Sallie Krawcheck knows Wall Street. She’s worked in top finance positions at Bank of America and Citigroup after earning her MBA at Columbia Business School.
But it’s Main Street—specifically women on Main Street—where she’s focused these days. In particular, she wants to get young women investing more—and investing smarter.
To do that, she created an automated goal-based investing service Ellevest, which launched earlier this year, aimed specifically at women. We spoke with her about why women have specific needs when it comes to money, and what it means for financial planning—especially for those who are still paying off student loans.
Why do women need to be paying extra attention to their money? What’s the biggest thing about financial advising by and for women?
When we created Ellevest, we started with the recognition that women do not invest to the same extent that men do: that we have a “gender investing gap.” And that this gap can cost us women hundreds of thousands — or even millions — of dollars over the course of our lives.
So what’s the “biggest thing”? It’s certainly not the tired old myths around women and investing: that women need more “handholding,” that women are “too risk averse” to invest, that women won’t invest online because they “need a person,” that helping women invest comes down to having them work harder to get themselves financially educated.
What is a “big thing” that we’re addressing? Women tend to live longer, earn less, and really want to understand the risk of their investments—more specifically the risks of their not reaching their financial goals. All these things have to be addressed in an investment platform; we’re the only ones who do.
Just after you graduated with your MBA degree, what are the smartest things you did in those first years out of school to set yourself up for success?
Easy: I worked hard.
What’s some of the worst money advice you hear given to women (or anyone for that matter)?
How much time do we have?
Here are two: the first is the widespread advice to build up an emergency fund before you pay off your credit card debt. Since credit card debt is (very) expensive and cash (ie, your emergency fund) doesn’t pay very much interest, this can cost a lot. Here’s what to do instead: pay down your credit card debt. Then, if you need money in an emergency and haven’t yet built up your emergency fund, borrow money on your credit card. (Gee, you might say, what if the bank cancels my credit card just when I need the money? Believe me, they want to lend you money…so holding credit card debt outstanding just in case the bank might cancel your credit card one day is extremely expensive insurance.)
“Don’t wait until you’ve paid off lower interest rate loans, like student loans—do what you can to save even a small amount for your big goals in life and retirement.”
The other really bad advice: wait to invest until you earn more. The right time invest is almost always “now,” so that the power of compounding can begin to work its “magic.” Don’t wait until you’ve paid off lower interest rate loans, like student loans — do what you can to save even a small amount for your big goals in life and retirement.
One of the best ways to get out of debt faster and invest more is to earn more. What tactics have you found successful when it comes to a successfully asking for more compensation?
If you’ve been offered a new job, negotiate. The research is clear that men negotiate more at this point than women do, so this is one point at which women begin to fall behind. So ask for more money when you get the job offer.
If you’re currently in a job, I advise you to lay the groundwork for the ask months in advance. Things to discuss with your boss: What does success look like for this job? What are top-of-list goals for your department? What are the metrics by which she/he will measure your success? What does she/he need to see to give you a substantial raise or a promotion? And the more concrete numbers you can put around this, the better.
If you’ve both agreed on what success looks like, the ask for the raise should be easy: “We agreed that I should shoot for x in order to get the raise. The business results came in at better than x….” You get the point.
And if you’re told no? Or later? Well, a mistake I’ve seen people make is that they think the only thing of value is the raise. There are lots of other things you can negotiate for: an overseas assignment, working on a company-critical project, doing a tour of duty in the marketing department…you get the picture. Each of these can increase your worth as a professional…and in some cases, can be more valuable over time than even a raise.
How can young professional women prepare for a career break—for example stopping out for maternity leave or career switch?
Like your other life goals, you should plan and save for it. In this case, you should make sure you have more than enough money set aside to cover you for the duration. You should already have built an emergency fund, which should hold enough cash to pay for at least three months’ worth of necessities. Definitely, beef up your savings beyond that. If you want to take a yearlong hiatus from work, if possible, save at least enough for that year plus three months before you put in your notice.
The biggest financial hit from a career break often is not the lost money during the career break itself, but the reduction in pay when you return — and the raises you receive in the future that are based on that lower level of earnings. So, if you’re able, negotiate your career break — and the job and salary you’ll earn on your return. Not everyone can, but this can be the most profitable discussion of your career.