Why do so few women invest?
A recent Australian Investors Study conducted by the ASX has found an impressive increase in the proportion of women investing for the first time. Of the investors who began investing during 2019, 45% of them were women. This compares to 31% only a decade ago.
On the surface this seems like we’re making huge strides in closing the gender investing gap. In reality, the percentage of women that make up the total number of Australian investors is still only around 18%, according to a 2020 study by Investment Trends.
While the trend is positive, it’s clear we still have a way to go to bring us closer to parity with our male counterparts.
So why is it that so few women invest? The ASX study gives us a few clues with the data relating to how women invest. The study showed that female investors tend to invest less, in more conservative assets, are more inclined to have a strategy and hold it, review their portfolios less often and make fewer changes in response to market movements. Overall, it points to lower risk tolerance than most male investors.
Some may argue that women are biologically more risk averse. Even if this is true to some extent, any biological risk aversion is likely to be exacerbated by the subconscious messaging women receive about money. Societal norms, gender stereotypes and media messaging are powerful invisible forces that impact the way that women think about and behave with money.
For example, a 2018 study done by Starling bank in the UK found the way the media talks to men about money differs significantly from the way the media talks to women about money. The study found articles targeted at women tended to focus more on spending less and saving more. They encouraged women to control their spending, with language such as “cutting coupons” or “reigning in expenses”. They were given “hints and tricks” so as not to “splurge” on unnecessary items. The tone was generally more demeaning and condescending, possibly in an attempt to make the topic of finance more understandable.
In contrast, they found articles targeted at men took on a more assertive and aspirational tone, using language such as “conquering” their finances. They spoke of cars, property, and other luxury items representative of wealth (and dare I say, power).
Unfortunately, it’s not just the media that impacts how differently men and women think about money and risk. The ways we parent boys and girls are significantly different, especially when it comes to risk taking. Most parents (at least in Western cultures) are likely to give boys a “longer rope” and tend to instil a need to “be careful” into girls, according to research conducted by University of Houston. As a result men are generally more willing to take risks, whether that be with their careers, investing or driving a car.
Given these strong headwinds, what can we do to balance out the gender investor gap, and consequently the gender wealth gap? Here are a few ideas.
Changing the narrative: Rather than assuming frivolous spending and focusing of frugality, the media need to change the women and money narrative. There needs to be more focus on maximising earnings (whether salary negotiation or business ownership), having financial goals and aspirations and learning to invest to grow long term wealth and financial security.
Reducing risk aversion: In line with both of the above approaches, providing more education for women about markets, diversification and the mechanics of investing is important for building confidence and reducing risk aversion.
Value investing: Most women prefer to invest in companies and funds that reflect their core values. Research conducted by Morgan Stanley (https://www.morganstanley.com/ideas/sustainable-socially-responsible-investing-millennials-drive-growth) found that up to 84% of women said that they were “interested in companies or funds that aim to achieve market rate financial returns while pursuing positive social and/or environmental impact.” It’s important to develop investment products that women want to buy; this does not mean making women-only funds or simply making the marketing pink! It means understanding what motivates women to invest.
STEM matters: Many girls receive limiting messages growing up that they aren’t suited to maths, technology, engineering or science because boys are (supposedly) better at them. Women are encouraged to seek nurturing, caring roles (which society undervalues and underpays) while men are encouraged to be ambitious and pursue high earning professions.
Community: The ASX survey found that around 36% women use information from friends and family to make investment decisions. Platforms such as US company Ellevest not only allows women to execute trades, but also educates, encourages and creates a sense of community around caring about your financial future. Technology and community can play a key role in making investing accessible and non-threatening.
While the news from the ASX is positive there's still a lot of work to be done to increase the number of women who are investing and also to support them to be able to do so in a way that is going to continue to keep them invested over the long term.
*Jane K Walters is a former financial planner turned financial coach. She is passionate about helping women transform their financial lives and truly believes that it all starts with the mindset. After years of providing detailed and complex financial strategies for clients who didn’t go on to implement them, Walters realised that what stops people becoming wealthy is about more than just knowing what to do and all about why you do it – and that is determined by their relationship with money.