As told in the post below, women do not invest as much as men in the UK. How can this change and what is the value of women investing more? Cecile Boyer from Wealthify opens a dialogue on this pertinent topic in the first of our articles in a new series on digital wealth management.
We’ve all heard about the gender pay gap that sees men on average paid around 18%1 more than women across the UK. But, another less well-documented gender gap also lurks below the surface, harbouring similar potential to cause serious harm to women’s financial futures. It can be found in the largely male-dominated world of investing.
Many social factors contribute to the gender pay gap. Women are more likely to sacrifice career for family and when they do work, they tend to do it part time. Meanwhile, men are more likely to hold top positions in organisations.
Consequently, when it comes to saving for later life, women’s retirement pots tend to be significantly smaller than their male counterparts’. By the age of 65, the average woman in the UK has around £35,700 in a pension pot, whilst men have over £141,000 for their golden years2.
What does the research show?
It’s a similar story for personal savings and investments. Research shows that only 23% of UK women are currently investing (including Stocks & Shares ISA and personal pensions), compared to 35% of men3. This may not be a direct result of the gender pay gap itself, but it certainly reflects a widespread under-representation of women across all aspects of financial wellbeing.
These figures will come as a surprise to few. One of the issues appears to be risk aversion. Their prime instinct is to protect and save, and that’s exactly what they do with money. Unlike men, who see money as ‘theirs’, women think of it as the family money, even if they’ve earned it, and understandably, they are quite reluctant to risk it. As a result, women are more likely to choose cash savings over investments - 59% of UK women hold a traditional savings account or Cash ISA3.
"Avoiding the investment arena for whatever reason – confidence, risk-aversion, perceived lack of money – is potentially damaging to everyone’s financial health."
Whilst it’s sensible to put money in an easy-access cash account to cover unplanned expenses, cash savings aren’t really suited for long-term financial growth. Low interest rates are making it difficult for savings to flourish and in a high inflation, low interest rate environment, all savers could see the real value of their money decrease and their financial situation could worsen as a consequence. This is why women need to consider other options, including investing, to boost their finances over the long-term.
With investing, returns aren’t tied to interest rates. Instead they depend on how well your investments are doing, so you could get back less than initially invested, but this also means that there’s a chance for inflation-beating returns.
Women investing: a missed opportunity?
By letting their risk aversion dictate their financial choices, women are potentially missing the opportunity to build their future wealth. So, it’s important to show them that investing isn’t as risky as they might think.
It all depends on how it’s approached. If you invest all your money in one or two company shares, then yes, you could lose everything if these investments were to perform poorly.
Spreading your money across a number of investments, like shares, bonds, commodities, property, and markets, like the FTSE 100, the S&P 500 and Nikkei 225, helps spread your risk. If you’re not confident doing this yourself, online investment services, like Wealthify, give you quick access to a wealth manager who will do it for you, based on your chosen level of risk.
Confidence is another trait that can characterise the gender divide. Another reason why women don’t make the big move to investing is lack of confidence. Research suggests that women are reluctant to become investors because they’re not confident in dealing with financial products and services.
"Research shows that only 23% of UK women are currently investing (including Stocks & Shares ISA and personal pensions), compared to 35% of men."
Over one in ten women admit they don’t feel comfortable when making financial decisions – twice as many as men4. In another study, women were asked to rate how confident they are in choosing an investment account – fewer than a third (32%) of women rated themselves 6 or above out of 10 for confidence3. Few things could better illustrate the enormity of the confidence issue.
What most women don’t realise is that they don’t need much experience or knowledge to dip their toe into the investing world. In these exciting digital times, you can download an app, fill in a few details, deposit the equivalent cost of a bottle of Friday night chardonnay and you’re an investor.
To be clear, this isn’t some semi-automated pseudo-investing – it’s real professionals managing your money, every day, and responding to changes in the markets as they happen. The customer needn’t look up from their Penguin Classic.
Perhaps the most damaging of all myths about investing is that you need lots of money to get started in the stock market. This might have been true in the past when investing was only reserved to the wealthy, but nowadays, it’s possible to invest small amounts of money thanks to digital investment services that are committed to making investing accessible to everyone.
Digital and online wealth management as a solution
With online platforms, also known as robo-advisors, you can invest as much or as little as you like, whether it’s £1, £100, or £10,000 and top up whenever you want. Putting in small sums might seem a bit counterproductive but doing it regularly and over a long period of time, you could end up with a decent nest egg.
Avoiding the investment arena for whatever reason – confidence, risk-aversion, perceived lack of money – is potentially damaging to everyone’s financial health. By playing ‘safe’ with cash ISAs, UK women are potentially sacrificing their future security and a comfortable retirement.
There’s no denying it, the situation is challenging, but it can be fixed. Women must start taking greater control of their finances and chasing their financial dreams. With the ever-increasing number of affordable and widely available digital services now available, anyone can harness the power of investing to achieve their long-term goals – one of which, for women, must surely be financial independence and the ability to live their lives on their own terms.
1. https://www.bbc.co.uk/news/business-42918951
2: https://www.insuringwomensfutures.co.uk/wp-content/uploads/2018/01/Risks-in-Life-Report.pdf