Financial freedom - The next feminist endeavour

It’s fair to say that the world of finance has historically been predominantly male dominated. Not just from a career perspective, but also in terms of investing. You’d even be forgiven for saying that the typical image that springs to mind when you hear the word ‘investor’ is more than likely a man in a suit, but it’s time for that image to change.

When we think about the evolution of the female, the strides that have occurred in the past 50 years alone have been phenomenal i.e. the ongoing attempts to dismantle the patriarchy, the feminist movement, and more recently the ‘me too’ movement as well as the push for equality in the workplace and in the boardroom.

Gender roles continue to evolve, but unfortunately systemic issues of the past are still creating gender gaps and obstacles to investing and wealth accumulation remain for many women. Close to home, one such example is Ireland's marriage bar, which was introduced in the 1920s and required women to resign from work once married and disqualified married women from applying for job vacancies. It was finally lifted in 1973, but many women are still feeling the effects, receiving a reduced pension today as a result.

Though major advances have occurred in the professional and personal lives of the women of the world, investing is an area where females are still vastly under-represented. Women are considered to be less likely to have an investment portfolio and are also still behind when it comes to pension contributions.

The gender wealth gap

Despite living longer, women are expected to have lower levels of wealth then men by the end of their careers and it’s been estimated by Scottish Widows that it would take an average woman in her twenties in the UK, 37 years more than a man to achieve retirement parity. A recent global study carried out by Willis Towers Watson for the World Economic Forum supports this, discovering that globally, by retirement age, women on average will have accumulated 74% of the wealth of their male counterparts.

The study also found that even though variation of wealth equity across regions is significant, the underlying drivers are consistent, namely; pay gaps, delayed career trajectories, family responsibilities and lower financial literacy levels.

The first three listed can be referred to as a ‘motherhood penalty’, which unfortunately is still estimated to affect generations to come, with it often making more sense to work part-time or step out of the work force temporarily due to high childcare costs etc., which in turn will mean lower pension contributions and slower career advancement during that period. Family responsibilities also impact the amount of time women have to dedicate to things such as investing.

Poor financial literacy in general is something that needs to be tackled, across both genders and from earlier ages as the lack of knowledge acts as a disempowering force.

All that being said, positive change is ongoing and the drives towards full gender equality have never been more in focus.

Why investing is important

There is a myriad of reasons to invest, beyond what you’re putting away for retirement. From the base levels of hedging against inflation to building financial security for oneself and family. Investing allows us to grow wealth over time and its importance varies depending on the individual but it comes down to what it can do for you and the lifestyle it enables you and your family to have.

In generalised terms, the drivers can differ between genders, and it is often suggested that when it comes to investing, women prioritise security, independence and lifestyle. The drive for financial independence is natural, for the factors mentioned before, it’s something that has been relatively newly attained and is invaluable. Security is hard to define, but we feel out of balance without it and our financial status has a huge effect on it. A comfortable lifestyle is what we work hard to be able to enjoy and this advances as we grow our wealth.

Although in recent years, financial independence and success has become paramount for women across the world, the data on female investing is mixed. Promisingly. according to Fidelity's 2021 Women and Investing Study, 67% of women in the US are now investing aside from retirement only, compared to 44% in 2018. Broken down by generation 71% of Millennials, 67% of Gen X and 62% of boomers were found to be investing outside of their pensions. Whether it is due to intrinsic or extrinsic factors, things seem to be improving, but women are still behind men in this area, despite evidence that they produce higher risk adjusted returns.

Living with uncertainty

One reason for this could be down to the typecast of women being nervous around investing. An interesting factoid that's often quoted and was supported by the 2021 Fidelity study is that whilst women are often the ones managing the household finances, confidence lacked when it came to long-term planning and investing.

Investing has an inherent risk involved and that can be difficult to get fully comfortable with. With the potential for both good and bad outcomes present, it can lead to inaction. When investing over the short-term, risk is enhanced due to the speculative nature. Making our money work in a portfolio over the long-term means that we can have wealth that grows over time and avoids approaching investing from a transactional stance.

This longer-term view is something that a study by German Bank, N26 found that women prefer. This can be achieved through a diversified portfolio with multiple different asset classes working in different ways, with your money compounding away in the background, with adequate time allowed to weather short-term storms.

Language around investing can sometimes be alienating and act as another barrier to entry for some women. As mentioned previously, financial literacy across genders is still not where it could be. When we break it down in the simplest of terms, money is a resource and wealth is what you can create over time through investing. There is an array of different ways we can invest, but the first and only criteria is that we put our resource into something that we expect will increase in value over time.

Naturally, trying to do this yourself is where the hard part begins as predicting future outcomes is increasingly impossible as we become blindsided by global events and their subsequent impacts on markets on a yearly basis, 2022 being one such example. The thing is, we never have the full picture of future events, therefore we can never have all the information before getting started, instead, like most things in life we often learn our biggest lessons along the journey, but first we have to begin.

A nervous approach does not have to be viewed as a bad thing. Being cautious can in fact make you a better investor because willingness to stay a course, avoid overtrading and not make drastic and reactive decisions which can hurt portfolio outcomes.

Wealth equity - where to start

You can start small in your journey to financial security through investing. Small steps like increasing pensions contributions at a younger age can improve your long-term savings outlook. Risk is inevitable, but you can select the risk you are comfortable with and investing over the long-term softens the blows of any short-term volatility that will inevitably arise.

Feeling financially disengaged is understandable with the obstacles mentioned but making decisions today could hurt or help your future self and the path to financial empowerment doesn’t have to feel like a cause of stress. The idea is to prevent future stress, creating security and peace of mind. Financial literacy and independence is a lifelong endeavour and all that’s required is taking the first step.