User:Quebec/Women and investing

From finiki, the Canadian financial wiki

There is a gender difference in saving and investing: as a group, women tend to save less, and invest less, than men. Women also tend to have more conservative portfolios[1][2][3][4], which has been perceived mostly as risk aversion behavior, but might also be caused by other factors. This results in lower average wealth. Yet women's life expectancy is longer (5 years longer on average in the US[2] and 4-4.5 years in Canada[5][6]), leading to longer retirements. So investing less and avoiding equity investments may cause them financial difficulties later in life. In other words, the investment gender gap is likely to cause a retirement income gap.

This article aims to help Canadian women progressively bridge the investment gender gap. The article first attempts to briefly summarize the academic research on gender differences in saving, investing and wealth. Then it explores what women, and the investment industry, can do to close these gaps. Finally some ideas on what men can learn from women about investing are given. Each person is unique and what follows are broad generalities based on group averages.

Statistical differences between genders

Income

Although the wage gap has narrowed over time[7], median income is still less for Canadian women than men across all age groups:

Median total income, Canada, 2022, by age group[8]
Age group Males Females F% of M
15-24 $20,620 $17,720 86%
25-34 $56,570 $46,050 81%
35-44 $75,770 $55,930 74%
45-54 $80,600 $59,280 74%
55-64 $71,800 $53,060 74%
65-74 $63,690 $50,800 80%
75 and older $55,280 $45,930 83%

Lower income during working years continues during the retirement years, with median total income for women being 80-83% of men's at ages 65 and over (the "F% of M" column in the table). The retirement income gap varies depending on source: the gap is widest for "private retirement income" (employer pensions, retirement plans such as RRSPs, etc.) as opposed to government pensions and benefits (CPP/QPP and OAS).[9]

Saving and investing: amounts and habits

Canadian women, as a group, save and invest less than men (in dollars per year and cumulatively)[citation needed]

Contributions to registered savings accounts, Canada
Account Male Female
RRSP, median, 2022[10] $4710 $3120
TFSAa, mean, 2020[11] $9612 $8758
Pension plans

a Note that the average TFSA contribution is larger than the new yearly contribution room, because withdrawals can be re-contributed the following year. This makes the TFSA contribution numbers difficult to interpret..

In addition,

  • A greater proportion of Canadian women haven't started saving for retirement: in the 35-54 age group for example, that's 32% of women versus 17% of men[12]
  • A greater proportion of Canadian men save and invest lump sums "whenever they can"[12]
  • A greater proportion of Canadian men save/invest regularly through automatic deductions[12]

Wealth

Women, as a group, have lower average financial wealth, relative to men. For example, in the province of Quebec, at the 75th percentile of net wealth, men own 1.44 times more than women, based on a survey.[13] In general, in western economies, "wealth is even more unequally distributed than income".[13] The wealth gap is observed when comparing single men to single women, but also within different-sex couples.

One factor seems to be owned housing, which is a major component of the net worth of many Canadians. The gender difference is most obvious for single parents: in 2015, in Canada, "38.2% of lone mothers lived in a house owned by oneself or a household member, compared with 62.0% of lone fathers".[7] Those single parents, regardless of gender, have a lower average net worth than couples with children (who combine resources); but in 2015, "the average net worth of lone mothers was less than half of that of lone fathers: $240,000 versus $540,000".[7]

Asset allocations

Attitudes and literacy

  • Women, as a group, are less financially literate than men, according to some measures, in most countries[5][12][14][15]
  • Fewer Canadian women think and plan their finances 5 years ahead or more[12]
  • Canadian men are more likely to say that they are in "full control" of their financial future[12]

Explanations for the gender differences

Amounts saved and invested

Incomes and career paths

Lower annual savings from women can be explained in part by the gender gap in incomes.[16] This income gap has narrowed over time[17] but still persists, as seen above.

