Everyone from former Wall Street executives to women’s “wellness platforms” are sounding the alarm on the gender investing gap: the discrepancy between how much money women have invested in their retirement compared to men.
The problem? Women live an average of five years longer than men, but have less invested — $70,000 less by the time they reach retirement, according to a 2019 report.
“The biggest mistake women make with their money is failing to invest enough of it”, “Women are leaving money on the table” – they warn.
While encouraging women to invest is fine, the focus of much of this narrative seems to be focused on blaming women, while overlooking many of the real barriers they actually face to building wealth.
It’s a pattern that plays out repeatedly…
1. Identify the problem.
In this case, there’s a large and persistent wealth disparity between men and women.
2. Blame the individual for engaging in a behavior that supposedly creates or reinforces the problem.
“Women fail to invest.”
“Women leave money on the table.”
3. Attribute that behavior to something inherent to the gender identity of that individual.
“Women aren’t confident.”
“Women are risk averse.”
4. Overlook the structural issues that actually create and reinforce the problem.
Experts may point to women’s choices causing the investing gap — but the data tell a different story.
An analysis by Fidelity Investments showed that on average, women actually saved a higher percentage of their paychecks at every salary level compared to their male counterparts. Not only that, but when they did invest, women earned a higher return on their investments.
But because men (on average) make significantly more than women — with white men earning nearly double the pay of Latina women — men do not have to invest as much of their earnings as a percentage in order to invest as much as women in real terms.
In other words, men aren’t better investors, they just have more money to invest.
Additionally, women are 2–3 times more likely to be responsible for the unpaid work of household labor and caregiving, which not only reduces the number of hours women are able to commit to the paid labor force, it can also reduce how much they’re able to set aside in wealth building vehicles like employer-sponsored retirement accounts.
This larger share of unpaid labor can also push many women into working part time, where they may no longer be offered retirement benefits through work, and therefore lose out on valuable wealth-building benefits like an employer 401k match. We saw this pattern on full display over the past year and a half, as pandemic stressors and childcare closures pushed hundreds of thousands of women out of the paid labor force.
A newly released analysis from the Wall Street Journal uncovered how pay and benefit structures can also contribute to the gender wealth and investing gaps — finding that 24% of male employees hold company stock or stock options, compared to just 17% of female employees.
The average value of company shares held by male employees was $104,902 as of 2018, compared to just $26,361 for women.
Not only do these differences play out in the bottom line, they can also play out in investing behaviors — notably, risk tolerance. Across genders, those with higher incomes have been found to have a higher risk tolerance. But because women generally earn less, they don’t have as much money available to risk.
When women who do earn more, their risk tolerance rises: One report found that 54 percent of women who earn more than $200,000 were willing to take “significant investment risk” to earn higher returns, compared with just 32 percent of the broader population of investors.
So it’s not that women are inherently more likely than men to be risk averse, it’s that their comparatively lesser earnings restrict their risk capacity.
Interestingly, women do perceive themselves to be less tolerant of risk, but inpractice, they aren’t. A 2018 analysis by Stash, an investing app, found that 90% of female Stash users self-identified as having a low or medium risk tolerance, compared to 75% of men. But those numbers did not line up with their actual investment behavior. Roughly 50% of women invested in higher-risk investments on Stash — the same rate as men.
Similar findings have been replicated both before and since, with one meta-analysis of over 25 economic studies indicating that differences in risk tolerance between men and women are negligible and more likely to do with self-perception than actual behavior.
Like the surveys that indicate women are more risk averse than men, the frequently cited “gender confidence gap” relies on findings from self-reported surveys. Which, again, may be more of a reflection of what women have been taught to believe about themselves than their actual behavior.
For example, just 47% of women said they feel confident in their ability to manage their finances, compared to 61% of men in a 2020 study. In an earlier survey, 65% of college-educated men said they were comfortable managing their investments, compared to 35% of similarly educated women. But once again, actual behaviors suggest that women have greater confidence in practice.
For example, a recently released analysis from MIT found that investors who are male or over the age of 45, or who consider themselves as having “excellent investment experience,” are more likely to dump their portfolio in a downturn.
Similarly, a new Stash analysis found that male Stash customers were 17% more likely to “panic sell” their investments during the early months of the pandemic compared to female Stash customers. In fact, female Stash investors were 63% more likely than men to increase their retirement investments during the pandemic.
What’s worse: The data suggest that women are already internalizing the narrative that their own confidence and tolerance for risk are to blame for these gaps. With this continued focus on the individual, not only do we perpetuate self-blame, we overlook the real barriers to closing the gender investing and wealth gaps.
Sound off: What’s the most irritating thing you’ve read or heard about why “women don’t invest”?
Remember to join us for more conversations like this one by subscribing to “Too Ambitious”. And if you know someone who can relate, please share.
Until next time!
Image: tommy/ DigitalVisionVectors via GettyImages
