While myriad historical and systematic factors contribute to the gender wealth gap, one critical and often overlooked consideration is how women’s perceived lack of financial education and confidence is influencing their risk aversion, and subsequent long-term wealth accumulation.
Just a fifth (21%) of people claim to have received a good education on managing money in school when they were younger, according to the Handelsbanken Wealth & Asset Management wealth survey. Breaking this down by gender, that’s nearly a quarter of men, versus just 18% of women.
This pattern of men feeling more confident persists among younger age groups, who are overall more likely to believe they had a good financial education. Nearly half (46%) of men under 30 believe they received a good education on managing money, compared to 28% of women the same age – a concerning trend.
Coupled with a history of exclusion from the financial world (it wasn’t until the 1970s that women even had the right to open a bank account or credit card without the authorisation of a male guarantor), it’s unsurprising that women broadly report far lower levels of financial confidence than their male counterparts.
For instance, women of all ages are more likely than men to state limited or no understanding of investments, pensions, and personal insurance products – with over two-thirds of women reporting limited comprehension of the former.
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Is low financial confidence making women more risk-averse?
Study after study has shown that men are more likely to invest their capital than women, with women more inclined to keep money in straightforward savings accounts rather than putting it to work in financial markets. And when they do invest, women on the whole opt for low-risk options.
Indeed, when asked to imagine a scenario in which they could pick an investment with the potential for large gains alongside the risk of large losses, nearly half of women said they felt either quite uneasy or panicked and very uncomfortable at the prospect, with over a third saying they would never pick a high-risk investment. By contrast, only 10% of men reported feeling this way.
How is this aversion affecting the wealth gap?
While low-risk choices may feel safer in the short term, they can have significant long-term consequences, with women potentially missing out on the higher returns that can come with calculated risk-taking.
No investment comes without risk, and that’s certainly true for investment in shares, bonds and other financial market instruments. However, it’s important for individuals to think about what they need their money to help them achieve over the long run – and to ensure they’re seeking the right advice in order to achieve it safely and successfully.
Focusing on short-term certainty, such as interest rate returns on cash savings, can make you feel safe in the near term, but could leave your longer-term aspirations out of reach.
Staying out of financial markets can remove your exposure to financial market risk, but it also means missing out on the potential to build up financial returns over the long run. Meanwhile, inflation can make your cash savings worth much less in the future, picking your pocket over time.
Unfortunately, there’s no such thing as a free lunch; there’s simply no gain without risk. If we want women to become more comfortable about taking on a proportionate level of risk in an effort to meet their investment goals, we need to also address their financial confidence.
Lucy Allington is a client director at Handelsbanken Wealth & Asset Management
