Why Do Women Invest Less Than Men? Blame the Income Gap
As women gain wealth, advisors must prepare to serve them.
While demographic trends and societal norms shift, so has the way U.S. households make financial decisions.
Not only are women expected to control much of baby boomer assets in coming years, but more and more studies have noted how women are also playing a larger role in household financial decisions and becoming family breadwinners. Yet, even as more women gain wealth, common stereotypes still loom large.
In our latest research, we focused on nailing down what's behind these conceptions of women investors and, in the process, identified potential ways that financial professionals can better serve female clients.
Previous research suggests that women may feel misunderstood in the finance world--which may be driving their behavior. Research has found:
In our research, we worked to clear up some misconceptions about how women invest and help advisors manage the needs and expectations of women clients.
We surveyed 907 U.S. residents (437 female) to measure financial health, behavior, and attitudes. In an analysis of the data by gender, we found that most of the supposed differences between men and women investors regarding saving and investment behavior disappeared when controlling for income. The differences that persisted were mostly attitudinal and suggest humility, composure, and a confidence gap.
Digging a little deeper: At first glance, men and women appear to have significantly different financial attitudes and behaviors. On average, men reported more frequent saving and investing behavior, they were more likely to think of themselves as investors, more confident in their knowledge of investments, more likely to have changed their investments in the 12 months leading up to the study, and more confident in their ability to financially handle the unexpected.
These findings are deceiving, though. In our sample, women's income scores were roughly 20% lower than men's, on average. But when we compared men and women in the same income bracket (rather than comparing all men to all women), these differences in spending behavior, investing behavior, and confidence handling the unknown were no longer significant.
This suggests that income is a stronger predictor of these attitudes and behaviors than gender. Yes, women in our sample saved and invested less frequently than men, but the chart below shows that most saving and investment happened in the higher-income tiers--where men significantly outnumbered women.
Source: Morningstar. In the lower-income tiers, where people were less likely to save and invest, women represented more than 50% of the population. In the higher-income tiers, where more saving and investing was reported, men were more than 50% of the population. The result is an overall difference in investment rates by gender, but this difference disappears when income is controlled for.
It is also interesting to note that, scores on overall financial health (the Financial Health Network's FinHealth Score) and well-being (the Consumer Financial Protection Bureau's financial well-being score) showed no differences based on gender.
A few of the attitudes and behaviors we measured, however, were still statistically different when controlling for income.
For example, the overconfidence we so often read about in investor psychology studies may indeed be influenced by gender norms. In every income group of our sample, women were less likely to think of themselves as investors and reported lower confidence in their investment knowledge.
These results echo findings from global studies of financial literacy. In studies of general financial knowledge, women are more likely to answer "I don't know" than men (Bucher-Koenen et. al, 2021). This suggests women guess less frequently, but they also receive lower financial literacy scores: That is, you earn zero points for admitting ignorance but can sometimes eke out a few extra points for guessing correctly.
The greater willingness to admit not knowing hurts women on financial literacy tests, but it may make them ideal clients. The willingness to say "I don't know" suggests humility and openness to learning, which can contribute to a good advisor-client relationship.
Ironically, women were also less likely to have made recent changes to their investments, which could indicate greater investment composure. Gender differences in trading behavior have been found to reduce men's net returns (Barber and Odean, 2001). It seems that, while women have lower confidence in their investment knowledge and abilities, they are also less likely to face the expensive consequences of overconfidence.
Our research provides a nuanced view of the common stereotypes regarding women in the finance industry. Put together, we can glean a few takeaways for both financial professionals and women investors.
For women investors:
For financial professionals: