In my 30+ years in financial services, a lot has changed for the better when it comes to women and investing. But we still need to do much more to ensure that women are not only treated fairly, but that their differences are respected and valued. We must actively break down the biases that too often prevent women from building wealth and leading lives of financial independence, confidence and security.
Here are five of the most common biases that women face when it comes to money and investing. If you’re a female investor, chances are you’ve personally met a few of them. In fact, you can hold it yourself without being consciously aware of it. We all have biases of one kind or another; and most of us have felt the effects of these attitudes in our own lives.
See if any of these biases apply to you:
1. Women are afraid to take investment risks: Let’s be honest. Women tend to be more conservative investors. Why? A recent study explores possible reasons, ranging from a lack of financial literacy to lower levels of confidence. But even when you take a financially savvy female investor who is reasonably confident in her ability to make investment decisions, you’ll still find that women in general tend to be more conservative and less active investors than men. But guess what? Studies have also shown that women’s investment results are often better than men’s for the simple reason that women tend to trade less frequently and make fewer mistakes. Investing is a long game. Trading frequently does not mean better results. In fact, it can mean missing out on long-term growth.
So is it fear – or poise? A common prejudice regards risk aversion as a negative element. Yet, savvy investors understand that investment risk analysis is an essential part of an individual investment plan. In fact, it has less to do with sex than with a thoughtful consideration of goals and timelines.
2. Women should save and invest like men: Really? For me, women actually need to save and invest differently than men for many reasons. The increase in life expectancy is one of them. The increase in time spent out of the labor market to care for others is another. Also, greater longevity means that women are more likely to need long-term care services in the future. Add to that historically lower incomes, and it means women must, in some ways, be more aggressive than men when planning their financial futures, especially when it comes to saving.
Does it also mean more active trading? Not necessarily. (See point #1) But that means starting to save as early as possible, having a long-term view, understanding the role of stocks in wealth creation, and not underestimating the importance of establishing financial independence. Again, it’s not really about gender. It’s a matter of what’s good for your own financial security.
3. Women ask too many questions: This is a negative cultural bias that is not limited to investing. But it is relevant because asking questions can be mistakenly perceived as a lack of confidence. In my experience, asking too few questions – or asking questions after the fact – is one of the areas where investors often go wrong. My advice? If you don’t know something, ask. If you need more information, ask. If you want a second opinion, ask. If your advisor won’t answer your questions, find another one.
4. Women are not the financial decision makers in the household: That may have been true in the past, but things are changing fast. Today, about nine in ten women who are married or live with a partner said they participate in household spending and investment decisions, up from less than half a decade ago.
I find this encouraging because improving financial literacy and financial opportunity for women is one of my passions. I believe it is extremely important for women to be part of the financial decision-making in every family – and to have resources and opportunities to achieve their own financial independence. So to the entire financial industry and anyone who deals with money matters, I say don’t underestimate the role women play today in making important financial decisions.
5. A one-stop financial advice solution for women: There is an old marketing concept that has been used to target products aimed at women, known as “pink it up and shrink it”. The idea is that if you just give something a traditionally feminine color and make it simpler, women will move on. Wrong. And especially wrong when it comes to financial advice, because financial advice, by its very nature, should be individual. There is no “one size fits all”.
No matter who you are, financial advice should be focused on your specific needs, values and goals. It should go beyond investing to include budgeting, insurance, estate planning, social security – the full spectrum of your financial life. So where do you get this kind of tailored financial advice? From a qualified financial advisor who is ready to listen.
Many women prefer a counselor because they expect to find less bias and a better understanding of their needs. I personally believe that more women should be encouraged to enter the financial advisory field. But I would advise both men and women to put gender bias aside when choosing a counselor. Instead, look for someone you can relate to who has the right combination of professional qualifications and personal qualities to support you.
Carrie Schwab-Pomerantz is President of the Charles Schwab Foundation. This article originally appeared as a blog post on Schwab.com.
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