Women and money: What’s the real issue?

March 18, 2024

It was International Women’s Day earlier this month. The time when men are encouraged to notice the contribution of women, and women get freebies to feel good about themselves.

It’s also when women get invitations to attend seminars about doing better with their money. I have addressed a bunch of them over the years. I have also blogged encouraging women to take an interest in their finances.

Have we moved the needle on the ‘women and money’ issue? And what is the women and money issue anyway?

Perhaps we are mixing up completely disparate issues. Perhaps we need to first understand what the issues are before attempting to address them. Perhaps we are addressing symptoms when we need to get to the underlying causes. Perhaps, perhaps, perhaps.

So here goes my first attempt to disentangle a bunch of inter-related but separate issues under the broad topic of ‘women and money’.

Symptom 1: Women earn less than men.

The gender pay gap is well documented. Studies show that it will take close to a couple of hundred years to close the gender pay gap.

The thesis on why it happens earned a Nobel prize in economics.

According to Goldin, part of the explanation is that educational decisions, which impact a lifetime of career opportunities, are made at a relatively young age. If the expectations of young women are formed by the experiences of previous generations – for instance, their mothers, who did not go back to work until the children had grown up – then development will be slow.

Historically, much of the gender gap in earnings could be explained by differences in education and occupational choices. However, Goldin has shown that the bulk of this earnings difference is now between men and women in the same occupation, and that it largely arises with the birth of the first child.

Yet, in social discourse, I still hear narratives about women choosing low-paying jobs. I also see some well-meaning attempts at teaching women to better negotiate their compensations.

We have a lot of work to do, including providing opportunities for women returning from maternity leave and combating biases against women.

Symptom 2: Women are under-represented as investors.

About three-quarters of investors tend to be men, even in packaged, convenient products like mutual funds.

This leads the financial services industry to believe that women leave it to the men in their family to take care of the family finances. They are not wrong. The question is why they do it.

Is it because they don’t have a head for numbers, as many women readily admit? This seems to be the dominant view, as most well-meaning ‘women and money’ initiatives focus on educating women. But then, many commentators say that it’s the women who run the household budget, so surely they are good enough.

Or is it that they just don’t have the time to manage their investment portfolio, since they’re already managing the household and care for children and elders?

Or is it because they didn’t earn (most of) the money, and so, are not entrusted with investing it?

As with most things, it’s probably a combination of all these factors. The last point is the most worrying, though – because it’s related to women’s low job participation rates.

But even that doesn’t explain it fully. I am a trained financial analyst. Many of my girlfriends are professionals in various industries. We all can understand 5th grade math, we have house-help and we would fight for our right to manage our money should the need arise. But sometimes we just leave it to the men to ‘keep the peace’.

I know I did. And I am still not sure how to handle it differently.

That doesn’t stop me from trying though. I launched a podcast series (Meri Pyaari Saheliyan – with Hansi) in 2015, encouraging women to talk more openly about the role of money. I am working on another podcast to highlight some of these issues.

Symptom 3: Women take less risk than men.

I first came across this narrative when Professor Terry Odean presented a paper he had co-written with Brad Barber, titled ‘Boys will be boys’! The gist of the paper is that retail investors generally lose money in trading. The more someone trades, the more they tend to lose. The authors looked at the data closely and noticed that men traded more often, and hence lost more money.

I spoke to Professor Odean again recently – he reiterated that the conclusion had been replicated in other studies. Men still trade more often, and hence lose more.

What the study doesn’t say is why that happens. Is it because women are more risk-averse? I asked him that. It led us to a discussion on ‘risk tolerance’ – a vague concept that even experts disagree on – that I will explore in a separate post.

It’s pretty important because I remember seeing other studies that claim women ‘perceive’ risk differently than men. But once they settle on the risks they see, they invest pretty much the same way. While women taking less risk than men actually holds them in good stead, as it stands, there is no evidence whether this is due to a trait (which can’t be changed) or lack of confidence (which can be). We concluded that it’s more likely to be a confidence issue.

I will explore this aspect in future posts.

Symptom 4: Women are under-represented as professional investors.

Now this is a ‘women in finance’ issue rather than ‘women and finance’ one.

There could be multiple reasons for the low representation of women in the finance industry.

The most common is the perception that a career in finance doesn’t offer a positive work-life balance. This might be a gross generalisation, as finance includes a wide range of segments, ranging from the very demanding investment banking segment to the very flexible wealth management segment.

There are some studies that lament the poor representation of women amongst professional fund managers, and then show how women fund managers outperform. The narrative is that perhaps women lack role models and therefore, we should expose young women to more successful women in finance.

Another related narrative is that women are not encouraged to pursue any career that requires numeracy skills. That explains the lower numbers of women in STEM careers too. But I am not sure this holds. Women now dominate new entry into the accounting profession. So women like numbers just fine.

Could it be that the investing subset of finance is perceived to be a ‘macho’ profession? That Michael Douglas of Wall Street and Leo DiCaprio of The Wolf of Wall Street don’t inspire women? I recently finished reading The World for Sale about the rise and dominance of commodity traders. It didn’t mention a single woman.

Maybe investing isn’t a ‘profession’ at all, even if the CFA Institute has been trying hard to make it one. I sign my professional ethics declarations every year (which other finfluencers don’t have to). But the fact is that I quit my job because it just didn’t appeal to me anymore. I wanted more meaning in my life. So if the investment world is an industry rather than a profession, as I personally believe – one that’s driven by greed at that – then I am not surprised if future studies show that this aspect just doesn’t appeal to women.

So what gives?

Back to the question: why there are so many investor education initiatives aimed at women? I believe that these sessions could be aimed at confidence-building rather than focusing on technical or numeracy skills.

I think confidence-building is a noble intention. All my initiatives were done with this objective in mind. And I will continue to pursue it.

But is it enough?

Don’t we also need to change the laws so women get equal rights to any wealth built during a marriage? Don’t we also need to change social perceptions about women needing to build and control some assets directly? Don’t we also need to tackle biases to expedite fixing the gender pay gap issue?

There’s a lot more to be done.

Consulting producer, Zerodha

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  1. Jayanti says:

    This is a very well written Blog Hansi. I wish schools would include the concept of personal finance and financial planning as a part of their curriculum aswell.