Women and finances

Samantha Matthew, Investment analyst, Glacier by Sanlam

In the last few decades women have made strides in almost every facet of life – from politics, to education and the workplace - no longer content to sit in the background; we have seen women in general come to the fore in the global arena. There is one ar

It has been statistically[1] proven that women spend no more than men – in fact the difference doesn’t lie in the amount that is spent, rather just in what it is spent on.

One area where women are falling behind however is when it comes to saving for retirement. Despite the fact that women tend to live longer, are likely to take more breaks from the workplace to raise families and in general still tend to earn less - the study shows that overall women tend to not plan enough for the future - relative to men. A recent study conducted in the US[2] supports this claim. Even though women have been managing household financial matters for years - it seems that the general trend is that on average females tend to be less involved when making investment decisions.

Research shows that one of the primary reasons women may fall behind when it comes to financial planning, is simply that they lack the confidence when it comes to making financial choices. One of the core factors that have been identified as contributing to this lack of confidence is that women, historically, are less likely to be socialised in financial matters than men. Where men may start dabbling in investments and thinking about saving from a young age, it often takes a big event or goal to encourage women to invest and save.

It seems that cultural messages and antiquated belief systems have managed to create “psychological” barriers – where many women are still taught that they do not have to take care of themselves financially. So while we still aim for the good jobs, somewhere on a less conscious level this type of old-fashioned thinking prevents us from fully utilising our salaries and planning our financial futures adequately. Even though it appears that over the last few years women are starting to have a more active approach to their finances, these imbedded traits still provide something of an obstacle.

Ironically, even though it seems that women may spend a shorter time in the workforce and have a longer lifespan after retirement, studies show that on average women are much more cautious investors (more risk averse) relative to men[3]. The Investment Barometer (a survey conducted bi-annually in the US & UK) shows that on average women are more likely to invest their savings in secure but conservative money market accounts. This means that once you take into account inflation, over the long term their portfolios will not yield much real return. It must be noted though that the level of risk tolerance does differ somewhat between women who have careers and create their own wealth, compared with those who are beneficiaries of wealth. The ‘wealth creators’ are often more willing to take on higher risk as they have been more exposed to handling their money from an early age.

Although I have painted a bit of a dismal picture of women and investments thus far – a deeper look shows that it is not actually all negative. According to research most women spend about 40% more time researching unit trusts before making a decision, when compared with men.[4] So despite the fact that women may lack the confidence to be the main decision-maker when it comes to their investments – they are still often better prepared when the decision is eventually made. It has also been proven that while women tend to lack the necessary conviction when it comes to taking the plunge, on the other extreme men often are overconfident when it comes to their investment capabilities[5]. This sometimes leads to male investors trading their portfolios more frequently and could result in counterproductive trades that diminish returns. It has also been proven that women are more likely to admit when they do not understand something regarding their financial matters and seek advice. Women are regarded as looking at an investment decision more holistically and being more concerned with seeking stability rather than increasing wealth just for the sake of it. If one looks at it from this perspective, then the fact that the average female investor tends to be more cautious and thus more concerned with capital protection actually makes sense.

Even though it has been statistically proven that women are less involved in their own personal investment decisions – it has also been shown that is not due to a lack of financial understanding or willingness to understand. In fact if one takes a deeper look at the way women think about their financial decisions, one can actually see that they have all the characteristics necessary for making good long-term prudent investment decisions. For many the hurdle is simply a lack of faith in their own investment decision-making abilities. The only way to slowly eradicate this mind-set is through proper financial planning and to create a culture of actively thinking about personal finances from an early age. For those women who have started to change the paradigm of the past – well done. For those who may still need to take that plunge and take control there is no time like the present.