While advising couples, I have noticed that men and women often have very different approaches to investment decisions and managing risk. Curious to learn more, I researched available studies to learn more about the scope of these differences and why they occur.
The findings were in some cases very surprising. However they almost universally validated my anecdotal evidence that women tend to be more conservative than are men, when making decisions about finances and investments.
These tendencies occur for a number of reasons. The studies have shown that more women than ever are supporting households as a primary breadwinner, and that women are living for longer periods of time. Female headed households are also more likely to include extended family members, including children, and older parents. Decisions about allocating a paycheck may need to support several people.
Married women were also found to be very interested in finances; but less likely to be taking the initiative in a conversation with professionals about household finances or investing. They were found to be very concerned about their financial security. Most surprising to me, personally, was a finding that 27% women in households earning more than $200,000 a year had a deep seated fear of ending up broke, homeless and as a bag lady later in life.*
Among married women, most were far likelier to discuss a purchase of more than $360 with their husbands prior to making it. By comparison, the husbands surveyed were not likely to involve their spouses in a purchase decision unless the amount exceeded $1200!
There are many implications of these studies. One of the first takeaways for me is that it is important for women, if they are not already well informed and assertive, to delve into household finances and to share in decisions about them. Women should choose professionals - whether they are CPAs, tax preparers or financial advisors - with whom they can collaborate, rather than be patronized.
Also, women in significant relationships should understand that their voices should be heard on money topics. It is important for couples to work toward ease in communications about money, an often difficult subject. In community property states, salaries and retirement assets are considered to be marital property. It is logical that both spouses work together on decisions about these assets rather than assigning more control to the one who earns more.
One way women can be made to feel more comfortable about investment decisions and saving for retirement is to engage in planning. The studies found that women who plan had a higher level of confidence about achieving their eventual goals, and more awareness of the resources and milestones necessary to attain them. These women also felt more comfortable with assuming some risk to attain the desired outcome.
Estate planning can also be important, to help women feel reassured that they will have sufficient resources for their later years. The process of creating a will or trust can identify issues for funding legacy goals, as well as the needs of a surviving spouse. Estate planning can also direct the outcome of "instant estates" created, when an untimely death of a parent or both parents triggers life insurance payouts for children. Estate planning may serve as a reality check on levels of current spending, which may not allow for sufficient accumulation toward retirement.
Recently, I spent a morning talking with women about life planning, and estate planning. Even people who don't self identify as rich realized that if both parents were to die, leaving the insurance payouts of a group life insurance plan for children, that the parents' estates could suddenly be substantial. Informed choices of when to start Social Security benefits and to coordinate benefits with those of a spouse can provide life-changing results.
If you would like to learn more or to read more about these studies, to assess where you may be with some of these decision points, I can send you some links. You can also consider attending my panel discussion tomorrow in Mill Valley. Link is below. I would also be happy to engage you in an important planning discussion, toward taking more control over your finances, and life goals.
The bottom line is that life circumstances can significantly affect risk tolerance and assumptions regardless of gender. Rather than totally avoid risk, we need to ask ourselves how much we might tolerate to reach a desired goal.
*Allianz Life, 2012
**Research studies by: Allianz Life, 2012; Sullivan Trust Study, BNY Mellon, Jan. 2011; Spectrem Group, Oct. 26, 2011, Experian, 2014; and Family Wealth Advisors Council, 2012.