Remarks at the Women's Leadership Program
Chairman and CEO
Women's Leadership Program
Good afternoon. I'm really delighted to be here. And I'm particularly delighted to be able to talk about something other than variable annuities, trade reporting facilities, regulatory consolidation and mutual fund breakpoints.
I want to thank Tina Wallace for inviting me and for arranging this luncheon. The Wharton School is one of the premier business schools in this country, or any country for that matter, and I'm particularly proud of NASD's association with it. We sponsor the NASD Institute at Wharton, a three-year course of study whose graduates are certified as regulatory and compliance professionals. In the securities industry there is a huge demand for compliance officers—they are the gatekeepers of honest business practices. It's a difficult and demanding job and graduates of the Wharton program are extremely well-qualified to do it.
Before I get into the main course of this speech, let me offer you a brief summary of the whys and wherefores of NASD. We are a private sector regulator of the American securities industry, working under the authority of federal law and the Securities and Exchange Commission. We regulate all firms that sell stocks, mutual funds, bonds and other securities to the public, and we regulate the people who work for them. We write the rules that govern their behavior, examine them for compliance with those rules and discipline those who violate investors' trust. We can issue fines, suspend or expel people and firms from the industry, and order restitution to investors who have been harmed.
There are about 5,100 securities firms in the United States at present and they collectively employ millions of people.
In conjunction with regulating firms, we offer them a wide range of services to help them understand our rules and comply with them without a great deal of confusion or expense. We also operate large industry utilities such as the central licensing system for brokers, the transaction reporting system for all corporate bond transactions and the delivery mechanisms for continuing education and qualifications exams for nearly 700,000 individual brokers.
We also have a deep and abiding commitment to educating investors, inspired by the notion that it is better for investors to protect themselves through their wisdom and understanding of sound investment principles than for us to arrive at the scene with sirens blaring after they have been harmed to try to get them back on their feet. I'm going to talk more about our work in this regard later.
When Tina told me that the life and legacy of Abigail Adams would serve as the theme for this event, my interest was really piqued, because my 12-year-old daughter, Molly, had just written a school paper about her, so I knew there would be lots of good material I could steal.
Abigail Adams was a fascinating and iconoclastic figure. On the one hand, she believed that women were intellectually equal to men—imagine that!—and that they were entitled to be educated and to vote. She often accused men of "tyranny" over women and compared life as a woman in 18th Century America with "Egyptian bondage." She applauded women who had success in fields traditionally dominated by men.
In a letter to her husband written less than two months before the signing of the Declaration of Independence, she said "whilst you are proclaiming peace and good will to men, emancipating all nations, you insist upon retaining absolute power over wives. But you must remember that arbitrary power is like most other things which are very hard, very liable to be broken—and notwithstanding all your wise laws and maxims, we have it in our power not only to free ourselves but to subdue our masters and without violence throw both your natural and legal authority at our feet…"
On the other hand, she believed that women were fundamentally different from men and were best-suited for domestic life—raising children and running households.
And she saw no inconsistency between these two points of view. In fact, the latter position—that a woman's place is in the home—is the one she adhered to throughout her life. But, until her husband became our second President, she managed the family finances, paid the bills, handled the investments, ran their Massachusetts farm, hired and paid laborers and more.
I'm sure most people would assume that Abigail's autonomy was unusual and that most women had no role to speak of in economics and finance during the colonial and early American periods. But that's not how it was. Women were significant players in the economy of that era. They were business-owners, they were investors with the right to vote their stock, and many had quite substantial holdings in the market.
Sometime after the American Revolution—and historians differ on when—women began retreating from the financial world, although not entirely of their own volition.
But it's obvious that, two centuries after Abigail Adams' time, women are back in the game and have been for quite a while.
Female financial leadership is alive and well in the 21st century. As business leaders yourselves, I think you'll be interested in some of the personal qualities and financial management techniques practiced by the "typical millionaire businesswoman." Here are a few of the traits that put these women at the highest levels of financial independence, as profiled in the book Millionaire Women Next Door1, whose author commissioned a survey of some 2,500 women whose net worth exceeded a million dollars:
- They're goal oriented and hard working.
- They are early risers—the median wake-up time is 5:58 am.
