A Simple Decision, a Big Price Tag: Why Women Should Take More Risk with KiwiSaver
In a world where financial security is a top priority, a recent study by Westpac has revealed a potential pitfall for women: a decision that could cost them a staggering $200,000 over their lifetime. The key to this financial conundrum lies in the KiwiSaver funds women choose, and the risk they're willing to take.
The gender gap in KiwiSaver balances is narrowing, but there's still a significant disparity. Westpac's data shows that men have higher average balances across all age groups, especially in the 30-39 age bracket, where the gap is a staggering $7,252. This difference can be attributed to various factors, including the gender pay gap and time out of the workforce, as well as women's tendency to opt for less risky funds.
The Impact of Risk
The type of fund women choose plays a crucial role in their long-term financial success. Aggressive funds, which are higher-risk, have historically delivered impressive returns. Over a decade, these funds have averaged a remarkable 9.5% annual return, significantly outperforming conservative funds, which returned an average of 4.2%.
Sarah Hearn, Westpac's general manager of product, sustainability, and marketing, highlights the potential cost of women's more defensive strategies. She explains that by taking a more conservative approach early in life, women might miss out on tens of thousands of dollars in potential returns over the decades. For instance, Westpac estimates that over 30 years, the difference in outcomes between a conservative and a growth fund could be a staggering $225,000 for someone contributing 6% of their income.
Hearn encourages women to consider the long-term benefits of taking on more risk. She advises women to evaluate their risk tolerance and the time horizon of their savings. If they're saving for the long term, at least 13 years, and are comfortable with the ups and downs of their balance, they might want to explore higher-risk funds. This could be a game-changer for their retirement savings.
Breaking the Silence: Financial Conversations
Hearn also emphasizes the importance of financial conversations. She notes that men are generally more comfortable discussing numbers and money, and she encourages women to engage in more open conversations about their KiwiSaver balances, returns, and fund types. By sharing their financial decisions and experiences, women can gain valuable insights and make more informed choices.
In conclusion, while the decision to take more risk with KiwiSaver might seem daunting, it could be a powerful tool for women to bridge the financial gap. By understanding the potential benefits and risks, and by fostering open financial conversations, women can take control of their financial future and potentially save a significant amount of money over their lifetimes.
