and as part of our fantasy portfolio competition, more than 2,000 trades have been made by our club members.

“Financial literacy matters, now more than ever – and we embarked on this Investment Club to make sure that women have a route to education, knowledge and expertise to give them the confidence to take more ownership of their own financial and investment decisions.

“At Goodbody, we believe financial inclusion and having access to a robust financial education is key to achieving economic and social equality – and we are passionate about empowering women to become more financially literate,” said Michelle O’Keefe, Head of Wealth Advisory.  

Those who are more financially literate have the ability to make informed financial choices, for example around saving and investing. And so, it is vital to ensure women have access to a meaningful education.

Indeed, 99% of participants agreed that The Gloss x Goodbody Investment Club addressed topics of specific interest to members. Here’s a roundup of those topics and learnings from the programme. 

Six months, six lessons 

1. Be an informed investor

When it comes to investing, we are often asked: where do I start?

A combination of looking at financial metrics and sources of financial information makes for a strong start.

If you’re interested in investing in a company, look at the news flow – resources such as the FT and CNBC are excellent. You’ll find essential information around what the company is doing, what their earnings have been like, what competitors are doing, as well as what’s going on at a macro level.

Likewise, social media platforms, such as Twitter, can be valuable resources. Follow the company you’re interested in as well as their competitors to keep up to date with information.

When you’re researching a company, financial metrics are important too. They allow you to assess a company’s financial strength. Yahoo! Finance is an easy-to-use, free tool available to all and presents a company’s overall financial situation – from historical price performance to its trading range as well as buy and sell recommendations.

Some key metrics that we recommend investors look at include the historic price performance, which can tell a meaningful story of what’s going on for the company; the P/E ratio which measures the current share price relative to the earnings per share (EPS); as well as the dividend yield on the stock.

As an investor, it’s important for you to choose the right stocks for your portfolio – and so, you may need to research the companies you’re considering – and these tips should prove to be a helpful starting point. 

2. It’s never too late to start a pension

When it comes to contributing to your pension, look at your monthly savings and split some of that into a pension account. Make a monthly AVC (additional voluntary contribution) – that is, a pension top up.

But how do you gain access to a pension?

For self-employed people, you’ll need to manage your pension yourself and seek advice. Only you can contribute to a pension, and the amount that you can contribute is a percentage based on your age and your earnings (the earnings are capped).

Being employed actually gives you more scope for funding: both you and your employer can contribute. Like those who are self-employed, your contribution is limited to a percentage based on your age and earnings – but that limit doesn’t include the employer contribution.

It's also worth noting that your employer is obliged to provide you with access to a pension scheme, but they are not obliged to contribute to it. Usually, these pension schemes are cost effective with a limited range of investment choice.

What’s more, if you set up a company yourself but don’t contribute for the first few years as you are growing your business, there is an opportunity to fund for your past service – and we see this a lot.

Once invested in a pension structure, your investment returns are tax free, and your dividend is also largely tax free. This is the only investment asset that allows tax-free compounded growth till your retirement date.

Remember, it’s never too late to start or accelerate the growth of your pension.

3. Inheritance tax planning matters 

It’s not an easy topic to talk about, but a little preparation can preserve wealth and income for both generations. Often our clients are keen to create tax efficient inheritance plans – and to do that, it’s important to understand the basics: 

  • Capital Acquisitions Tax (CAT) is the tax applied to inheritances. There are different CAT rates depending on your relationship with the beneficiary. A child inheriting from parents has a tax-free threshold of €335,000 – but any amount above this is subject to inheritance tax at 33%. There is no CAT between spouses – and so, anything left from one spouse to the other is tax exempt.
  • Small gift exemption: you may receive a gift up to the value of €3,000 from any person in any calendar year without having to pay CAT. For example, parents can gift to children, or grandparents to grandchildren.
  • Joint names: there is often a misconception that if assets are in joint names, there is no inheritance tax to pay. While that’s true in the case of spouses, it is not in other circumstances. For example, if you own an investment property in joint names with a sibling it means when you inherit his or her share on death, the inheritance tax liability will need to be considered.
  • Valuable tax reliefs in the tax code exist for the transfer of businesses or farms to the next generation. However, these reliefs carry a number of conditions and definitely require early planning if they are to be considered or availed of.
  • Funding the tax bill: plan in advance for this. Many parents don’t realise they can pay or cover the cost of their children’s tax liability – and they can do so tax efficiently through the use of a S72 or S73 policy.

4. It costs to inherit the family home

Property ownership is a big component of personal wealth in Ireland – and so, for many, protecting property wealth and passing it on to the next generation is a central part of their succession planning.

There is often a misunderstanding that the family home is exempt from inheritance tax: it may be exempt when its value is measured against the tax-free threshold available but for example, if a family home worth €750,000 was left to an adult financially independent daughter, in this situation after taking account of the threshold, tax in the region of €136k will be due.  If the threshold has been used previously, tax in the region of €247k will be due.   

So, where residential property is involved and there is a liquidity concern around the beneficiary’s ability to pay the tax, planning ahead is very important. Because the tax bill must be paid within the year timeframe. Often people have to unwillingly sell the property to pay for this. Section 72 and 73 policies can be very useful in those situations – read more about them here.

 5. You’ll need two rainy-day funds

A rainy-day fund should be carved in two: one with a short-term focus and another long-term fund. That way, a short-term fund is available should you need to parachute out of a problem: three months’ salary saved in a cash deposit account will cover everything from a career change to a broken iPhone. This should be kept separate from your current account.

The long-term rainy-day fund should be goals based – for example, funding a child’s education, buying a holiday home. Long-term cash is a poor investment. Inflation, particularly the type we are experiencing now, will erode it. Instead, you need to invest it – do it yourself through a broker account or talk to an advisor about an investor portfolio that’s tailored to your needs.  

And a final tip: remember to set up a direct debit or standing order to transfer monthly to your rainy-day fund. It will help you stay committed – and on track.

6. Enable yourself now

It doesn’t matter what stage of life you’re at – young, old, retired or in the middle of your career – if you haven’t started thinking about financial decisions and investing, now is the time to consider it.

It is a well-known fact that women tend to outlive men – and so, you could lose a partner and may be forced to make financial decisions at what is already a very difficult time. Women face other positions of financial vulnerability, such as divorcees or single-parent households, and so, financial independence and literacy is a critical issue for all women.

If you enable yourself now, you’ll get comfortable with it and you’ll feel confident to take more ownership of financial decisions. 

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