- Virtually all are married—and 81% have children.
- They earn 71 percent of their family's household income.
- Sixty percent are college graduates—but only 19 percent ever attended a private school of any kind. Their average GPA in college was 3.4, but 40% of them were in the top 5 percent of their graduating class (a much higher GPA and class ranking than their male counterparts, I might add).
- Ninety-eight percent are homeowners.
- They tend to be frugal.
- Most held leadership positions at an early age—in their teens or even younger.
They also practice sound personal financial management skills. On average, they devote over 10 hours a month to planning their investments, and 30 percent of these women spend 20 hours or more on investment decision making. They are also "in depth" readers of investment information. In short, they follow the advice we regulators are always giving, which is to do your research BEFORE you invest.
And when they do buy stock, they tend to hold it longer that most other investors, including their male counterparts. In fact, 55 percent of these women hold stocks on average at least four years, and 40 percent hold them for six years or more.
That's how America's female net worth leaders approach financial management. However, the sad fact is that, even with the tremendous gains women have made in all aspects of our lives, the average American woman today still is not as well-versed in investing and personal financial management as she should be.
There has been a lot of research applied to the question of women and financial management over the last few years, and it has yielded some interesting findings. If there's one essential set of facts, it is that women earn less than men, retire with less money saved, and live longer. Thus, many women fear they'll be impoverished in their old age, and unfortunately, a lot of them end up that way.
About 25 percent of unmarried elderly women are poor. That is five times the poverty rate of married women of the same age group. Among those 85 and older, the proportion is almost one-third.2
And it's been estimated that 45 to 50 percent of female baby-boomers will be single—widowed, divorced or never married—when they reach retirement age.3 And most of those women will enter old age with less money in the bank than they'll need to live on. A recent study on what happens to household finances after retirement found that for a recently widowed woman, the probability of owning a home or other real estate, or a car, drops measurably.4
In addition to earning less, retiring with less and living longer than men, many working women leave the workforce to care for children—often for many years—and don't have access to employer-sponsored retirement savings plans during those sabbaticals.
While NASD may first and foremost be a regulator, we are deeply committed to doing what we can to help women retire with financial security.
Our principal mechanism for this is the NASD Investor Education Foundation, which we established in 2003 with an initial endowment of $10 million, all derived from disciplinary fines we had imposed. That endowment has since grown to $82 million and the foundation has awarded about $5 million in grants to non-profits and universities that carry out innovative research and educational projects that help mainstream investors better understand the markets and the basic principles of saving and investing.
The foundation has a particular focus on educating segments of the population that have been underserved, such as women. Sometimes we're able to fund two such groups at once, which is what we're doing with a program that offers spouses of members of the military a unique opportunity to learn about managing money.
As part of a comprehensive campaign to help military service-members and their families save and invest with confidence, the Foundation created the Military Spouse Fellowship Program. The Fellowship Program helps military spouses earn the Accredited Financial Counselor credential. This training not only arms military spouses with financial skills they can apply to their own households, but it also equips them to counsel others in their community—which is something we ask them to do in exchange for the education they obtain.
Another payoff to the program is that the spouses who complete it become more employable themselves.
We're excited about this program because we know that military wives play an integral part in their family's financial management. A survey of military wives found that:
- 64 percent are responsible for making sure the bills are paid each month—and almost 50 percent are totally responsible for setting the monthly budget.
- 89 percent contribute to the research of buying a car, 88% are involved in selecting their bank, and 74 percent do research for retirement savings choices.
I'd like to tell you about two other Investor Education Foundation grants that are helping women. One went to the Center for Retirement Research at Boston College for an educational game called "Get Rich Slow," which helps women plan for retirement by letting them target the key impediments they'll face through a fun, non-intimidating group experience. The game is designed to be played in a seminar setting with an experienced moderator and group discussion. Participants make decisions, and then experience the implications of these decisions as well as those of chance events, such as stock market booms and busts, job loss and illness.
The goals are to give participants a clear overview of the financial planning process and the unique retirement income needs of women, and to give them hands-on experience needed to make confident investment decisions. You can download the game at no cost from the Boston College Center for Retirement Research website.
