We know that women are paid less than men and that they retire with less superannuation and other savings than men. And yet the great paradox is that they actually make better investors than men, so what’s going on and how can it be addressed?
The Australian Government’s study, Financial literacy – women understanding money, highlights a raft of differences in the attitudes, confidence and actions of women and men. Women are less confident with planning for their financial future and ensuring they have sufficient money in retirement. Significantly, 52% of women said that dealing with money is stressful and overwhelming. Many said thinking about their long-term financial futures makes them feel uncomfortable. Thirty four percent said that dealing with money is boring.
But that is only part of the story: it turns out that women actually make better investors.
A recent study by USA consulting firm Rothstein Kass, found that hedge funds led by women far outperformed the global hedge fund index in 2012. In fact, hedge funds run by women made an 8.95% return while the global hedge fund index returned 2.69%. That’s well over three times higher returns compared to male-led funds.
The great American investment guru Warren Buffett is a legend due to his high investment returns over many years, and his home-spun philosophy. In August, his Berkshire Hathaway company reported a 46% increase in profit over the previous year.
Louann Lofton’s recently published book Warren Buffett Invests Like a Girl: And Why You Should Too, is getting plenty of attention in the USA. She says that his success is partly because he exhibits many of the traits of women investors. Research studies have shown eight particular traits of female investors versus their male counterparts. These include exhibiting less self-confidence, trading less, being more risk averse and being more willing to learn from their mistakes.
So if women posses traits that potentially make them more successful with money and investment than men, why are they less confident in planning their financial futures? Why do they find dealing with money more stressful?
Australian-based research released in September as part of Smart Money Week, shows that family and relationships have a significant influence on most women’s approach to personal finance.
“Our research confirms that gender very strongly shapes financial decision-making and well-being” said the leader of the study, RMIT’s Professor Roslyn Russell.
“Several women allowed all large financial decisions to be made by their partner or spouse, and in many cases this put them at significant disadvantage.”
Professor Russell says that while financial literacy is important, it is not enough on its own to motivate women to make changes to their financial management habits.
So how do we address this conundrum? Perhaps we need to look at approaches that work well in other aspects of our lives.
Education is – as always – a great asset and a great enabler. Along with increased knowledge and skills, it engenders confidence. In addition to financial education, perhaps women should actively seek support and guidance from other women who are more experienced in finance and investing.
Women mentoring other women – in their careers, in entrepreneurship and running successful businesses – is now commonplace. Perhaps we need to look at the mentoring of women by women in money, attitudes, skills and investing to address the unpalatable facts that they retire with far less superannuation and other savings than men, and are more likely to rely on the age pension.