Lower total savings are influenced by fewer working years on average, often due to family responsibilities, such as caring for children or elderly parents.[17]

Inheritences

Lower wages and savings are an obvious explanation for the wealth gap. Two other factors are unequal inheritences (men are more likely to inherit from their parents, especially if the transfer of a family business is involved), and different investment practices and performance, as discussed below.[13]

Barriers to entry

In addition, among Canadian non-investors (men and women), more than half think that they "don’t have enough money to start investing".[18] In worldwide surveys the proportion of women who make that statement tends to be larger than that of men.[18] Further, the majority of Canadian non-investors (men and women) find "information about investing difficult to understand", and again in worldwide surveys this proportion is greater for women.[18]

Personality traits

In psychology, there are five 'big' personality traits: openness, conscientiousness, extraversion, agreeableness and neuroticism. One hypothesis that may partly explain the gender gap in financial literality (and financial management or investment) is that women, on average, score differently on certain personality traits, such as neuroticism.[19]

Redistribution within couples

One survey in the province of Quebec looked at of 25 to 50 year old people, who are members of a couple in which one partner earns more than 60 per cent of the couple’s total income. Respondents were asked whether members of the couple save separately for retirement or if they "adopt a redistributive management strategy".[20](Examples of redistribution strategies within couples with unequal incomes include spousal RRSPs, contributing to the spouse's TFSA, or sharing expenses unequally to equalize retirement savings; all of those strategies are discussed under Income splitting.) Despite the conjugal fairness motivations, and the potential tax advantages of these strategies, among those couples who save for retirement only "38 per cent employ a redistributive strategy, while 62 per cent use an individualised one".[20] Since women are more frequently the lower-earning partner, redistribution is far from complete.

Asset allocations and wealth

Risk aversion

Bajtelsmit and Bernasek (1996) explore the possible causes of women’s more conservative portfolio choices.[1] In general, this has been attributed to risk aversion, and indeed Embrey and Fox (1997) report that in a survey of single households in the US, “62% of women indicated that they were not willing to assume any risk, compared to 34% of men who were not willing to take risks”.[2] Also, “nearly 60% of the men in the sample indicated that they were willing to assume average or above average risk, while only 36% of women self-identified as risk tolerant”.[2] Similar results were obtained in Germany: women perceive themselves as less willing to take risks.[21][14]

Explanations for this greater risk aversion include:

  • Differences in wealth and income: women are less wealthy (and earn less income) then men on average[1][2][16], and risk aversion decreases with wealth
  • Differences in employment: women tend to work in lower income occupations[1] and tend to work part time more[2]
  • These differences in wealth and income can ultimately be explained by discrimination in labor markets, and greater family responsibilities[1]

To sum up this line of reasoning, women have less money available then men to invest, and this explains in part their greater risk aversion (real or apparent).

Financial literacy

Other explanations for more conservative asset allocations and lower wealth focus on general education levels[2][22] and financial literacy in particular.[4][5][14][23] If women have less financial knowledge[5][12], perhaps because they have "less inclination to collect and process financial information", this may lead to overly conservative behavior.[1] Women may also receive more conservative recommendations from their financial advisors because of perceived lower risk tolerances.[1] If women have less information, and perhaps less confidence in their financial skills[5][24], they may be less likely to challenge these conservative recommendations.

However, the idea that women are less financially literate on average can be challenged. The Economist reports that “research presented at a recent OECD conference on financial education showed that when asked a financial question, women in most member countries were more likely than men to respond “don’t know”. When that option was removed, however, they answered correctly as often as men.”[25]

Confidence

A number of studies report that women are less confident than men in their financial skills or knowledge.[citation needed] In other words, their self-perceived (as opposed to measured) financial literacy is weaker.[22] However, for women, confidence seem less important in explaining wealth than actual financial literacy.[22]

Information processing

The perception of financial risk might be influenced by differences in how genders process information.[26]

Optimism and perceived risk

A last group of explanations for the gender gap in equity holdings relates to gender differences in optimism and stock market risk perceptions. Jacobsen et al. (2014) find that as a group, men are more optimistic than women about the economy.[3] Optimists tend to invest more in stocks since they expect future returns from stocks to be higher than pessimists do. Jacobsen et al. (2014) also show that women perceive the stock market as riskier than men do.[3]

Closing the gender gaps in investing and wealth

What women can do

Getting started early in saving for retirement means longer time for compounding. The perception that significant sums are needed to start investing is mostly wrong; for example, many mutual funds have a $500 initial minimum, with smaller subsequent purchases allowed. The minimum purchase for exchange-traded funds is one share, which can cost as little as $20. Automating savings by making regular transfers to accounts such as RRSPs and TFSAs can help all investors save more.

Based on the evidence presented above, one of the keys to closing the gender gaps and wealth and investing is financial literacy. As the saying goes, knowledge is power. Women should learn more about finance, portfolios, investment choices, etc. More familiarity with stock market history, historical risks and returns of different asset classes, behavioural pitfalls, etc. could lead to higher stock allocations, lower cash allocations, and higher expected portfolio returns. Ultimately, this should help women have more comfortable retirements and more financial security. Good entry points into the wiki include:

Financial knowledge can be gained from online sources including this wiki, from books, from seminars or courses offered by universities or other reputable institutions, and from good financial podcasts. Women should not hesitate to discuss financial topics with financially knowledgeable family members, friends or colleagues: investing should not be a taboo topic! And of course, women can seek and offer advice on the Financial Wisdom Forum.

What the financial industry and advisors can do

The male-dominated financial industry has not been especially woman-friendly. There a few female role models in the investing world, and 80% of financial advisors are men.[27] Having more women working in the financial industry, especially in top executive positions, should help change the industry's image over the long term. Communicating with less jargon should be helpful.[27][28]

The same portfolio might be appropriate for a man and a woman if they have the same risk tolerance, time horizon, etc. However women may have different perceptions and attitudes towards money and investing, and when working with an advisor, may be looking for a different experience than men do. For example, many financial advisors focus on rates returns and selling products[27], but women might be looking "for a trusting relationship, not just higher rates of return".[29] It may take longer for advisors to establish trust with female clients: "women want a financial advisor who takes the time to understand what is important to her, someone who respects her and listens to her concerns and doesn't jump to conclusions about what's “best” for her".[29] Listening skills are important for financial advisors working with female clients, and so are connecting money with goals, and confidence-building.[29][27]

What men can learn from women investors

Confidence and optimism are useful personality traits for investors, but overconfidence – which men tend to display more in financial matters[30] -- can lead to mistakes. Overconfident investors trade stocks too much, and this tends to lead to lower investment returns.[30] In a classic study of over 35 000 brokerage accounts in the US, Barber and Odean (2001) show that “single men trade 67 percent more than single women thereby reducing their returns by 1.44 percentage points per year more than do single women”.[30] The popular press has attributed such behavioral differences to varying hormone levels between the sexes.[31]

A Warwick Business School study of 2800 UK investment accounts found that women outperformed men by 1.8% a year.[32] The main factors explaining the women’s better performance were (i) men’s greater willingness to buy speculative stocks; (ii) a tendency of men to hold on to losers; and (iii) the women’s preference for investment funds, which provide better diversification than individual stocks.[32]

The finding that women appear to be better investors than men, as a group, according to some studies, might seem irreconcilable with the idea that women are less financially literate, etc. But recall that fewer women open self-directed brokerage accounts, compared to men.[note 1] Among those who do open such accounts, women seem to be doing a better job, as a group.

In summary, if they want to improve their returns and lower their risk while keeping the same level of stock market exposure, men should trade less, refrain from buying speculative stocks, let go of losers, and hold more diversified portfolios.

Notes

  1. ^ For example, in the Barber study, there were nearly three times as many single men as single women.