The second grant went to researchers at Iowa State University for a survey of investors to learn, among other things, how men and women differ in their investment styles and strategies. The Iowa State research has given us some keen insight into how women like to get financial information. That's extremely valuable, because one very important lesson we've learned is that having a wealth of content isn't terribly beneficial if you're not using the best avenues to get it into investors' hands.
What the Iowa State survey has taught us is that women are more likely than men to prefer getting financial information from friends and colleagues. They are less likely than men to use computer-based investment tools, such as on-line fee and expense calculators. And, they are less likely to find investing exciting or intellectually stimulating.
We can surmise from these findings that conventional means of providing information about investing and financial literacy—financial newspapers, magazines and websites, TV programs, investment seminars and so on—aren't particularly suitable for women. And, frankly, that's not all bad, because some of the messages we get from the media on finance and investing are not terribly helpful.
Certain financial magazines and Web sites regularly publish articles about the hot new mutual funds of the moment, or Where to Put Your Money NOW!, as if hopping around from one fund to another were a sound investment strategy.
If those magazines and Web sites and TV personalities were to tell readers and viewers that the best thing they can do with their money is to put it in an index fund and leave it there—which is not bad advice—I guess they'd be left with nothing else to say.
The Iowa State researchers are going to provide us with some recommendations on how to reach women in additional ways that may be more attractive to them.
Another factor, and one that isn't unique to women, is that most American students don't take courses in financial literacy, either in high school or in college. It's not that those courses aren't offered. They are, but usually as electives, and most students choose not to take them. A survey of high school and college students by the Employee Benefit Research Institute found that "a vast majority" of students have access to financial planning courses, but only about a third take them.5
The NASD Investor Education Foundation is trying to address this problem, too. About three weeks ago, we awarded a grant of $354,500 to National Association of Investors Corporation for a project that will help educators teach financial principles and investment techniques. Called "Investing in Your Future," the project will deliver, on-line and free of charge, a wealth of educational resources, stock and mutual fund analysis tools and an investment portfolio management game.
This grant was one of several the Foundation has issued since its inception three years ago for projects that offer financial and investment education to high school and college students.
I really think that investing is as important a field of study as some that are mandatory. For we Americans are about to see a retirement tidal wave unlike any before. Over the next 20 years, 75 million Americans will turn 60. That's 10,000 new 60-year-olds every day.
These baby-boomers are piling up debt—drawing on home-equity lines of credit, running up balances on their credit cards—at alarming rates, all to finance current consumption at the expense of long-term savings. The average American household has $8,000 in credit card debt.
And one of the reasons for this is that we as a society and our educational institutions did not sufficiently impress upon baby-boomers, particularly female ones, the importance of starting to save for retirement as early in one's working life as possible.
For the older boomers, who are about to retire, there's little we can do. But for the younger ones, and the generation behind them, we as a society can and should do everything possible to help them understand what they need to do to position themselves for a secure and prosperous retirement.
As Abigail Adams put it, "In youth, the mind is like a tender twig, which you may bend as you please, but in age, like a sturdy oak and hard to move."
However she might feel about the prevailing social mores of our time, I like to think she would find favor with the ideas I've expressed here today.
I look at this from the perspective of a regulator, which is what I've always been. So, if any of you has any ideas—from the perspectives of your lives and careers—about how we might elevate the financial literacy of women and young people, I'd love to hear them. So, I'll stop now and offer again my gratitude to the Women's Leadership Program of the Wharton Club of DC for inviting me and giving me an opportunity to talk about a subject that is deeply important to me. And I'll invite your question or comments.
1 By Thomas J. Stanley, PhD, Andrews McMeel Publishing, 2004
2 Center for Retirement Research at Boston College, "401(k) Plans and Women: A Good News/Bad News Story," Alicia H. Munnell and Steven A. Sass, January 2005
3 Ibid, Project proposal for "The Effect of Social Security Reform on the Income Security of Older Women," Courtney Coile (project was not completed)
4 Ibid, "What Happens to Household Portfolios After Retirement?", Courtney Coile and Kevin Milligan, November 2006
5 1999 Youth and Money Survey; EBRI, American Savings Education Council, Matthew Grunwald & Associates