For too long, negative stereotypes about women and money have held women back. At Longview we are keenly aware of these issues because 62% of our clients are women, and many have felt the impact of these stereotypes in their own lives. It's time to set the record straight.
Myth #1: “I’m Just Not That Good With Money”
It’s hard to believe, but it’s been less than 50 years since women in the United States were legally granted the right to full financial independence.
Before the US passed the Equal Credit Opportunity Act in 1974, women couldn't take out credit cards in their own names and banks commonly required single, widowed, and divorced women to bring a male relative as a cosigner in order to take out a loan, regardless of the woman’s income.
We’ve come a long way since the seventies, but the stereotype that women are “just not that good with money” is still part of our cultural narrative. In film and television, countless montages of a diva marching down the pavement in heels clutching an explosion of laminated shopping bags still send the message that all a woman knows about money is how to spend it.
It’s nearly impossible not to internalize these societal biases to some degree.
After interviewing hundreds of women, researcher Barbara Stewart has found that regardless of net-worth or personal and professional accomplishments, most women harbor deep insecurities about money. Far too often, women say they either don’t know enough or aren’t doing enough to feel confident investing, taking out loans, or making other big financial decisions.
Yet such doubts are contradicted by a body of research suggesting that in most situations women are just as good at handling financial matters as men - and sometimes even have better outcomes.
For example, women are more likely than men to pay their loans back on time. And despite the fact that women are less likely to invest than men and less likely to feel confident if they do invest, research shows that women often earn higher returns. In a report based on data from more than 5 million individual customer accounts, investment bank Fidelity found that women outperformed men by 0.4 percent.
So the next time you catch yourself feeling anxiety around money or thinking you just don’t have enough financial savvy, remember: you are probably much more financially competent than you think.
Myth #2: Women are detrimentally “Risk Averse”
Yes, it’s true that men take more investment risks than women. On average, men have more of their money in stocks, and trade more often.
Yet these facts are frequently presented as though men are taking an appropriate amount of risk while women are crippling their potential earnings. Men’s behavior is set as the benchmark against which women’s behavior is measured.
However, the research shows that in the long run, women actually earn slightly higher returns on their investments in part, because of, and not in spite of, their attitude toward risk.
As women and money expert Barbara Stewert so eloquently puts it, “Women are not risk averse; they are risk aware.”
Women tend to invest for the long term, hold onto their investments, and trade infrequently. They also tend to react differently to stock-market volatility. In 2008, for example, men were more likely than women to panic and sell all their stocks. Women, by contrast, were more likely to hold onto their assets and were thus better positioned to benefit once the economy and the markets began to recover.
Unfortunately, the widely-held notion that women are risk averse can become a self-fulfilling prophecy, influencing financial professionals who too often push women toward more conservative portfolios than necessary.
It’s time women start thinking of themselves as “calculated risk takers” rather than risk avoiders. Make sure you speak with your financial advisor to check that your asset allocation reflects your actual goals and circumstances, and not just your gender.
Myth # 3: Women Aren’t Interested in Finance and Don’t Need to Know the Details
This myth stems from an era where husbands were more likely than wives to control a household’s wealth and the financial services industry offered few opportunities to female professionals.
Though men are still the key financial decision makers in two-thirds of affluent baby-boomer households and far out-number women in finance-related jobs, we are on the cusp of a generational wealth transfer that could turn this dynamic upside-down.
By 2030 women are expected to control 66% of investable wealth in the US and be the key financial decision makers across all income brackets as baby boomers pass on more than $30 trillion to younger generations.
Women are taking hold of the reins, and as we see with clients at LongView, their interest in finance has grown commensurately. Online investing and educational platforms from around the world report that in recent years young women have been signing up at almost twice the rate of men.
Women are increasingly advocating for themselves and insisting that their advisors take the time to understand and honor the unique perspectives of their female clients. For example, women are much more likely to care about financial planning toward real-life goals than outperforming the market. They tend to be more interested in philanthropy and the social and environmental consequences of their decisions than their male counterparts. Women are also on a different timeline - on average they live longer than men and earn less money over their working lives, meaning they have more limited resources going into retirement and need their money to last longer. This has direct implications for how their portfolios should be constructed.
These shifts are being driven by millennials and gen-Z. But older women also have a key part to play in the transition as they pass on wealth, knowledge, and cultural norms.
Part of this involves talking to each other. Less than 15% of women regularly discuss finances with friends and family. For too many, feelings of shame and guilt or the desire to “be discreet” make talking about money feel taboo. Yet the more frequently women talk about their finances, the more likely they are to feel confident and take action to set their financial goals on track. Young women who have older female mentors or family members with whom they can discuss their finances are more likely than their peers to express financial confidence and seek careers in the financial services industry.
As women gain control over the majority of the country’s wealth, it’s more important than ever for them to be financially empowered, and for advisors to step up to the plate and transform the industry to center women’s priorities.