Female approaches and disparities in investment and financial planning

For many of us, investment could be a key way to potentially build up wealth. But men and women often adopt different approaches to investment, despite the fact they may share common financial goals.

In 2024, slightly more than half (51 percent) of UK adults held stock market investments (excluding pensions), up 9 percentage points from 2023. But a significant investment gender gap remains: only 42 percent of women held stock market investments, compared to 60 percent of men (1).

Moreover, the Financial Lives survey 2022 (2) from the Financial Conduct Authority (FCA) revealed the average amount of ‘investible assets’ held by women was just £34,000, compared to £52,000 for men. Investible assets comprise someone’s total amount of savings and investments, including cash savings but excluding pensions.

Meanwhile, our Women and Wealth Report revealed women are only around half as likely as men to invest in the stock market via stocks and shares ISAs and general investment accounts. In contrast broadly equivalent proportions of women and men hold savings accounts or cash ISAs. This suggests women often prefer to hold cash than investments.

Unfortunately while a bank account may keep the numerical value of, say, £10,000 cash fairly static (assuming no withdrawals), that cash will buy less and less in the future. Quite simply, inflation drives up the prices of the goods and services over time.

For example, you could buy 20 pints of milk for £1 in 1975 (at 5p each) but only one pint (at 65p) today (3). This shows how inflation can drive down the real value of cash.

In contrast, investments have historically been shown to beat both cash and inflation in the long run. Even so, investment returns are not guaranteed and you may get back less than you invested.

But gender-based disparities extend beyond attitudes to investments and into broader areas of financial planning. We outline five gender-based financial differences and weigh up their potential implications.

1. Risk tolerance

Women and men crucially diverge on risk tolerance, which refers to their willingness to embrace investment risk. Quite simply, women generally seek lower levels of investment risk than men.

Our Women and Wealth Report showed 83 percent of women prefer to hold lower risk investments that typically generate lower returns, compared to 57 percent of men. This approach can sometimes benefit investors, but it can lead women to avoid riskier investments that potentially generate higher returns, although such returns aren’t guaranteed.

So women may decide to hold perceived safer investments such as bonds, as they seek to stabilise their investments and preserve their capital. But men often hold riskier investments such as equities (shares) that can potentially offer higher returns in the long run.

Soberingly, 18 percent of women believe stock market investments are too high risk. And 10 percent say they are too complex, while 6 percent don’t know where to start (4).

Katie Nutting, Financial Planning Director at Schroders Personal Wealth, said: ‘Women largely get referred to as risk averse, whereas I would use the phrase “risk aware”. Women are happy to take a degree of risk providing they understand the mechanics of the investment they are making and how this decision could potentially improve their long-term financial position.’

2. Differences in saving for the future

Women and men also diverge on retirement saving. Just 56 percent of female non-retirees, but 62 percent of male non-retirees, contribute to a pension. Yet the rising cost of living drove just 5 percent of female active pension members (but 7 percent of their male counterparts) to halt or bring down pension contributions.

However higher living costs drove 57 percent of women, compared with just 53 percent of men, to halt or bring down their non-pension savings and investments in the six months to January 2023 (2).

3. Financial ability

Women also doubt their own ability to pick suitable financial products and services. Indeed 21 percent of women lack confidence here, compared with just 12 percent of men.

Similarly, 24 percent of women believe they lack a good understanding of the cost of financial products and services, compared with just 17 percent of men.

Moreover, one in five women are ‘overwhelmed’ when they work with numbers or with financial concepts involving numeracy. But just over one in ten men gave this response (2).

Curiously, though, nearly half of women showed overconfidence in working with numbers, compared with just over one third of men. This was because women performed significantly worse than men in the FCA’s financial literacy test and overestimated their numeracy skills.

4. Confidence

Our Women and Wealth Report showed 23 percent of women lack confidence in looking after their finances, compared to 11 percent of men. And 44 percent of women are not confident that they are saving enough for their future, compared to 24 percent of men.

A mix of social, cultural and economic factors could drive down female financial confidence. Crucially the historical gender wealth gap often leaves women with fewer financial opportunities and resources than men.

This disparity can lead to reduced exposure to financial literacy and investment, and leave women unprepared to negotiate financial markets. Moreover, social expectations and traditional gender roles can encourage women to prioritise saving over investing and reinforce the viewpoint that investment is a risky, male-dominated area.

Katie added: ‘Most advertising for financial services and investments is still targeted at men. This often leaves women feeling unqualified to make decisions around their own financial position.’

5. Prepare for the unexpected

Our Women and Wealth Report revealed that only 38 percent of women have created a plan for unexpected events, compared with 47 percent of men. And 12 percent of women are unsure what financial plans they would need to set up in case of separation, divorce or bereavement. Thankfully, only a small proportion of men and women have no plans in place for unforeseen events and have no intention to set any up.

The way forward

Despite efforts to reduce gender disparities, the evidence suggests women remain disadvantaged in key financial areas. Our Women and Wealth Report offers five tips for women:

• Educate yourself

• Speak to a professional

• Set clear goals

• Invest what is right for you

• Diversify your portfolio.

These tips won’t eradicate gender disparities, but they can help ensure women have adequate and appropriate financial planning and investment arrangements in place. For more details on these tips, you may want to turn to the report itself.

Sources:

(1) Finder (www.finder.com), ‘Investing statistics: How many people invest in the stock market?’, 19 June 2024.

(2) Financial Conduct Authority (FCA, www.fca.org.uk), ‘Financial lives 2022 survey’, 26 July 2023.

(3) Office for National Statistics (ONS, www.ons.gov.uk), ‘RPI: Ave price - Milk: Pasteurised, per pint’, 22 May 2024.

(4) Aviva (www.aviva.com), ‘Breaking down barriers to the gender investment gap’, 11 March 2024.