Financial Independence: True Female Empowerment
Women have made considerable progress during the 20th century. From the number of female inventors to the number of female world leaders, women have undeniably made tremendous strides in the past few generations. As we head further into the 21st century, it looks like this trend will manifest itself strongest in the economy.
Indeed, according to the Credit Suisse Global Wealth Report in 2018, women account for 40% of the world’s net worth. This enables women to obtain a degree of financial independence unprecedented in recorded human history. That, coupled with the increasing ease of deploying your capital, has increased financial opportunities for women everywhere.
The challenge for the virtual financial services industry is to assist women in their investing endeavors in a way that recognizes their different priorities and preferences. The main issues with appealing specifically to female investors in the financial services industry is the failure to consider these differences which can lead to radically suboptimal investment recommendations for women.
Fortunately, some are aware of this and have started to take the necessary steps to fill this void in the market. By visiting Doughroller’s review of Ellevest investing for women you will see the work that is currently being put into studying the different dynamics of male and female investing and to craft solutions that cater to each separately.
Economic Differences Still Persist
Even though great strides have been made to bridge the gulf of wealth and income between the sexes, there are nonetheless real differences in both variables that greatly influence the way men and women can and are willing to invest their hard-earned money.
For one thing, women on average make less than men. This difference alone means that women simply have a smaller pool of funds left over to save for retirement. This gap is further widened by the higher baseline of expenses women incur from their biological differences with men.
Moreover, women make their money at different times in their lives than men do. Women tend to see their income peak about a decade and a half earlier than men. This itself also necessarily changes the investment pattern as well as psychology of women vis-a-vis men, who not only see their income peak later, but also at a higher level.
Most Investment Advisors Fail To Empower Women
Unfortunately, most investment advisory outfits are slow to catch on to this difference. Many are still used to the recent past where the lion’s share of society’s assets and income was in men’s names, implying that they were the only ones who needed to be consulted and catered to.
This represents a challenge to those who are slow to change with the times and an opportunity to those who are nimble and flexible. The ability to navigate the changing landscape requires industry players to be brave enough to recognize these economic disparities and the consequences they bring to the ability and mindset women must investing their money.
In general, what this means is that women will be able to invest less than their male counterparts and they will tend to do the bulk of their investing earlier in life compared to men. Regardless of why women make less on average than men, this inevitably means that they will make relatively smaller contributions to their investment accounts.
And because their incomes peak quite a bit earlier, their contributions will necessarily peak earlier as well. This is where it becomes a bit nuanced. This is because there is a difference between single and married women. Single women who are the sole breadwinners of their household will sadly see their investment capabilities decline as they age further away from their peak earning years.
In contrast, married women who have a spouse who has an income can rely on them to continue to pay down their diminishing financial obligations and therefore might still be able to keep up with their historical contributions. This is also something industry players serious about staying relevant need to address.
Delving into Behavioral Finance
Another factor that some have been slow to catch on to is the differences in average behavior between men and women that greatly influence their investment decisions. Even when comparing a man and a woman with identical economic profiles, the fact that men prioritize certain things and women others means that these two individuals will probably end up putting their money away very differently.
Generally, women tend to be more risk averse than men. The reasons behind this will be up to the reader to look up, but what it means for investing is that women will tend to choose an investment strategy that will carry lower risk and consequently lower growth opportunities.
In fact, behavioral finance theses have been done researching the real changes in companies that hire a female CEO. They found that companies with a female CEO have significantly more cash on hand relative to those chaired by males. The same different dynamics play out here as well, with female-run companies being safer with more modest growth prospects.
There is no superior investment strategy simply because what one person’s goals might call a far different strategy than the next person. Having said that, these qualitative differences need to be studied further and more in-depth in order to better serve the female niche of the market that has been neglected for far too long.
