Why women don’t invest enough and how to change that
Roxana Mohammadian-Molina, Chief Strategy Officer at Blend Network shared her thoughts on what the future hold for female investors.
Last month we celebrated International Women’s Day, an occasion to both celebrate the progress towards greater gender equality and reflect on the long way ahead on different fronts. Investing is one of those open fronts where great gender disparities still persists. According to a study by Freetrade, men who start investing their savings now will be £15,000 better off than women by 2030 due to the persistent gender investment gap. The study, which asks how much more money male investors would have by 2030 compared to female investors if both men and women were to invest 10% of their average salaries, finds that the gender pay gap will leave female investors £15,336 worse off by the turn of the decade compared to men based on an expected 4.9% return on investment per annum.
Even leaving the gender pay gap aside, we know that women tend to invest less and feel more uneasy talking about money compared to their male counterparts. According to a 2018 report by Merrill Lynch Bank of America, 61% of women would rather talk about their own death than money. A 2018 YouGov survey reveals that over half of women have never owned any investments, with lack of knowledge and confidence holding them back. The taboo around money and investing is hindering women from possibly achieving their true potential by allowing them the financial freedom they deserve and have financial control over their lives.
There are countless arguments around what has caused us to be at a point where just one in five women currently hold an investment. Lack of knowledge and confidence often comes up as a factor holding us back from investing. According to the YouGov survey, only 28% of women admit to feeling confident investing some of their money compared to 45% of men. Other factors are deliberately obfuscating investment language and overly complex jargon, lack of female investor role models and a perception issue that leads to unconscious bias. But to me, the more relevant question is what we should do to change this grim statistic and how do we get more women investing responsibly. I believe that breaking the taboo around our financial ambition is the first step because money and investing is just not a conversation that as women we ever got into the rhythm of having. Even though we tend to talk about money in terms of how much things cost and how much we spend at our local supermarket to feed our family, we don’t tend to talk about our plans for the future, about what we want our money to do for us or what our financial aspirations are. According to Merrill Lynch Bank of America, most women don’t really start thinking about investing until much later in life when their children are born.
Money is filled with emotional meaning. The presence of money can mean opportunity, security, status, acceptance and power, yet its absence can mean the opposite. It also has emotional value because we see money as the means to protect our family provide them with a future. No wonder it is such a loaded topic. Yet not only does our reluctance to talk about money mean that we earn less than our male counterparts for similar jobs, it also means we are not exploring all the available investment opportunities to grow our wealth. So, here are three ways we can individually and as a community overcome the money taboo:
First, have a SHTF account (that’s for ‘S**t Hit The Fan’). This is your emergency fund, a safety blanket so to speak, in case you need to leave your job or a bad relationship or you have an accident and can’t work. This must cover at least six months of living expenses and be kept liquid. Second, how many millionaires do you know who’ve become rich by investing in savings accounts? Money sitting in your current account is a waste of money because it will lose its value over time. For example, £100 now will be worth roughly £98 in a year’s time (because there’s inflation and the cost of living goes up). If you add the opportunity cost of forgoing an average 5% return per annum on your money, leaving your £100 at the bank means you are losing £7 every year. So, spend your money on the best thing your money can buy: wealth. Invest your money wisely to create wealth – for example, P2P property lending, shares, etc. Although, please keep in mind that investing places your capital at risk. Some investments, like P2P, are not FSCS protected whilst money in a bank savings account is FSCS protected. Third, remember that being financially literate is a powerful thing because greater knowledge will lead to greater confidence which will allow us to become less dependent on wealth managers and more independent when it comes to investing. So, it is vital that we seek to educate ourselves and spend time to understand the basics of financial management.