The Confidence Gap: Why aren’t there more women investors?
Women may be perfectly good investors, but they don’t seem to know it
by Tim Querengesser
Photograph Bluefish Studios
Kristina Milke’s mother was the family breadwinner. She planned and controlled her own retirement investing, independent of her husband. And so when Milke’s father died, three years ago, her mother could absorb the grief without the added worry of learning about finances and retirement savings. But Milke knows her mother’s story isn’t every Canadian woman’s tale. In fact, she recently saw a friend’s mother similarly outlive her husband (that’s not unusual after all – women live about five years longer than do men in Canada) but lack the financial know-how or stomach for risk that her own mother had. The situation, sadly, didn’t surprise Milke. “There’s a lot of financial illiteracy out there,” she says.
We all seem to know a grandmother who squirrelled away a quarter of a million dollars before she died, and most of us recite that maxim that women secretly control household spending even though men pretend to. But research shows that, regardless, men and women differ when it comes to financial literacy, and that this knowledge gap, perceived or real, has the potential to limit the ways women invest. This doesn’t just apply to women who don’t have a lot of money, either. Women of high net worth (which, in Alberta, is 34 per cent of all such individuals, the highest percentage in Canada) say they, too, faced an investment-confidence barrier. Take Margot Micallef. Among her many achievements, Micallef founded and heads Oliver Capital Partners, a private-equity investment firm in Calgary. But she tells of the confidence gap nonetheless. “I used to tell people, ‘I’m risk averse’ [because] it seemed like the right thing to say,” Micallef says. “It was the way I was socialized as a woman.”
And socialization appears to have a lot of influence on investing behaviour. According to a 2012 study by Prudential, women rate themselves as investor “beginners” twice as frequently as do men (15 per cent of women versus seven per cent), and say they are less confident that they will achieve their investing goals. Similarly, a 2013 Wells Fargo study of affluent women between the ages of 40 and 64, with median investible assets of US$455,000, found that 41 per cent of women surveyed were “not at all confident” they had the skill to invest for their future. And the study went on to link confidence levels to investing behaviour. “Confidence in investing among affluent women correlates to attitudes and choices that differ greatly from those of women who describe themselves as not confident at investing,” wrote the study’s authors. “Investing confidence seems to be the linchpin to so many other positive behaviours that would provide an opportunity for women to grow their savings and to build a solid foundation in retirement.”
But here’s the thing about women, confidence and investing: Research also shows that women shouldn’t lack for confidence at all, because they’re often better investors than men. A seven-year study from the University of California, for instance, found that single women outperformed their male equivalents by 4.6 per cent, thanks in large part to the fact that they traded less frequently. Perhaps partly explaining this finding, the Prudential study found that 70 per cent of men said they enjoy the “sport” of investing, like taking risks that promise big rewards (but, of course, also have the potential of huge losses), while only 49 per cent of women said the same.
But while gender has been linked to differences by many investment studies – with women earning the stereotype of conservative investors as a result – it seems knowledge could be the real differentiator. Or at least perceived knowledge. While a 2011 study by the Spectrem Group, a Chicago-based financial research agency, found that high net worth women rate themselves as moderately tolerant of risk more readily than do comparable men – 68 per cent versus 67 per cent – it’s questionable if most women perceive their financial knowledge as sufficient. A 2013 Merrill Lynch study, for instance, found that women and men with similar financial knowledge have near identical investment behaviour, with the largest differentiator being their own perception of their knowledge. On that point, the study authors wrote that, “Women are more likely than men to say they have lower levels of financial knowledge.”
