Women Are Not Men

Women Are Not Men

Women differ from men in their attitudes and expectations when it comes to money management and financial planning. Enough studies into these differences have been conducted for them to now be fully acknowledged, even by the predominantly male financial services industry. We dove deeper in to this topic to learn more about what those differences are and how advisors should take them into account to best service their female clients.

In this first segment of a three part blog series on women and finance, we will look at the growing economic importance of women and the interesting phenomenon sometimes referred to as the “female financial paradox” (see below).  Part 2 will address the circumstantial and behavioral differences between men and women when it comes to investing. In part 3, we will explore what women should expect from their advisors.

Here are some facts illustrating that women are a growing economic force:

  • The majority of college graduates in the US are now women.

 

  • Women represent nearly half the labor force and are the primary breadwinners in more than 40%  of households.

 

  • Women now control 51%, or $14 trillion dollars, of personal wealth and their share is growing faster than the men’s.

 

  • In a large majority of households, women are in charge of the household budget and bill paying.

Source: National Center for Educational Statistics (https://nces.ed.gov)

Despite the fact that women control a growing amount of assets, they lag behind men when it comes to using those assets to plan and build financial security for their future. Women tend to manage money by saving and budgeting rather than planning and investing. This is sometimes called the female financial paradox.

Many professional women blame this paradox on a lack of time. Others admit to suffering from a head-in-the-sand attitude, which prevents them from embracing big-picture financial planning. When offered the opportunity to build up retirement saving through their employers, women turn out to be 11% more likely than men to participate in 401(k) programs at work, according to a Vanguard study. On the flip-side, men have in aggregate twice as much money in their plans.  We will get into the reasons for this in part 2 of this blog post.

A study by the National Institute on Retirement Security found that women are 80% more likely than men to be impoverished in retirement. This lends credibility to the frequently expressed fear by women to “end up like a bag lady”.

How do women fare who do decide to invest their assets? Studies show that they tend to take less risk and trade less frequently than men, but over time their investment performance is as good, or better, than that of their male counterparts.

Terry Odean, a University of California professor, has studied stock picking by gender for more than two decades. A seven-year study found single female investors outperformed single men by 2.3 percent, female investment groups outperformed male counterparts by 4.6 percent and women overall outperformed by 1.4 percent. Why? The short answer is overconfidence. Men trade more, and the more you trade, typically the more you lose — not to mention running up transaction costs.

Barbara Lommen

Barbara Lommen is a financial advisor at Colorado Financial Management.

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