The Other Gender Gap: why women must think about wealth
What does the gender investing gap mean for women?
The gender pay gap has been widely documented and subject to media scrutiny for as long as many of us can remember. While we still have some way to go in ensuring no unjust differences in pay exist between any groups in society, the gender pay gap in the UK has shrunk slowly since the 70s. In 2019, it stood at an 8.9% difference in average hourly earnings for full time workers in the UK according to the ONS.
The gender pay gap’s coverage is deserved. Yet this should not be to the exclusion of other important factors. Cultural injustices should be addressed, but are hard to pinpoint and slow to change. Individual women, however, can recognise how certain behaviours may be holding them back. This information can empower women to make a tangible difference to their own lives.
There is another gender gap which is having a large and growing impact on women and society as a whole. This is the gender investing gap.
Market research firm Kantar TNS estimated the gender investing gap between UK men and women aged 21-53 amounts to a staggering 51%. Just one in five women in the UK hold at least one investment product, compared to one in three men. This means that huge amounts of women are missing out on getting a reliable long-term return on their hard-earned money. As a result many women have less money for buying a house or car, less for their family if they have one and, crucially, less for retirement.
This piece is the first in a series where I hope to encourage more people, especially women, to realise the benefits of investing and to take the crucial first step. In the rest of this piece, I hope to help you understand the investing gap between men and women. I will explain some of the reasons behind the gap as well as why women should consider investing. I hope that a greater understanding of this issue will mean more women are empowered to take action and reap the benefits of investing, making a material difference to their lives.
The gender investing gap
According to the Centre for Economics and Business Research, women will own 60% of all wealth in the UK by 2025. But it is very important to consider how this wealth is used/held. Women frequently will hold a lower proportion of their wealth in investments and this leads to an investing gap between men and women. If the investment gap remains while women’s wealth grows relative to men’s, then individuals, families and society as a whole will be losing out on the potential returns that investing can bring.
One 2018 study of investors aged between 21 and 53 found that the total investments held by women in this age bracket is £14.3 billion. Men of the same age held over twice that amount, £29.3 billion. Another 2018 estimate values the total investment gap at just over £100bn. This is principally because fewer women than men invest their money, just 17 percent of British men and only 10 percent of women have stocks and share ISAs, an easy to set up, tax-free way of investing that anyone in the country can access.
The attraction of cash
The data shows that most women much prefer to hold their money in cash than investing. More women are attracted to cash because it is instantly available if they need it. Many women see savings as important for their financial independence. In surveys, women have also expressed that they feel investing is too complicated and risky. This is a misperception perpetuated by a historically male-dominated finance industry.
Although it is essential to have some money in cash that can be used to meet expenditure, both ongoing and unexpected, the long-term benefits of investing are too clear to ignore. Certain types of investing can be judged as extremely risky. However, well diversified funds can provide a reliable rate of return over the long run. Avoiding investing because of its perceived risk is simply being recklessly overcautious.
An attraction to cash leads to a preference for cash ISAs over their stocks and shares equivalents. ISAs are a fantastic tax-free way for all UK residents to invest. However, women are typically the main administrators of their children’s investments. This means that the propensity to be risk-averse often passes to the next generation. The majority of junior ISAs are held in cash despite the long length of the time they can be invested.
The benefits of investing
Imagine if you were asked 10 years ago what you wanted to do with £1,000 sitting in your bank account. You could either save it in an instant access savings account, earning pitiful levels of interest. This means you would actually see it decrease to the value of £880 after inflation1. Or, you could invest it in global equity and see its value increase by over 75% to £1,766, even after inflation is factored in2. Investing does not come without any risk. However, what is often not understood is that the longer you leave your money invested, the more that risk diminishes, as long as you have invested in a diverse pool of assets.
Historically, over ten years, you are 90 percent more likely to do better on the stock market than earning interest on your savings. This increases to 99 percent after 18 years! Now interest rates are so low your chances of doing better are even higher. It is clear that both genders, especially women, could benefit from more knowledge around the benefits investing can bring.
Choosing to save your money in the bank, Building Society or in cash ISAs instead of investing is only doing you a disservice. Savers should be lauded for their good financial discipline. But investing that same money sensibly means the pool of money you have set aside will continue growing. This allows you to have more confidence to reach the goals you may have in your life, whether it is to put a deposit on a house, taking a career break or being prepared for your retirement.
The myths of investing, and why you shouldn’t listen
A significant reason for the lack of women investors is an old and persistent stereotype. Both men and women alike believe men are more knowledgeable and rational when it comes to investing. A survey by Fidelity investments, the third largest asset manager in the world asked why. They asked participants, “between men and women, who do you think is better at investing money?” A mere 9% of women answered their own gender. But the belief that men are better investors is unequivocally false. In fact, the data shows the very opposite is true.
There has been good and consistent evidence that when women do take the plunge, they actually perform better than men on average. The largest recent study into this phenomenon came from Fidelity Investments, who analysed over 8 million investment accounts, they found that women’s average return was 0.4 percentage points higher than men’s, at 6.4% compared to 6%.
This is on the low side of estimates for women’s outperformance. It may not sound like much, but over a lifetime this can add up massively, especially when you factor in the study’s findings that women also save slightly more than men on average. Using these figures, Fidelity calculated that, on average, a woman with an average lifetime salary of $75,000 who began to invest and save at age 30 would have almost $200,000 more in her pension pot than a man by retirement at age 67.
The potential difference in pension balances between men and women who save and invest at the average rates found by Fidelity Investments
Women statistically live longer than men. This means it is particularly important to ensure they have enough to last them after retirement. Recent research by Profile Pensions estimates that women are retiring with 39% less in their pension pot than men on average. Investing more could help to close this gap.
Taking the first step
Despite what you may see in the media and advertising, investing sensibly is not going to make you rich quick. But the role investing can play in securing your household’s financial future and increasing the freedom to pursue your goals should not be ignored. Entering the world of investing can seem daunting to any first timer. The financial industry has some way to go in making investing more accessible to everyone. Especially women.
Crucially, you don’t have to have huge amounts of money laying around to benefit from investing. Nor do you have to understand every financial term and nuance to be able to benefit from putting your money into a well-diversified, low-cost fund and letting the markets work for you. There is plenty of information out there for those who are just starting out. I implore anyone who doesn’t invest to take a look.
While women’s lack of confidence in investing can be their worst enemy, it can also be their greatest friend. If you would like to find out how, read my new article: Women’s Secret Weapon: why women make better investors than men.
1Data from FE Analytics: The growth of £1000 under the MoneyFacts Instant Access Notice 1K (GBP) from 25th November 2010-2020. Adjusted for CPI inflation.
2Data from FE Analytics: The growth of £1000 the Vanguard Global Stock Fund (GBP) from 25th November 2010-2020. Adjusted for CPI inflation.
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