Women and men think differently about money. But don’t just accept this as a given, research suggests that women who embrace key biological and social differences, particularly when they are young, have a better chance of achieving their financial goals.
Three key differences between the financial lifecycles of men and women were identified in a 2014 global study by Mercer titled When Women Thrive. These are:
- Women’s work cycles are often quite different to men’s. This has historically resulted in women earning less over their lifetime than men while living longer.
- Women are more cautious and more risk adverse investors than men which can result in them having less financial assets are retirement.
- Women have increased responsibility for household financial decision making, with one Australian study finding that 93% of women are either solely or jointly responsible for household financial decisions.
So how might these differences impact the financial plans of women looking to build a road map to meet their short and long term goals?
Let’s start with the fact that women’s work lifecycles are different to men’s. Women are more likely to work in lower paid roles, work part time, and live longer than men.
Save and invest more aggressively when you’re young
Let’s assume this is unlikely to change significantly in the short term. This makes the first few years in the workforce particularly important, particularly before any caring or responsibilities kick in. After all, it’s how we save and manage our cash flow that becomes crucial to our future.
In our early years in professional employment, when the average salary increase is 40% in just four years for university graduates, we must be saving and investing as much of this as possible.
This puts us in a position to make the choice about how we work and invest, before any children or other caring responsibilities become a priority for us in the future.
Push your inner bias
Research published by ING Direct has shown that women are more conservative investors because they have a lower appetite for risk.
This is demonstrated by their preference for capital-guaranteed investments, and their higher exposure to fixed income over riskier asset classes like equities.
This is a bias that women need to be aware of, and consider as we invest to meet our retirement goals.
Superannuation, which we are unlikely to access for at least 20 years should be invested in growth assets which have demonstrated higher long term returns than conservative funds (6.6% over 15 years versus 5.6% for Conservative funds) to maximise our retirement balance.
Finally, the majority of Australian women are either jointly or solely responsible for the household’s financial decisions. Take confidence that you are well positioned to help with strategic investing decisions.
Embrace your biology to ignore that flighty feeling
Research by Meredith Jones says that a combination of cognitive and behavioural factors make women better long-term investors than men.
Biologically, the interaction between testosterone and cortisol means that men react more strongly to stressful situations.
This means women may be more adept at ignoring market noise and maintaining conviction, which might make it more likely that they invest to meet a long term goal than a short term one.
Cognitive factors also play a big role in investment performance. It’s a widely accepted belief, that men are more overconfident than women in areas like finance.
Overconfidence has a big impact on how men invest, including how frequently they trade, what they buy, how much research they conduct and the level of risk they are willing to take.