CEO Prosperwell Financial, Wealth Advisor RJFS
Research highlights how men and women often show differences in how they use money, feel about money and communicate about money. Some of those differences come from how we were raised. Each one of us has different memories tied to finances and different lessons imparted based on our demographics. While it is important to understand the potential differences between men and women, the most important thing is to appreciate these differences.
If a woman stays at home to care for her children, she misses up to 18 years of work. That means that for those years, many of these mothers don’t have personal funds going into a retirement plan or social security. This can pose a large financial disadvantage for women once they reach retirement.
According to a recent survey sponsored by Welch’s, mothers work an average of 14 hours a day, or a 98-hour workweek. And while women currently earn more bachelor’s, master’s and doctorate degrees than men, they still make an average of 82 cents for every dollar that a man makes. Not only do we make less money, but we also spend it differently.
I believe that it costs more for women to live than men. Just look at dry-cleaning. It costs more to have a woman’s shirt cleaned than a man’s. How about haircuts? That is another area that is more expensive for women, and the list goes on and on. Also, women live on average seven more years than men according to a report from HHS’ Centers for Disease Control and Prevention. Not only does it cost women more to live but they also invest less and make less, even though women need more money in retirement since they are outliving men.
Research supports that women don’t make investment decisions the same as men do. For example, although there are many outside factors that help create this trend, women tend to be more risk-averse than men and conservative as investors. Maybe it is because some of us are caretakers. We are moms, wives, daughters and so much more. Women are put in a position by society to always put others first.
Conversely, research shows that men are overconfident at times when it comes to investing. A 1990s study of over 35,000 households documented for almost six years showed that men engage in 45% more trading activity than women. I see this with our clients. Women, in general, get touted that we are more emotional, but this is certainly not the case when it comes to financial decisions. I routinely see men get wrapped up with buying and selling while I see women focus more on financial planning and the big picture. In my opinion, that is why women often make better investors.
This same study also found that when trading, men reduce their net returns by an average of 2.65% a year as opposed to 1.72% for women. I often see how men are less patient when waiting for a positive outcome from their investments and are more likely to modify their portfolio if it is underperforming in their eyes. The study found that women were found to favor safer options.
The gender difference that seems to have the most significant impact on investor behavior is how men and women self-reported levels of financial knowledge.
In research by Merrill Lynch, “Women were far more likely than men to say they had lower levels of financial knowledge.” Related to this, I believe women are more willing to acknowledge when they don’t know something in general and ask for help; just the same as women are more likely to stop and ask for directions if they are lost.
I have seen how many women rely on others for investing information when compared to men. Utilizing the experience of a community can make you better equipped to make financial decisions.
We all, no matter our age, gender, etc. are vulnerable to making a bad investment decision at some time in our lives. However, if we understand who we are as an investor, the probability of that happening greatly diminishes.
The first step is to identify your personal influences of biases. This may not be easy, but it’s important to understand our biases and come up with questions that will help us figure out whether these are affecting our decisions.
For example, if you toss a coin five times and each time it lands on heads, what is the most likely outcome of the next toss? If you answered either heads or tails, then you have representative bias. Since past performance is not an indication of future performance, there is still a 50% chance it lands on either side.
So, what things can women do to help themselves? First, trust your intuition and your hunger for knowledge. The women I have worked with tend to have great intuition but just need to trust and use it.
When it comes to investing and money, you can use a wealth advisor to help you focus on your financial plan and gain assurance on your choices. In the end, get a plan, put together a strategy and monitor your accounts in order to realize your dream. All the while, recognizing the very real gender biases in the industry can help you navigate the financial world with confidence.
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