References

  1. ^ a b c d e f g h Bajtelsmit VL, Bernasek A (1996) Why do women invest differently than men? Financial Counseling and Planning, Vol. 7, 10 pages, available on ssrn
  2. ^ a b c d e f g h Embrey LL, Fox FJ (1997) Gender differences in the investment decision-making process. Financial Counseling and Planning, vol. 8, available on ssrn
  3. ^ a b c d Jacobsen B, Lee JB, Marquering W, Zhang CY (2014) Gender differences in optimism and asset allocation. Journal of Economic Behavior & Organization vol. 107, p. 630-651, available on ssrn
  4. ^ a b c Dwyer PD, Gilkeson JH, List JA (2002) Gender differences in revealed risk taking: evidence from mutual fund investors. Economics Letters vol. 76, p. 151-158. Available from the University of Chicago
  5. ^ a b c d e Drolet M (2016) Gender differences in the financial knowledge of Canadians. Statistics Canada, Catalogue no. 75-006-X, viewed November 5, 2019
  6. ^ Ahmed-Haq R (2017) Women need to save more than men for retirement – here's why, CBC News, viewed November 5, 2019
  7. ^ a b c Statistics Canada, Women in Canada: A Gender-based Statistical Report, catalogue 89-503-X, report released May 16, 2018, viewed March 9, 2024.
  8. ^ Statistics Canada, Wages, salaries and commissions of tax filers aged 15 years and over by sex and age group, Release date: 2024-03-06
  9. ^ Gender Pension Gap, Province of Ontario, Pay Equity Office, viewed March 9, 2024.
  10. ^ Statistics Canada, Selected characteristics of tax filers with Registered Retirement Savings Plan (RRSP) contributions, Catalogue number 11-10-0044-01, viewed November 7, 2019
  11. ^ Canada Revenue Agency, Tax-Free Savings Account statistics (2020 tax year), Table 3A: TFSA Fair Market Value, Contributions and Withdrawals by gender and age group
  12. ^ a b c d e f g h Ontario Securities Commission, National Investor Research Study, November 2018, viewed November 10, 2019
  13. ^ a b c Pugliese M, Benoit P, et al., (2023) The Gender Wealth Gap in Québec. Canadian Studies in Population 50:article 7, DOI 10.1007/s42650-023-00078-6.
  14. ^ a b c Bannier CE, Neubert M (2016) Gender differences in financial risk taking: The role of financial literacy and risk tolerance. Economics Letters 145:130-135, DOI 10.1016/j.econlet.2016.05.033. Viewed April 19, 2020.
  15. ^ Klapper L, Lusardi A, Oudheusden P (2015) financial literacy around the world: highlights from the S&P global financial literacy survey, viewed April 20, 2020.
  16. ^ a b Fox D, Moyser M (2018) The economic well-being of women in Canada. Statistics Canada, Catalogue no. 89-503-X, viewed November 5, 2019
  17. ^ a b Tal B, Judge K (2019) The Changing Landscape of Women’s Wealth, CIBC Capital Markets, viewed November 7, 2019
  18. ^ a b c BlackRock Global Investor Pulse Survey 2019, viewed April 23, 2020.
  19. ^ Robson J, Peetz J (2018) The impact of personality traits: a fresh look at gender differences in financial literacy, report prepared for Chartered Professional Accountants (CPA) of Canada, 44 pages, viewed April 28, 2020.
  20. ^ a b Pugliese M, Belleau H (2021) The Management of Retirement Savings Among Financially Heterogamous Couples. Social Policy and Society 20:580–598, DOI: 10.1017/S1474746420000627
  21. ^ Badunenko O, Barasinska N, Schäfer D (2010) Investments: Women are more cautious than men because they have less financial resources at their disposal. German Institute for Economic Research, Weekly Report, vol. 6, no. 1, 5 pages
  22. ^ a b c Bannier CE, Schwarz M (2018) Gender- and education-related effects of financial literacy and confidence on financial wealth, Journal of Economic Psychology 67:66-86, DOI 10.1016/j.joep.2018.05.005, available or SSRN, viewed April 20, 2020.
  23. ^ Lusardi A, Mitchell OS (2011) Financial literacy around the world: an overview. NBER Working Paper 17107
  24. ^ Prince M (1993) Women, men and money styles, Journal of Economic Psychology, vol. 14, p, 175-182
  25. ^ The Economist, Ladies who hunch; do women make finer financiers than men?, December 13, 2013, viewed November 4, 2019
  26. ^ Graham J, Stendardi E, Myers J, Graham M (2002) Gender differences in investment strategies: an information processing perspective. International Journal of Bank Marketing 20:17-26, DOI 10.1108/02652320210415953, viewed April 19, 2020.
  27. ^ a b c d Carrick R (2018) The investment advice business is testosterone city – here's how women can fight back, The Globe and Mail, viewed November 5, 2019
  28. ^ Ashley Redmond, Do Female Financial Advisors Give Advice Differently?, Morningstar "special report", March 4, 2024, viewed March 9, 2024
  29. ^ a b c Paradi J, Filion P (undated) Financial advisors are failing women; what women really want and how to change the dialogue. StrategyMarketing.ca, viewed November 5, 2019
  30. ^ a b c Barber BM, Odean T (2001) Boys will be boys: gender, overconfidence, and common stock investment. The Quarterly Journal of Economics, vol 116, p. 261-292, available on ssrn
  31. ^ Fairley J (2015) How lower testosterone helps women investors outperform their male counterparts thestreet.com, viewed November 5, 2019
  32. ^ a b Warwick Business School, Are women better investors than men? June 28, 2018, viewed November 3, 2019

External links

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