Data and research across the UK and US show that women are still underinvesting in the stock market. This relative lack of engagement is true of both their pensions and more general investments.
Women’s lower participation in investing exacerbates the existing gender pay gap. To meet the goal of an equal society, this is a problem that needs addressing.
The Causes of Underinvestment
Recent data for the Global Financial Literacy Excellence Centre (GFLEC) has laid bare the problem of underinvesting amongst women. When compared to men, women had fewer savings, more debt, and less access to money.
Additional GFLEC studies also showed how more adults are entering old age with higher debt and little or no financial planning. Financial literacy correlates strongly with better outcomes in adult life. GLFEC proposes that engagement with financial concepts as teenagers can help uplift the population and allow them to make better financial decisions.
There are several factors at play that cause underinvestment. Three big problems affect the pension gender gap: Firstly, women put more into Cash ISAs, but less into stocks. Secondly, women contend with the Gender Pay Gap and the Motherhood Penalty. Thirdly, eight in ten women don’t discuss money with friends or family.
The Gender Pay Gap manifests itself into a Gender Pension Gap. New figures from the Chartered Insurance Institute’s Insuring Women’s Futures initiative suggest that the average pension pot for a 65-year-old woman in the UK is £35,800. This number is just one-fifth of the average man of the same age.
What Can We Do To Bridge The Gap
There are no quick fixes for this problem. Giving children jargon-free books at a young age can help them understand financial concepts and the confidence to learn and engage in finance.
Employers have a role to play too. There is some movement in this area, with four out of five employers committed to developing a financial well-being strategy.
Indeed, many organisations, like fashion retailer Zalando, have taken the lead with educational events that help women manage their money and accrue wealth.
Platforms like Nudge have developed apps that coach and help people to understand and manage their finances. Companies can use these tools to help their staff and employees to better future outcomes.
Of course, programs and initiatives by employers are just the beginning. More needs to be done to reduce the gender pay gap at all levels of work. While undoubted progress has been made in recent decades, female board members at FTSE 100 companies are paid 40% less than their male counterparts. Representation at the board level needs to be met with equal pay.
Financial confidence is an oft-cited barrier to investing for women. Ironically, being cautious can actually help the investment world. However, initially, it’s an obstacle that women must overcome. The confidence gap represents a huge missed opportunity that consistently translates into lower retirement funds for women.
One factor pointed out by Gina Miller of the wealth management company SCM is that companies aren’t effectively communicating with women to a large extent. Investment companies are used to targeting men, but Miller suggests using different languages and information can help bridge the gaps.
While investing confidence is crucial, fund managers and Robo-investors can take the pressure of decision-making away from investors.
Women are still not investing at the same levels as men. Despite living longer, the average pension held by a UK woman of 65 is a fifth of the average man. This gap threatens to affect the quality of life of retirees catastrophically. We must address this issue to help women and families secure a better future.
There are several solutions to this problem, such as addressing the gender pay gap and investing in financial literacy education at a younger age. Additionally, investment firms need to make a better effort to target women and communicate with them more engagingly.
Impact investing in companies doing social good is one area that could provide a way to reach women. Statistically, women are far more likely to give to charities than men, so responsible and sustainable investing could provide a way to give women the best of both worlds.
Women face several disadvantages in the world of investment. However, much can be done to solve these issues and help us build a more equal and fairer society.
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Alpesh Patel OBE