An interview with Maureen Farrow, economist and trailblazer for women – Part Two

In the second half of our interview with renowned economist Maureen Farrow, we discuss the topic of women’s financial empowerment.

This year’s International Women’s Day theme is #ChooseToChallenge, a call to women the world over to confront and overcome gender bias in all walks of life. As Farrow points out, one of the keys to breaking down gender barriers and promoting women’s financial independence is ensuring they have the education and tools to better manage their money.

In a conversation with Newport Chief Marketing Officer Kelly Willis, Farrow explains why understanding concepts ranging from cash flow to investment management are vital to helping women build financial confidence, the need to enlist the right wealth management advice (and when to ask tough questions of your advisor) and why she uses apples and oranges to teach her pre-teen granddaughter about buying bonds and equities.

KW: Something I read on the International Women’s Day website resonated. It said, “A gender equal society needs empowered women and girls who take control of their lives, make their own decisions, and succeed in their chosen pursuits.” One of the ways we believe women can feel empowered is to take control of their financial lives. What advice do you have for women in this regard?

MF: I think it’s incredibly important. I don’t think enough women understand their finances as well as they should. But they’re not alone. A lot of males also don’t understand how to manage money either. Not just managing money but managing money throughout your life. Being prepared for the unexpected. Like losing your job, or income. A divorce. Some big expenditure that comes up that you’ve got to make. There are things that happen in one’s life that people are just not prepared for. I think it’s a very important area to be educating people on. I’m pleased to see we are beginning to do more of that in the education system. It’s encouraging but it’s possibly not enough. Money does not grow on trees. There are no money trees about as I tell my grandchildren.

KW: We know that it can be intimidating for people. You probably have friends who are professionals, as I do. I am thinking of someone who is a highly-successful confident professional but when she sits down with her financial advisor, she says, in her words, “I feel stupid and small and I don’t like feeling stupid so I avoid it.”

MF: Yes! It’s easy to feel stupid, and it’s unfortunate we feel that way. So I think for all women – and men – gaining an understanding of financial terms, how to manage their cash flow and their investments, and why they need them is important. Being able to deal with and not be intimated by asking their financial advisors key questions. And also, it’s important to get financial advisors who are independent. You have to take advice but also have a clear idea of what you want to see happen. So getting yourself educated in financial management is important. As women go through life, they are going to make important decisions and sign documents that have financial implications – it may be a mortgage, a power of attorney. Things you need to understand if you are going to be in control of your financial affairs.

KW: You are more than capable of investing your own money, and yet you have chosen the option of hiring professional money managers. Tell us about that.

MF: I do invest some of my money directly, but I think it’s important to use your expertise to choose the right money managers. Because if you’re a hard-working professional…say you’re a dentist or a lawyer or a surgeon, you don’t have the necessary time. And I do think it’s important to have a disciplined investment approach. Choose the right money managers. In my case, I use my economic expertise on asset mix and I go through my portfolio with David (David Cole, Newport Managing Director). Where am I exposed? Where are we not exposed? I do a spreadsheet every quarter to know what our household net worth is looking like. I like to spend my expertise on getting the asset allocation right, as my skill set is not picking stocks. Newport does this for me through its diversified funds.

KW: You have a granddaughter, aged 9. What do you want her to know about taking control of her financial well being?

MF: She has an account at Newport. Did you know that?

KW: No, I didn’t!

MF: Yes, both my grandchildren do. I believe children need to be educated in financial matters and how to manage money through their life span. It doesn’t start when they are 40 or 50. It should start when they are 3 or 4.

I think you need to have them start thinking that money doesn’t grow on trees. People have to work for it. Certain jobs have certain rewards – and not just monetary rewards but other rewards. I think that children should learn to have a budget. For every dollar they get, they should learn how to allocate it. First, design a spreadsheet that they can understand. Let’s use a dollar as an example and how do you divide it up? The first column is cash to spend. It’s very important for a child to experience money in their pockets that they can spend freely. Then you have a second column for short-term money. Okay…I’m saving up to get something – a bicycle, or gifts for my family. Then you’ve got your long term, now that’s the really big stuff. Now as a child, it’s for your education to go to university or something like that. You explain this so that they understand about budgeting. You don’t spend everything you get is the main message. You always need to have savings and investments because you never know what might happen. You try to teach that in a nice way.

KW: And how do you do that?

MF: I sit down – well, I was sitting down, I haven’t for the last year! But I sit down with my granddaughter once or twice a year and explain her investment account and review the charts. I explain that the money comes into the account in two ways. Every Christmas and birthday, money goes into her account as part of her present. Also, because her money is being invested, it grows, most of the time. So there are two ways it grows. Money deposited and interest earned. The next thing I explain to her is we have a whole series of different “products” – and I explain that by saying if we were going to the supermarket we might get some apples, some oranges – and you have all these different things in your portfolio. I explain equities and bonds in terms she can understand. With equities, they’re difficult to explain but I do that with the stock of a toy company in the portfolio – something they can relate to because they have some of those toys. I did this with my own son when he was growing up. You’ve got to pick something that a child can relate to. You know you’re not going to buy a mining company. It’s very important to keep educating and building on it. It’s as important for boys as girls. I’m also very lucky that my son and daughter-in-law are very keen for her to learn.

KW: Okay, so I have to ask. You said you did this with your son. Was he responsive? How did that work out?

MF: My son is an incredibly responsible investor. He never overspends. He’s always got savings. It’s really worked with him.

KW: And now you can see it with the next generation. How wonderful!

MF: Well I hope so! You never know of course.

KW: Maureen, thank you. This has been fantastic. I’ve known you for years of course as our independent economist who has provided valuable economic insights to the Newport Investment Committee but you have shared great insights today on a much broader topic. Thank you.

MF: Thank you, Kelly. I enjoyed it and I’m happy to help Newport celebrate International Women’s Day.