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Closing the Gender Investing Gap

Understanding (and Closing) the Gender Investing Gap

After being locked out of the investing world for centuries, women have proven to be successful investors. According to a 2021 study by Fidelity, not only do women consistently earn higher returns than men, but they are also able to add more to their account balances over time. There’s just one problem: In spite of being aces at investing, women just aren’t doing enough of it. And if given a chance to invest more, many women would not step up.

Why Does Closing the Gender Investing Gap Matter?

This investment gap is concerning since it impacts women’s financial stability in later life.

But it’s not just women’s financial well-being that stands to benefit from closing the investing gap; it’s everyone’s!

A report from BNY Mellon Investment Management found estimated that if women invested as much as men, the industry’s total AUM could grow by a whopping $3.2 trillion.

So, what are the barriers to women investing?

The Income Divide

Despite the fact that women have increased their presence in higher-paying jobs that were traditionally dominated by men, they continue to be overrepresented in lower-paying professions relative to their portion of the workforce. This may contribute to the ongoing wage discrepancy.

The gender pay gap leaves the average American working woman earning 80 percent of what a man earns. This means that women have to save a higher percentage of their salary just to achieve parity with their male counterparts when it comes to retirement savings.

Let’s consider an example: Suppose a man earns a $70,000 salary and puts 10 percent of his annual income away for retirement. This means he would have $7,000 saved at the end of the year. But a woman colleague would only be making $56,000. Even if she stashed away the same percentage, she would only have $5,600 saved at the end of the year, a whopping $1,400 less. Moreover, women live an average of 5 years longer than men, which means their money has to stretch further.

“This is something that does not get enough attention because when women are not investing, it leads to an even larger gender wealth gap,” says David Neuwirth, Senior Vice President, Investments at David Lerner Associates. “Women are on track to end up with fewer finances when they need it most,” Neuwirth adds.

There are, of course, societal reasons for the income problem. For example, women are more likely to leave the workforce to provide unpaid care for kids or other family members.

Misplaced Risk Aversion

This is another reason why women are not as aggressive as men when it comes to investing.

It has been proven that women are more conservative when it comes to taking financial risks. Their conservative nature leads them to hold onto their cash, keeping it in checking accounts, savings accounts, or even under the mattress-anywhere but investment accounts.

“When I tell our clients to have a rainy-day fund, the men are more likely to want their emergency fund in the market. Meanwhile, women often end up with up to five times the required emergency fund, sitting idle in the bank,” notes David Neuwirth.

“For some reason, women fear losing money, while men seem to be afraid of missing out by not investing in the market.”

Unlike men, women don’t prioritize investing for retirement. For most women, retirement planning comes after meeting daily living expenses, paying for housing, managing debt obligations, and general savings.

The Perception Issue That Leads to Unconscious Bias

Investment companies have historically been perceived as an old boys’ club, with much of the industry’s marketing directed exclusively toward men. As a result, many women feel sidelined and excluded. When the word ‘investor’ is mentioned, a significant number of women tend to envision an old, privileged entitled man in a three-piece suit rather than thinking of themselves as investors, or envisioning mothers, sisters, or friends. This perception issue causes an unconscious bias, both from financial institutions toward women and women in terms of their thoughts of investing.

While this perception may not seem like an immediate problem, it has a profound impact on women’s financial well-being. It seeps financial products and influences the financial decisions that women make. By avoiding investments in stocks, retirement incomes, etc., most women miss out the long-term growth of their wealth.

Lack of Knowledge About How to Invest

Limited knowledge is about investing is another barrier that prevents women from investing. Some women relate investing with gambling, and they feel more comfortable holding onto their money in a savings account. Others say they’ll start investing when they earn more.

According to a 2021 research by BNY Mellon, only 1 in 10 women felt they fully understood investing, while just 28 percent felt confident about investing their money. A significant 45 percent of women perceived the stock market as too risky.

How Can We Close the Gender Investing Gap?

All of the above are valid explanations as to why investing may take a backseat for many women. However, it is clear that change is necessary. Here are a few steps women can take to alter the narrative:

  • Read personal finance books – Invest in courses and read books that cover the basics of investing For example, you can enroll in a 401(k)-match program if your workplace offers one or learn about investing in equities, etc.
  • Seek professional advice – Schedule a meeting with a financial advisor. Don’t hesitate to ask for guidance or help you with any challenges. While reading books can provide you with a better understanding of the basic concepts of personal finance, a financial planner can help you develop a more comprehensive plan.
  • Start small – Despite the common belief that you need a lot of money to make money, this is not true. You can start with a dollar per day or an amount that allows you to dip your toes into the investing world. The saying goes, yesterday was the best time to start investing, and today is the second-best time.

The government and financial organizations can do the help also by taking the following steps:

  • Increase financial education – The government should do more work to ensure everyone feels empowered about making financial choices that work in their favor. Workplaces and financial institutions should enhance their communication of the risks and rewards of investments, ensuring that potential opportunities are not missed. Women should be taught that there could be more risk in not getting involved in the market than in investing.
  • Reduce the gender pay gap – The government should work on closing the wage discrepancy, meaning structural changes that result in women getting more pay.
  • More inclusive financial community – There is a need for more women financial advisors. The investment industry would find it easier to attract more women investors if it had more female financial advisors and wealth managers.

Women are now better educated and outnumber men in the workforce. They are regaining control of their financial lives like never before, but there is still a long way to go when it comes to investing. The most important step women can take to change the investment gap is to educate themselves.

As David Neuwirth, Senior Vice President, Investments at David Lerner Associates, says “When you understand investing, you’re less likely to be intimidated by it and more likely to do it.”


Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc.

This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual’s personal circumstances.

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