The future of women, money and investing

Women are the new economic powerhouse.

We are in the midst of a $22 trillion shift in assets to women and by 2020 women will hold $72 trillion in private wealth which represents 32% of the total private wealth figure. And this is on the rise.

Female consumer purchasing power is bigger than the GDP of China and India. Women make up over 85% of all household decisions and women are the primary breadwinners. And 9 out of 10 women will be the sole decision-maker in their household about their finances at some point in their life.

More women than men are graduating with degrees and more women are in full-time employment. They are earning more and have more disposable income to spend, save and invest.

Women entrepreneurs are building new companies, creating new markets and fast becoming prominent wealth creators.

Women investors take a different approach to investing, are the driving force behind impact investing and are controlling more money than ever before.

Women are steadily changing business, industry and innovation as we know it.

And yet.

Women still earn less than men whether they have children or not (women in their 40s with no children earn 12% less than men with no children) and on average have one fifth of the pension pot men do when they retire in the UK.

Women are more likely to have career interruptions, work part-time or are in temporary employment and do far more unpaid childcare work than men do.

Women who are divorced or separated have less savings than their ex-partners and are more likely to suffer from a mental health condition which can become a barrier to work especially as women get older.

Consider that women live longer than their male partner and experience longer periods of ill-health in later life and therefore the cost of care for women is so much higher.

Not only is a woman’s life trajectory different to a man’s but women are exposed to far more financial risk throughout their lifetime which makes them more vulnerable to financial shock.

Despite this women are less engaged when it comes to their money and the data shows that women tend to save less and invest less.

So given what we know, women should be saving and investing far more than men in order to ensure their financial resilience, build their financial security and protect their financial future.

So what’s going on?

Stereotypes, the media and the financial services industry

We live in a society which perpetuates money myths such as women are not very good with their money or they are not interested in how it works.

It is often said that women are squeamish about money, don’t ask nor do they negotiate.

But women who understand how money works and do ask for more are often considered demanding or simply, not nice. Women often experience what is known as the double bind when they step outside of gender norms.

In 2018, Starling Bank carried out linguistic research which assessed differences in the way media addressed female and male readers across 300 articles in the UK and abroad. Women were not only characterised as ‘splurgers’ but financial planning was often described as a ‘minefield’, ‘complex’ or ‘threatening’. In contrast, articles aimed at men portrayed their readers as ‘savvy financiers’ and rather than ‘saving pennies’, these articles talked about ‘portfolios, calculated risk and reflected stereotypes of strength and power.’

To what extent are these outdated stereotypes about women and money having a lasting impact on how women engage with money and whether they make the financial decisions they need to?

In the 1960s, a pair of researchers Robert Rosenthal and Leonore Jacobson discovered what is known as the Pygmalion Effect: our performance is connected to what is often expected of us. If we expect a person or a group to perform better, they will in fact often perform in line of these expectations. Conversely, the Golem Effect states the opposite: low expectations often lead to low performance.

If women are often characterised as ‘splurgers’ instead of ‘savvy financiers’ who should only focus on ‘saving the pennies’, it is not difficult to see how these low expectations dampen women’s efforts to engage more around money for their long term benefit.

The risk is that the media perpetuates these stereotypes and money myths in a never ending cycle. And women of all ages continue to internalise them.

Meanwhile the information provided, especially in women’s magazines, is about budgeting or tips on how to spend less and often ignore the financial risk to which women are exposed.

They do not address what women need to do in order to build financial security and prosperity over the long term.

Report after report states that women are interested in learning more about money and investing. They would like more information in order to make the right financial decisions. However it is no secret that women are put off by the financial industry’s use of technical language or jargon to explain the products and services.

Financial advisors and financial sales people who are mostly male, do not communicate in a way which engenders trust with women, women often do not receive the information they are after and they are often ‘just sold to’.

The industry tends to focus on ‘performance’, ‘beating the market’ or tracking the ‘latest investment fad’. And while financial performance is important to women, women tend to be far more values-based, think holistically and also consider how they might use their agency to make an impact on the world.

