Investor: He or She?

People worldwide have been investing since the 16th century, but did you know that women invest 40% less than men on average? Let's dive into this imbalance. 

Would women outperform men?

First things first, why is the percentage of women who invest so low? Rest assured, it’s not because they’re not good at it. According to an analysis of 8 million Fidelity2’s clients, women who do invest have relatively larger returns and add more account balance over time. Fidelity Investments (an American multinational financial service) asked its participants which gender they think generates higher returns on their investments. Of their 1,500 female participants, only 9% believed they would outperform men. Time to boost our confidence, ladies. 

Why don’t women invest?

Further research by This Is Money explained that despite women earning around 17% less than men but still living longer, women still choose not to invest as much as men. Many women claimed to put their extra money into their savings account. One reason for this is that women don’t believe they have the necessary financial knowledge to invest successfully. Secondly, women tend to have a higher fear of losing money. A conflicting effect is the gender pension gap, which shows that women’s pension pots are 11% lower than men due to salary differences. When looking into statistics1 on gender pension equality in the UK, we see that:

  • 1.2 million women in their 50’s don’t have a private pension (50% more than men).
  • Women need to save 5-7% more to enjoy the same level of income retirement men do.
  • 4 in 10 women have not estimated the amount they need for retirement (against ⅓ of men).

The ‘Women & Money report’ by Fidelity shows us that over 60% of women think investing is important, yet only 6% invest disposable income into the stock market. One of the causes of this is that 45% of female respondents find communication on investment complicated, and 18% said they find it to be intimidating and incomprehensible2

The Female Penalty

As mentioned earlier, a fundamental issue is that women earn less on average than men, which makes them more risk-averse. There’s a sociological concept called “Motherhood Penalty”, which signifies that working mothers encounter systematic disadvantages in the workplace. Another term is “Good Daughter Penalty”, which is the societal expectation of women to take care of sick or elderly family members. These are some explanations for the impacts on career progression and earnings. Women don’t think about money as their own, but of the family, which explains their lack of willingness to take risks3.

What are women missing out on?

In a recent poll with 1,500 American respondents, when asked what they would do with an extra $1,000, men were 35% more likely to designate the money to savings or investment than women. According to the CEO of Wealthsimple, Mike Katchen, women who aren’t investing are missing out on a sense of pride and confidence that comes from achieving their financial goals.

The importance of financial independence

Research shows that too many women are relying on men to pay bills. A study by BBC News found that 1 out of 3 women believe they will not be able to pay all the bills if their marriage or relationship ended, compared to only 1 out of every 5 men. 

Although the imbalance between genders is a tough nut to crack, some steps are easy to take. At the moment, the savings industry is still primarily focused on male-oriented language and culture. They can increase women's participation by looking at the language they're using and the messages they’re sending out. Further, they can help bring women into the fold by building trust with them and looking at societal constraints. An example of this is HerMoney, offering a comprehensive collection of resources to support women by giving them financial advice.

Steps forward

Women need to be empowered towards financial independence. An example of the advancement taking place is the FIRE-movement to gain Financial Independence and Retire Early. There are even communities exclusively for women, sharing knowledge, and boosting each other's financial confidence. 

Thankfully, there’s already been a change in the investments world, but further improvement is needed. We can all contribute by supporting women from a young age to start saving for their financial future and teach them how to communicate about financial aspects. The basics are simple: save regularly and get into the markets, you’ll soon see it isn’t rocket science at all.

 

1 A study by St. James’s Palace
2 According to the study by Fidelity involving 1,007 women and 1,006 men.
3 According to Currie, 2018.

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