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Mothers, Teach Your Daughters to Save for Retirement

It's never too early to urge young women to start thinking about their nest eggs  

By Kerry Hannon

Watching first lady Michelle Obama and her daughters, Sasha, 11, and Malia, 14, as they viewed the inaugural parade Monday reminded me of what a sturdy role model she is for women — particularly, young girls. Mrs. Obama is well known for her commitment to encouraging girls to study, work hard and break glass ceilings wherever they find them.
Her husband, in his second inaugural address, talked about protecting Medicare, Medicaid and Social Security. That got me thinking about what the 49-year-old “Mom in Chief,” as she calls herself, is teaching her daughters about money and saving for their future should those social safety nets fray by the time they might need them.
Sasha, Malia and Retirement
In a few decades, Sasha and Malia will face the stark financial realities all women confront as they approach retirement. Odds are, it won’t be any easier for them than it has been for women now in their 40s, 50s and 60s. That’s why I think it’s so important for mothers (and fathers) to teach their adolescent and young adult daughters the importance of a nest egg.
(MORE: 5 Ideas to Help Women Retire With Fewer Worries)
As I’ve noted previously on Next Avenue, women in America have special retirement challenges:

  • They earn 81 percent of men’s incomes, on average; even top-tier professional women generally make less than their male peers. 
  • Women live five years longer, on average, than men. This means they need to set aside more money to avoid outliving their financial resources, especially since they may well be single in retirement.
  • Many women take time off to raise a family or care for an aging relative, which means they have fewer years to contribute to a retirement plan at work and fewer years to earn income.  

Since my tête-à-tête with the first lady to discuss what she’s teaching Sasha and Malia isn’t happening any time soon, I turned to another Mom in Chief who offers easier access: my older sister Pat, 54. She’s a mother of four, including three daughters age 14 to 26, and a great inspiration in her own right.
How Mothers Can Help Their Daughters
Here’s the advice I culled from my talk with Pat and interviews with experts:
(MORE: Can Boomer Women Ever Afford to Retire?)
Be a role model. My sister handles all the day-to-day finances in her household, so her kids have watched and learned as she has paid bills online, calculated the family’s taxes and made investment selections. Pat and her husband, Paul, discuss any big-ticket purchases together.
Their kids have participated in managing their mutual fund custodial accounts since they were old enough to sign their names on checks and lick the envelopes to mail in money they received as gifts from relatives. “They’ve seen first-hand how compounding works, long before they’ll be adults and really have to save for retirement,” Pat says.
Since the girls have been taught smart money management, it was a no-brainer for the eldest, Christine, to sit down with her mom to review her benefits after snagging her first job out of college as a clinical research coordinator at the University of Pennsylvania School of Medicine.
They discussed whether to buy life insurance (not yet) and the usefulness of contributing to a health care reimbursement account and, most important, a 401(k).
“I explained to her that, if at all possible, she needed to contribute enough to the 401(k) to equal her employer’s match or she would just be leaving money on the table,” Pat says.
To keep investing simple, Pat suggested Christine go with a target, age-based mutual fund offered by the plan. Since target funds automatically shift assets as the account holder ages, they help ensure that a woman in her 20s will be suitably invested in stocks and will slowly shift to bonds by retirement age.
Christine followed her mom’s advice.
But many young women who are eligible for 401(k) plans don’t participate in them; only 41 percent of workers under 25 who can contribute to a 401(k) do; by contrast, 73 percent of employees age 55 to 64 invest in the plans.
As Dan Kadlec recently wrote in Time, even young people who contribute to a 401(k) save only about 5 percent of their pre-tax income. Most advisers say that 10 percent should be the minimum savings target.
I was delighted to see Pat and Christine’s mom-daughter money talk in action last month while I was visiting over the Christmas holidays.  
One evening, the two of them sat side by side at their laptops and walked through the pros and cons of Christine opening a Roth IRA. “She asked me what I thought," Pat says, "and I said it’s important enough to have retirement money growing tax-free that if she didn’t have the $5,000 to open the account right now, her dad and I would happily make a gift to her so she could.”
Put a face on it. Eleanor Blayney is author of Women’s Worth: Finding Your Financial Confidence and founder of Directions for Women, a financial consulting firm based in McLean, Va. She told me a good way to get your young adult daughter to focus on saving for the last third of her life is through “visualization.”
Younger women have “this expectant attitude that things will somehow work out," Blayney says. 
One great, albeit a tad creepy, way for a young woman to visualize the importance of saving for retirement is to tap into the Merrill Edge FaceRetirement online tool. She inputs her age and gender, then FaceRetirement snaps a photo with her computer camera and immediately shows how her face is expected to morph over time. It also adds gray hairs.

In a Stanford University experiment, people who saw age-enhanced images of themselves were more likely to “accept later monetary rewards over immediate ones” (translation: they grasped the importance of saving more for retirement), compared to those who weren't exposed to their virtual future selves.

Blayney also suggests turning your daughter onto such websites as, whose apps let users clearly see how much compounding over time will work for them. “You need to make the case for the huge difference between starting to save for retirement at age 20 versus 40,” she says.
As Georgette Jasen wrote in The Wall Street Journal, “A 25-year-old who starts saving just $600 a year could have $72,000 at age 65, nearly twice as much as someone who saves $1,200 a year beginning at 45, according to calculations by LearnVest, an online financial-planning service.”
Start a mother-daughter financial discussion group. Families often find money a taboo topic, so you might get together a bunch of local mothers and their daughters to make the conversation less awkward. “We talk about sex with our daughters," Blayney says, "but money is still very hard to talk about.”
One great resource to help start a group like this is the nonprofit outfit, WIFE (The Women’s Institute for Financial Education).
(MORE: When it Comes to Money the Deck Is Stacked Against Women)
At the discussion group, everyone should exchange stories about what they learned about money as a child, their money fears and so on. The goal is to meet regularly, stay positive and for the moms to lead by example by speaking frankly.
Be fearless about saying what you would have done differently if you could go back and start saving for the world you face today.
If you find talking about money hard or don’t live near your adult daughter, consider giving her a book to help lay the groundwork. Two that I recommend: Kimberly Palmer’s Generation Earn: The Young Professional’s Guide to Spending, Investing, and Giving Back and Beth Kobliner’s Get A Financial Life: Personal Finance In Your 20s and 30s.
I wish someone had talked to me about finances when I was in my 20s. At that time, I thought managing money was just for people who were married with kids.
Although I started a 401(k) with my first employer, I screwed it up, cashing out when I switched jobs five years later. Imagining what that retirement fund might be worth today, 22 years later, makes my heart sink.
No one gets where they’re going alone, the first lady has been known to say. My hope is that Michelle Obama will make financial literacy for young girls one of her favorite causes during President Barack Obama’s second term. She could inspire a whole generation of women. Obesity, move aside — it’s time to talk money.

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Photogtaph of Kerry Hannon
Kerry Hannon is the author of Great Pajama Jobs: Your Complete Guide to Working From Home. She has covered personal finance, retirement and careers for The New York Times, Forbes, Money, U.S. News & World Report and USA Today, among others. She is the author of more than a dozen books including Never Too Old to Get Rich: The Entrepreneur's Guide to Starting a Business Mid-Life, Money Confidence: Really Smart Financial Moves for Newly Single Women and What's Next? Finding Your Passion and Your Dream Job in Your Forties, Fifties and Beyond. Her website is Follow her on Twitter @kerryhannon. Read More
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