Okay, but why does any of this matter? The answer is the future. The Prudential study, for one, found that more than half of women surveyed were already the primary breadwinners in their home. And a TD Ameritrade study found that while women, today, control about US$8 trillion in wealth worldwide, by 2050 they will control about US$22 trillion. Trouble is, then, women as a group see themselves as less knowledgeable than do men about investing, and unsurprisingly say they want investment help. The Spectrem study found that half of all high net worth female investors it surveyed said they wanted financial advice, versus just one-third of their male counterparts. And yet women say they’re not getting the help they desire. A 2013 BMO study found that only 30 per cent of women surveyed felt the investment industry met their unique needs, like collaborative decision-making and communication, and 61 per cent said they wanted more information from the advisors they do have. Troublingly, then, the Prudential study found that a majority of women surveyed did not, in fact, have a financial advisor at all, which, considering the other data appears to be a recipe for lower financial investment outcomes.
What’s behind this troubling trend? Financially savvy women say it’s partly the financial industry’s fault that women aren’t satisfied with advisors. But, they add, part of the responsibility falls on the shoulders of women as well.
“i’m not sure we’re doing a good job as an industry,” says Greg Pollock, president and CEO of Advocis, the financial advisor association in Canada, located in Toronto, reflecting on engagement with women. And according to Pollock, that’s both a problem and an opportunity. He says research shows that women currently hold about 27 per cent of the world’s wealth. But when you look at those with investable assets of $500,000 or more, Pollock says, women make up 43 per cent of that population. Combine this with a greying population in Canada, which will see women inherit about 70 per cent of estates over the next decade, and you’re talking significant control over investments. But there’s one statistic that tells you things aren’t working for women. When a male client dies, Pollock says, Advocis research shows that 80 per cent of female spouses or partners seek out a new advisor within 18 months. “I mean that’s a real problem for the existing advisor base out there,” Pollock says. “They are going to have to learn more quickly than they are how to work with women and work with their clients and their female spouses and their mothers and their daughters.” A large challenge is the potential “gendered filter” that possibly exists with some male financial advisors, he says. “There are gaps, for sure, and I think there are also opportunities for both men and women who really want to understand and value … the different behaviours and approaches that women take to investing.”
Micallef says that regardless of differences, the financial investment space is still “very much a man’s world,” and tells of hearing of male financial advisors taking male clients to strip clubs to talk business – though she notes this is the exception now and not the rule. Still, it highlights that the industry is perhaps a touch behind the times. That point is echoed by Leslie Scorgie, Calgary-based author of Rich By 30, Rich By 40 and the forthcoming The Smart Girl’s Guide to Getting Rich. “I’m going to be straight up,” Scorgie says. “I don’t think women want to deal with their father’s stock broker type any more. I don’t know how else to say it, other than they want advice from people that are transparent and honest and engaged in more than just their business – because women are engaged in more than just their business.” What’s more worrying, perhaps, is that if this situation doesn’t change, many women could be at risk. “We have a lot of women, even in 2013, that are highly vulnerable financially because they’re under-prepared for retirement,” Scorgie says. “Their financial acumen is lower than their male counterparts. It has a huge impact on the decisions that they make, including simple things like choosing healthy relationships that aren’t dependent on another person, financially.”
Still, that isn’t enough for Scorgie to give women a free pass for the situation as it currently stands. Indeed, don’t tell her that old yarn about women quietly controlling 80 per cent of a household’s financial decisions. “That’s absolute crap,” she says. “As far as I’m concerned, buying groceries and picking out a new car is not a financial decision. That doesn’t have long-term impact.” What is a financial decision, she says, is creating a plan to invest for the future.
Milke, who was once the managing director of the financial literacy site Investopedia, runs K-GAR Consulting Inc. in Edmonton and invests as a venture capitalist, agrees with Scorgie, but only to a point. “There’s still too many people, and often it’s the women, that don’t necessarily want to learn [about financial investing],” she says. But Milke puts the onus on women to take charge of their financial futures and quit relying on excuses. “There seems to be many female financial advisors,” she says. “Maybe it’s male dominated but there’s a good chunk of women doing it now. So there’s no reason, if you’re a female and you want a female to help you, that you can’t find one, because they’re out there.”
Click here for a list of five of the top Women Investors in AlbertaRelated