As the clichéd saying goes: men are from Mars, women are from Venus. We take a closer look at the gender gap and explore whether there are any differences in the way men and women think about money.
Words by Lum Yin Peng
We often hear of gender-based stereotypes like “Women are just bad drivers” and “Men are the risk-takers”. But are there any differences between men and women when it comes to money management too?
Well, according to results of a MasterCard annual survey, the short answer is: “Yes”.
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Take a look at the Gender-based Financial Literacy indices listed by country in the chart below. To arrive at this index, Mastercard used score results of women who took a financial literacy test and divided them by those attained by men. Disparity occurs when the index is below or above the “100” Gender Parity Line. A lower index implies women are worse-off than men in their financial knowledge and vice versa.
In Singapore, not only are men faring better in financial literacy scores, the disparity has widened from a year ago, dropping from 96 to 94. This trend seems to be evident in most developed countries.
We could brush it aside and say financial literacy is just one those things that women are not quite good at, but the reality is more worrying that that. Women – who tend to have a longer life expectancy and typically earn lower wages – are the very ones who need to be well-informed about and actively manage their money.
Why are women less $-literate?
As a woman myself, I am not surprised by the results. I would say up to 90% of my female friends, even those who earn a good income, don’t make it a priority to actively manage their money. However, my male friends would tend to include money in everyday talk, be it the kind of savings they want to achieve, the hot stocks they are looking at, or at the very least, how they wish their wives would spend less. It appears, anecdotally at least, men are more at ease with the topic of money.
Maybe that explains why there are countless personal finance books and even websites targeting women specifically. Book titles like “The Wealthy Woman: A Man is Not a Financial Plan” and “A Purse of Your Own”, websites like LadyBoss and TheNewSavvy just to name a few. But there are almost none tailored just for a male audience. Females need more nudging to take charge of their money, it seems.
So, what caused this disparity? Based on my years of observation and many intimate conversations with women friends, I shall venture to list down some reasons:
1. Multiple roles of the working woman
Like it or not, women are juggling family and work a lot more than men. The role of caregiver for young children and task of household chores tend to fall on the shoulders of the woman, not the man. With so little time left, most working moms are simply too tired to take on the role of CFO. Generally, it’s the man who handles major and even minor financial decisions.
2. Homemaker moms take a monthly “budget” or “allowance”
For non-working moms, the trend in Asian countries is for the husband to allocate a monthly sum of money for household use or as an “allowance” for the wife. While this helps to hone the wife’s budgeting and saving skills within the budget she is given, it limits the amount she can set aside for investments. Often too, the husband is the one who handles the larger expenses, such as car loan and housing loan, and these are “blind spots” preventing the wife from getting the full financial picture.
3. Single ladies save but may be risk-averse
For single women who do not have the “cushion” of a second income to supplement the family or children to take care of them in old age, the priority is usually to “save”. This group may be more financially savvy compared to their married peers but also tend to be more risk-averse, taking on safer options like fixed deposits and bonds.
Yet women are deemed better investors
According to a study by finance professors Terrance Odean and Brad Barber (and also an analysis by SigFig), women outperform men annually in their portfolio returns by about 1 percentage point. The study analyses the online trading accounts of around 60,000 investors, of which a quarter are women. Female investors signed into their accounts 45% less frequently and changed their asset allocation 20% less frequently than male investors did. Yet, they did better on a yearly basis.
So it seems women can do better than men in investing, just that not enough are doing it. As for men, more of them are eager to invest, but they are doing it in ways that may undermine their results.
What can we learn from each other?
To borrow an oft-used quote from Aristotle: “Knowing yourself is the beginning of all wisdom.” The good news is, both sexes can learn from each other, by first understanding one’s flaws and strengths.
Women investors are found to be less “erratic” and more “long-term” in their approach to money. Women in general are also stronger savers, and save a higher proportion of their salaries compared to men. They also tend to focus on saving for longer-term goals. By comparison, men tend to want to see results in the form of transactions and performance, and hence trade more. These frequent trades can result in higher transaction costs, eroding their portfolio earnings.
Men are better at taking risks and women may lose out in this respect by not including slightly higher risk products in their portfolio. Younger female investors can perhaps learn to take on a riskier portfolio compared to their more mature counterparts.
Additionally, women are generally more willing to acknowledge what they don’t know and hence do more homework before investing. They also take a longer time to make an investment. This is something that men can learn from women as overconfidence can lead to erratic behavior that is detrimental to investing success.
Based on my personal experience, most of the above seems to hold true, going by the difference in investing styles between my husband and I. During the eight-month sabbatical during which he was at home, he did more trades than I did in the last 24 months. He also doubled the number of stocks in the original portfolio, venturing into riskier stocks. Thus far, it appears that by trading less and sticking to well-tested stocks, my portfolio is performing than his. He seems to have realised this too and has been more careful in buying or selling. I, in turn, have begun to read up more on riskier stocks. As we learn from each other, hopefully the results will be better than if we had done it alone.