Less Than 10% of Women Will Be Investing Their Tax Refunds: Here’s What They Plan To Do Instead
Most women (86%) anticipate that they will get a tax refund this year, with the majority (20%) expecting to get a refund of more than $3,000, according to a new GOBankingRates survey. With that large of a windfall, women should be planning ahead to make the most of that money — but many will be missing out on the opportunity to compound their wealth, as less than 10% plan to invest their refund. In this “Financially Savvy Female” column, we’re chatting with Corbin Blackwell, senior financial planner at Betterment, about what women actually plan to do with their tax refunds, and why more women should consider investing this extra cash.
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A recent GOBankingRates survey found that only about 9% of women said they planned to invest their tax refund versus 24% of men. What are some possible reasons for this disparity?
The difference between how people plan to use their refunds tends to vary by income. If someone is in a lower income bracket, they are more likely to use this money to pay down debt or for everyday expenses — they actually need this extra cash to pay rent, groceries or utility bills they’ve been putting off.
In the context of gender, women are less likely to invest their tax refund as women notoriously have lower pay than men and are therefore more likely to need to use the money to cover near-term expenses. For women with higher income, I would suspect that they are still less likely than men to invest their tax refund due to lack of confidence and financial literacy. Investing can feel like a “boys club,” and it can be daunting to know where to start. The ironic thing is that studies have shown that when women do invest, they tend to outperform their male counterparts.
Why should more women consider investing their refund?
When you invest, the money has the ability to grow and compound over time. If you want to build wealth for the long term, investing and allowing your interest to compound is one of the smartest moves you can make. The sooner you invest and put your money to work, the more you can expect to have down the road.
Additionally, the survey found that 44% of women said they would be using their money to pay bills (versus only 30% of men). What are some possible reasons that women are more reliant on this money to cover their everyday expenses?
It’s no secret that women have borne the brunt of much of the economic impacts over the years — especially considering their role as caretakers of the household. The pandemic has only made this more obvious with higher student loan debt, unpaid family leave and low wages among women. This has raised the female debt burden so much higher than that of men.
Forty-two percent of women said they would use the refund to pay off debt, versus only 31% of men. What types of debt are women likely to carry and why do they tend to have more debt than men?
There are a multitude of societal factors that contribute to gender and money disparities, but one of them is the discrepancy in student loan debt. According to a report by the Education Data Initiative, women have higher amounts of debt in comparison to men as they are more likely to take out student loans for themselves, and once they graduate, they are paid 74% less of what their male peers make.
On the positive side, 43% of women say they will put this money into savings. Why is this a good idea?
My biggest recommendation is for people to take a look at their emergency savings account when they do have an influx of cash. If you don’t have at least three months saved up, I would focus on building that. The past few years have shown us the importance of having a safety net on hand for the unexpected.
On the other hand, why might it be a better idea to invest a tax refund rather than put it into savings?
If you don’t have any high-interest debt and you have an adequate safety net fund, then you should consider starting to invest your excess cash. Investing is a great way to reach your long-term financial goals.
GOBankingRates wants to empower women to take control of their finances. According to the latest stats, women hold $72 billion in private wealth — but fewer women than men consider themselves to be in “good” or “excellent” financial shape. Women are less likely to be investing and are more likely to have debt, and women are still being paid less than men overall. Our “Financially Savvy Female” column will explore the reasons behind these inequities and provide solutions to change them. We believe financial equality begins with financial literacy, so we’re providing tools and tips for women, by women to take control of their money and help them live a richer life.
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Methodology: GOBankingRates surveyed 1,000 Americans aged 18 and older from across the country between January 31 and February 1, 2021, asking six different questions: (1) How do you plan on filing your taxes for this year?; (2) When do you expect to file your taxes this year?; (3) How much do you expect to receive in a tax refund?; (4) What do you plan to do with your refund? (Select all that apply); (5) Do you feel confident you are receiving all the deductions you feel qualified for?; and (6) If you received the Child Tax Credit this past year (2021) how do you feel it will affect your taxes? All respondents had to pass a screener question of: Do you plan to file taxes in 2022?, with an answer of “Yes”. GOBankingRates used PureSpectrum’s survey platform to conduct the poll.