Financial Planning For Women – Why Are Women Being Left Behind When It Comes To Investing: The Common 7 Challenges
An article by Forbes magazine titled “Investing Is On The Rise, But Women Are Being Left Behind” prompted me to share my thoughts on women and investing. Most of my female clients generally understand the need to invest, and they want to be successful investors, especially when I bring up to them the point that investing helps to create a secondary income.
They understand that investments can help them to meet their long-term goals, like maximizing their retirement income for example. They are also driven to be self-sufficient, hence the need for wealth accumulation through investment.
Yet, the recent study from Forbes has shown that men (23%) are investing more than women (only 10%).
So, why then is there such a disparity between perception and reality?
Women are more hesitant than men in investing because of a few common reasons. If you are hesitant in investing, you may relate to these 7 common challenges faced by women:
1. Not understanding the risks involved
One reason behind why women are more hesitant than men in investing is because of the risks involved. When a woman does not understand the extent of the risk involved, she will opt for safe financial instruments so as to maintain consistency to her cashflow.
Rather than take the risk to pursue the unknown, she is more likely to leave the money in the bank for a much lower but consistent interest rate, to spare herself the stress of having to monitor it in an investment with a higher interest rate with higher volatility.
2. Having lesser to invest
Because of the gender income gap, many women generally still earn lesser than men, even in similar positions, which leaves them with lesser to invest. Add in the woman’s natural hardwiring to play the role of the sacrificial giver, this leaves her with very little financial resources left to consider investing.
Often women also have to play the role of being a caregiver, for example, looking after their aging and ailing parents, which may result in a loss of work income. Being a carer takes up much time, which means the majority of them have to stop working or reduce their workloads. This results in having lesser to invest. This commitment comes with a financial sacrifice, and it is prudent to plan for this in advance.
3. Tendency to overspend
While women may have a well-thought out budget, they can also tend to overspend. This may be because they tie their financial decisions with other emotional considerations, such as buying gifts for their children or taking them on holidays beyond their budget or even paying for a nephew’s education when they are underfunded for their own retirement.
When I bring up these topics with my female clients, they often agree that they should not be so generous to the extent that it is beyond their own capability. Yet, their natural emotional wiring causes them to continue giving up their own needs to provide for others, leading to a higher propensity to suffer from bad financial decision-making. Thus, it can often result in women not having the budget to invest.
4. Inability to relate to the concepts of investing
In my opinion, the concepts of investing are generally communicated in a way that may not be best suited to help women make decisions. For example, when it comes to investing, I find that my female clients can relate better through concepts and stories, both of which appeal to their emotions, rather than charts, rows of projections and hard numbers, which speak purely to logic.
When the female client is unable to relate, she naturally tends to be more conservative in making investment decisions. Sometimes, the female client can make a decision to invest not only for the purpose of getting the highest returns but for other reasons such as the desire to “want their money to do something” or “try out investing”. While these are not the traditionally accepted reasons for making an investment, they can be just as important to a woman in her decision making.
5. Having no time to track or monitor the investment portfolio
Women generally juggle several roles at one time, often multi-tasking as the family household manager, carer, financial controller, teacher to her kids etc. Unfortunately, managing an investment portfolio does take up time if you want to do it properly and this worry about commitment may oftentimes creates procrastination about starting the investment journey even if the needs are clear.
You could look into a good investment plan that does not require you to do much tracking and monitoring, such as one using auto rebalancing technology, so that your investment can be adjusted according to the desired investment allocation.
Download here (Guide To Choosing A Single Premium Investment Plan) for some key considerations when it comes to choosing a single premium investment plan.
6. Bad investment experience by family/friends
Women, being more empathetic, tend to be more emotionally affected by the bad investing stories told to them by their family and friends. They may have heard from their friends who panicked and sold off their investments during an economic downturn and lost money.
For example, some of my female clients heard of their friends being badly burned by their wine investment and that alone was enough to put them off the thought of investing.
7. Not knowing where to start
The problem with too many investment options is that there are too many investment options. This creates the anxiety of making a wrong choice which is a common concern for many who are starting their investment journey.
Thus, as much as possible, a woman should consider working with a financial planner that she can trust and feel comfortable with, and is able to understand what she needs, in order to help her mitigate decision-making risks.
From what I have observed through a decade of working with women, I find that the biggest strength of women in investing is that they are able to commit to a long term plan and not deviate unnecessarily. Ultimately, the success of an investment plan is not dependent on just the performance of the investment but also on the behaviour of the investor.
Over the short term, even good investments can be volatile but by being able to hold onto an investment over the longer term women are better at riding through the volatility to see profits from the long-term performance. This makes them good long-term value investors.
Women can make good investors but they need to play to their strengths and when needed, get good help. My wish is to see an article in the future with the title “Investing is on the rise, Why Are Women Leading The Charge” and I wish you good luck and happy investing!
Article by Lee Meng
The writer is an Executive Financial Services Consultant representing GEN Financial Advisory