Women and Money: Why They Avoid Risk, Lack Confidence in Decision-Making

by Eve Kaplan, CFP(R) Practitioner

Women differ from men in many ways including their attitude toward money. That’s having a growing effect on the trillion dollar financial industry.

John Grey’s classic book “Men are from Mars, Women are from Venus” illustrates how the sexes view the world through different lenses. Our previous article mentioned how these differences play out between men and women in terms of financial need. For example, women live longer than men, save less for retirement (due to career interruptions when they have families, and because they earn less). On the other hand, a growing percentage are becoming the dominant or sole family breadwinner.

The differences between the sexes in terms of money attitude may seem small or relatively unimportant (e.g. the fact that women worry more about their financial health than men) but the impact on the trillion dollar financial services industry is enormous.

Here are some key differences in money attitude between the sexes:

1. Women avoid risk more than men; this comes back to bite them more than men:

Perhaps it comes down to both genes and social upbringing. Women feel greater pain when they lose money than men. The result is that women tend to shy away from stocks more than men do.  This makes intuitive sense because stocks are more volatile and unpredictable — on average – than bonds or cash. Perversely, however, it’s the wrong direction for women, who need a slightly higher exposure to stocks than men do. Women live longer than men; stocks broadly should continue to outpace inflation over long stretches of time vs. bonds and cash. Inflation is the enemy of all retirees and is especially corrosive to women due to their relative longevity.

Risk mitigation may be of greater value to women than men due to their greater longevity. Life insurance and joint survivor beneficiary pension streams can be especially important to help prevent women outliving their assets. Longevity insurance  and long-term care insurance are other ways to reduce the risk of outliving assets.

2. Women worry more about the effect of money on relationships:

A survey by Campden Wealth and Morgan Stanley Private Wealth Management shows that a staggering 79% of younger (“next-generation”) ultrawealthy women are concerned their wealth will complicate relationships with spouses, partners, friends and colleagues. Only 22% of wealthy men shared these concerns.  I believe the same conclusions can be drawn for women and men in all income and net worth brackets.

3. Women worry more about their financial health but lag in decision-making and self-confidence:

I regularly give complimentary financial planning workshops on various topics at local area libraries in New Jersey, where I live. When both women and men are present, I observe that women ask fewer questions and often seem embarrassed about their lack of knowledge. For example, women often ask questions in this way “Perhaps this is a silly question, but…” or “I admit I probably should know this, but….”

This tendency is not unique to financial issues – when I taught at university it was clear that men generally were much more confident in the classroom than women. This difference in self-confidence has an enormous impact on the financial planning industry.  A LPL Financial “WomenInvest White Paper” survey shows that 67% women want an equal role in financial decision making and only approximately 20% want their husbands to make all the decisions. Yet data show less than two-thirds of women actually attain an equal role in financial decision-making. (note: financial decision-making here refers to “big ticket item decisions,” not grocery shopping level daily or weekly decisions). Financial Finesse, a financial counseling firm, has studied differences in financial attitude between men and women. Only 29% of women are confident their investments are “allocated appropriately between cash, bonds and stocks.” By comparison, 45% of men are confident in this area.

4. Women may expect different things from advisors than men:

What do women want? Women – more than men – seek financial “peace of mind.” Peace of mind is seven times more important to women than wealth accumulation per se. Women want a greater voice in relationships when it comes to big-ticket decision-making. Women tend to stress the link between their person lives (marriage, children, careers) and financial advice. In this way, women are ideal financial planning clients if the advisor “gets it” and does indeed connects financial advice-giving with real-life examples of relevance to a woman and her family. Statistics, charts and numbers may appeal to an engineering mind-set (this can be both men and women) but the emotional connection between money and feelings clearly resonates more with women.

In sum, there are many differences in financial need and attitude that appeal more to women and men. An ideal couple benefits from allowing both “female” and “male” voices to be part of financial decision-making – something akin to the Mr. Spock and Captain Kirk team that combines both analytics and emotions. An ideal advisor will listen to both women and men – regardless of the gender of the financial decision-maker – and will avoid being patronizing toward both women and men if they lack financial understanding. Women prefer to work with female advisors, when possible. The optimal advisor — a Fee-Only advisor — will hold to a higher fiduciary standard of care of clients by delivering advice that does not depend upon product sales.

Although women comprise more than half the financial planning/investment clients in this country, fewer than one-quarter of Certified Financial Planners® (or other credentialed advisors) are female.

(C) Copyright 2012 by Eve Kaplan. All Rights Reserved