Earlier this year, Women’s World Banking analyzed financial algorithms that determine credit scores and bank loans to discover potential biases toward woman and disadvantages that could cost women time and money.
“Women have only been part of the financial landscape for about 1% of its history, which means that financial algorithms are not designed to account for us equitably,” said Chelsea Williams, a personal finance expert and founder of Money Mastery. “As a result, women often face higher rejection rates and less favorable terms when applying for loans and credit.”
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Here are three hidden money rules that hurt women’s wallets and what you can do about them.
The Confidence Gap
Williams said that women achieved financial independence only 50 years ago, which means many may feel less confident in managing, investing and growing their money, resulting in more conservative financial behavior.
“Financial literacy is essential for progress,” Williams said. “Studies indicate that we can close this gap when women receive financial education. So we can help other women understand how to set themselves up for financial success.”
Williams also recommended women “invest with patience.”
“The data indicates that women’s investments often outperform men’s because we tend to be more deliberate and patient,” Williams said. “Therefore, it is important to focus on making wise, long-term investments that align with these strengths.”
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Gender Bias in Business Loans
Block Advisors’ State of Women in Small Business Report revealed that 31% of women started their business within five months of considering it, yet they were more likely to make less money and be declined for a loan than their male counterparts.
Latasha Randle, the strategy and small business manager at Block Advisors at H&R Block, said the gender bias in business loans results in women funding their businesses out of pocket with credit and savings, straining their finances in the process.
“Any missteps can bring them back to square one,” Randle said. “They may damage their financial stability and further increase their chances of denial of future business loans due to a lack of collateral or poor credit.”
Under these circumstances, Randle said women may have to choose between giving up their small business dreams or self-funding their businesses, continuing the cycle. Instead, Randle suggested women work with a bookkeeper or tax professional early on and create a compelling business story and strategic business plan.
“Financial organization is a key component for making the right impression with lenders,” Randle said. “A bookkeeper or a tax pro can help you keep good records, manage cash flow and present strong, credible financial statements. This level of support not only helps you know your numbers but also ensures that you’re prepared to meet any documentation requirements that lenders or grant committees might demand.”
Randle also said a business owner’s story is as important as the numbers.
“Having a clear, impactful narrative about your mission, why you started your business and the problem it addresses can capture the interest of lenders and investors,” Randle said. “Also, having a detailed business plan that includes market research, revenue projections and milestones signals that you have a vision for your business’ future.”
The Pink Tax
Women face extra costs on products marketed to them, commonly known as the “pink tax.” Per the National Organization for Women (NOW), it’s a theory that products marketed to women are more expensive than almost identical products marketed to men.
For example, NOW reported notable price discrepancies in women’s health and beauty products, such as razors, where women paid as much as 150% more for a similar product.
“Also, even though it wasn’t just a few decades ago that women could earn, save or borrow money independently, women make up 80% of consumers,” Williams said. “Companies have recognized it and leveraged that even more to work against us.”
Williams suggested that women address the “pink tax” by asserting themselves more.
“The only way the algorithm is going to start accommodating us is when it has to account for us because we make our presence known — buying homes, utilizing loans for the right reasons and investing,” Williams said. “By educating ourselves, building our confidence, making our presence known and leveraging our natural strengths, we will change the financial system to reflect our needs better. The transformation will take time, but we are already seeing progress.”
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This article originally appeared on GOBankingRates.com: 3 Hidden Money Rules That Hurt Women’s Wallets and What You Can Do About Them
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