By Nell Derick Debevoise, Founder & CEO of Inspiring Capital
The pay gap based on gender and race is well-documented and oft-lamented. But to secure our physical and mental well-being, to say nothing of independence, and to ultimately level the playing field, women need to worry about accumulating wealth. Sixty-one percent of women (vs forty-six of men) don’t have enough seed for an unforeseen medical expense.
Financial dependence is one of the most-cited reasons for staying in or returning to an abusive situation. But women own only $0.32 for every $1 that men own, and the situation is even more dire for women of color, who own pennies on the dollar. Equal pay for equal work is a no-brainer that is worth fighting for, but we must simultaneously help women understand and accumulate wealth to get the security and independence it provides.
To clarify before we continue: Wages cover day-to-day expenses. Wealth can be used to accumulate equity - ownership of real assets, whether real estate or companies. Wealth can also be passed on to the next generation. So accumulating wealth is a mandate for our own security, and that of our daughters.
Wages alone don’t amount to wealth. Even a generous salary, poorly budgeted, will flow through your fingers like sand. And except for the 1% of the 1%, very few of us will ever be paid enough for our salaries to become the kind of wealth that moves the needle. Wealth is accumulated through ownership of appreciating assets, namely companies or real estate. You don’t have to buy a house or start a company to achieve this ownership. But it does require more than just thoughtful budgeting or responsible savings.
There are three versions of equity ownership that will help you accumulate wealth: public equity, private equity, and home equity. This article is not meant as investment advice! See a professional for that. But here are some actionable-now thoughts on each topic to help you and the women you love get on the path to wealth.
1) Public equities
It’s great if you’ve begun the fewer-lattes path to budgeting and financial responsibility. If not, start - between Mint.com, LearnVest, and myriad other apps and tools, there’s no excuse. But once you are saving money, you have to be smart about where you’re putting it. Cash under your mattress or sitting in a savings account is losing value every day to inflation, even in today’s market conditions. The stock market is not perfect, but for investors with a long time horizon (which should be all of us in the first 2/3 of our life expectancy), it beats inflation and so accumulates value over time.
I’m not suggesting anyone become a day trader or try to fight your way into elite hedge funds. Take advantage of near-zero fee funds to grow your savings. State Street led the way with a gender-lens exchange-traded fund and presumably others will follow, given SHE’s great performance.
If you've never used this tool to conceptualize the power of compounding, go try it now. No really - now. This article can wait. The human brain - no matter how fabulous yours is - isn’t capable of visualizing exponential growth, so we literally can’t comprehend the effect of compounded returns without the help of a computer. Go check it out!
Incredible right? Even the smallest amount put away now into an asset that grows steadily over time (even with occasional setbacks) will surprise you when you go back and check on it in 10 years. So keep saving - save more - and get it out of your savings account into a low-fee fund.
2) Private equity
It takes a lot less money than you think to start buying parts of private companies. My favorite, win-win example right now is Portfolia, where you can buy in to an early stage themed venture capital fund for $10,000. The founder is a woman, and their mission is to help women investors become savvier angel investors, to increase our 0.32 cents on the dollar of net worth. There’s an awesome externality of that primary goal, which is that since all humans tend to invest in folks who look like them, more female investors mean more funding for female founders.
Startups are statistically more likely to fail than provide huge returns, so buying into funds like Portfolia’s model helps hedge your risk. There are also a growing number of opportunities to buy into the upside of a business in other forms than the high-risk, high-reward model of Venture Capital. Many will come in crowdfunding models made possible by the as-yet under-used JOBS Act that Obama signed in 2016. The largest platform, WeFunder, has only mobilized $17M so far, so this is still a very niche opportunity, but likely to grow. Stay tuned as these alternative forms become more common.
Finally, if you work at a startup, get smart about equity and ask for a fair share. Extra money in your paycheck for more square feet at home or clothes in your closet feels good, but you can’t pass either on to your daughter. It may not even be worth paying off your student loans as quickly as you’d like at the expense of passing up stock options for salary. Again, many startups will not have successful exits to pay that equity out, but if you believe in the company enough to work there full-time, you must think there’s a shot it’ll beat the odds.
3) Home equity
Finally, while real estate is no more perfect of an investment than risky startups, owning a home or apartment can be a great way to build wealth. If you’re buying with a partner, be thoughtful about how the asset is held in good times and bad - divorce happens.
So if you’re serious about gender equity, get serious about equity ownership.