According to a study by Dr Ylva Baeckstrom at King’s Business School, wealthy female investors are subject to gender bias by male and female advisers. It is often said that women investors are more risk-averse, however there is mounting evidence which suggests that this is not true. And whilst recommending a lower risk portfolio to high net worth female clients may not be life-altering, it can have more of an impact on women who are less financially fortunate.

It follows that women have to spend more of their time decoding an industry which has historically centred on meeting the needs of the male market and which has designed products and services for the male customer.

This begs the question: to what extent do the products and services provided by the financial services industry take into account the life trajectory of women? And how do they help address the financial risks women are exposed to over the course of their life?

For example, does the average pension take into account the gender pay pap, career interruptions and lifespan of women? Have robo-advisers designed algorithms which reflect a woman’s life trajectory? Are investment products packaged up in a way which better suit the interests, goals and risk exposure of women?

And how does the industry check for and eliminate gender bias which can have a direct impact on women’s financial returns?

Could it be that despite women’s best efforts they are not only subject to outdated stereotypes and bias, but women are also caught up in an existing market and business failure?

And as a result women are less engaged and underserved as a market.

Women-centred innovation

Whilst we need more women in senior roles in financial services and we need more female financial advisers, the industry needs to develop ‘female market intelligence’ led by individuals who are gender intelligent and have an acute understanding of the female market(s) based on data.

It follows that the industry needs to start harnessing gender specific data in order to build products and services which cater to the female market(s).

We need women-centred innovation which puts the female customer into focus and designs products and services for this market(s) from the ground up.

This approach is at the opposite end of what is often referred to as ‘pink marketing’ for women nor is it ‘white-labelling’ a male focused product or service for women.

An example of women-centred innovation is a US-based Fintech start-up called Ellevest: a robo-adviser aimed at women which has designed its algorithms to account for gender difference in pay, career breaks and women’s lifespan. Ellevest recently launched their wealth management division made up of individuals ‘who understand women, families and money’. Everything about how they engage the female investor centres on empowering women financially, supporting their goals and speaking their language. And their mission? They aim to close the gender investing gap for women.

Another example of women-centred innovation is a recently launched female-focused pension fund in Australia called Verve Super. Their focus is also on women’s financial empowerment and the fund invests ethically and only into companies which have senior women on the board. Everything about this business is designed to address what women consider important, how they choose to allocate their money and enables women to make a positive impact on the world with every dollar they invest.

In the UK, Legal & General launched a Future World Gender in Leadership UK Index Fund which tracks companies that have achieved higher levels of gender diversity. For obvious reasons the fund is likely to be attractive to women and it appeals to female investors who want to have a positive impact on society. This again aligns with women’s approach to investing.

For this reason it is the start-ups and businesses that can truly understand the female customer which will succeed in engaging this hugely underserved market.

If products and services are designed for women, engaging them as savvy financiers becomes relatively straightforward.

Eliminating the barriers that preclude women from engaging as fully as they want and need to, will enable women to build a secure and resilient financial future for themselves and their family.

The future is female

A recent report published by Fidelity International states that women are turning to online investment platforms because they have easy access to the mobile app and receive regular updates and ‘nudges’ to invest. This makes investing accessible, low-friction and not at all time-consuming.

As we continue to see evidence of more women with more wealth and in positions of power, the outdated stereotypes of yesteryear will fall away for good, the cultural paradigm through which we see the world and each other will shift, and the foundation will be set for the new era of business, innovation and investment designed for women.

If the same number of women invested at the same rate as men, the financial services industry would see an additional £100 billion in the UK alone. But who is to say that more women than men will not invest at a faster rate than men in the very near future?

The female-driven economy is on the rise and everyone stands to gain.

And let’s not forget the old adage:

‘If you design it for men, you build it for men. If you design it for women, you build it for everyone’.*

*This article was initially published on Medium in March 2019 and has been slightly amended.