Women in Investment: Differences in Investing Behavior and the Wealth Gap
What is the Gender Wealth Gap?
When it comes to gender equality within the workplace, there are plenty of shocking statistics. According to Women in the Workplace, only 28% of women hold senior vice president positions in corporations and women are promoted at 85% of the rate that men are promoted (Coury et. al, 2020). The existence of a wealth gap, however, poses more serious problems for women throughout their career and retirement. The gender wealth gap is the difference between men and women’s sum of all financial resources, such as earnings, savings, investments, and assets. One recent study calculated that single women have only one-third the amount of wealth as single men, and that number has increased in recent years (Merrill, 2019).
What is the Cause of the Wealth Gap?
The wealth gap begins with differences in earnings between women and men. The Pew Research Center has found that women earned about 85% of what men earned, although this pay gap has shrunk among younger workers (Graf, 2019). This difference in pay puts women at an immediate disadvantage in terms of wealth; a smaller amount of earnings means that simply putting money in savings accounts will give women lower returns than men, exacerbating the wealth gap.
However, one of the main reasons of the wealth gap is differences in investing behavior between men and women. Women invest at the rate of 40% less than men and are much more likely to hold money in a savings account (Barrett, 2019). One study found that when asked how an additional $1000 would be spent, men were 35% more likely than women to say they would invest the money (Chatsky, 2018). Despite the relative safety of a savings account, low interest rates (usually less than 1%) pale in comparison to the stock market’s average rate of return of 9.8% (Barrett, 2019). Recent policies by the Federal Reserve have decreased interest rates even further, making money in savings accounts lose their real value as inflation rises (Burnette, 2020). Investing allows for much higher returns than saving accounts, and when women don’t invest, they fall further behind men in terms of wealth. When you consider that women earn lower wages compared with men, and have a longer average life expectancy, the lack of investment behavior can severely disadvantage women in retirement.
The different rates in investing can partially be attributed to the lack of confidence women have when it comes to understanding the stock market and the best ways to invest. Over 56% of Millenial women say they feel unconfident about investing due to uncertain outcomes (Sofi, 2018). According to Cary Carbonaro, Managing Director of United Capital of NY, “women are afraid of losing money, while men seem to be afraid of losing out by not playing the market” (Chatsky, 2018). This conservative behavior of women can be attributed to a lack of pre-college education in investing, as well as internalized stereotypes about women and money. A poll by Capital One found that 81% of Millennial women have experinced negative stereotypes about women and their investing behaviors (Sofi, 2018). These stereotypes can be anything from the idea that women spend too much and don’t know how to manage money, or that investing, traditionally a “man’s” sphere, should remain closed to women. All of these negative images can affect confidence about investing, and disadvantage women in the financial sphere.
Despite the lower rate of investing, women are widely successful when they do invest. A study by Fidelity Investments found that on average, women performed better than men by 0.4% (Sofi, 2018). That low number “can have a huge impact over time, especially when combined with the fact that women tended to save slightly more out of their paychecks toward retirement” (Sofi, 2018). This advantage may be due to women’s often more-conservative behavior; holding a stock for longer periods of time can increase gains. This is because frequent traders surrender more money in the forms of taxes than traders who hold on to their investments for longer (Mitchell, 2020).
Encouraging Investment Behavior in Women
In an effort to close the wealth gap, educational programs and conferences targeted towards women have become more common in recent years. These “female-focused investment communities” have been sponsored by companies like Goldman Sachs and are inspiring women who haven’t thought about investing before to do so (Stewart and Stewart, 2019). In addition, access to technology like trading apps have encouraged women — who have previously been isolated from the financial sphere — to manage their money themselves (Stewart and Stewart, 2019). Education about investing at an early age can help build confidence, a problem which many studies about women’s investing behaviors have alluded to. Talking about the best ways to invest can help women feel more comfortable about managing their money, and lead to big returns in the future (Gilchrist, 2021).
