The following
is taken from an article published in the Women s Agenda from Australia and from Benefits Pro.
We know that
women are paid less than men and that they retire with
less superannuation
In
Australia, all workers contribute to a pension plan called
Superannuation.
Superannuation
is predicated on time spent in employment, and the gross income of each member.
So while the current median super balance of men aged 35 to 44 is around
$41,000, for women of the same age it's $22,600. For those about to retire – 55
to 64 year olds – men have a median $91,000 compared to women with $55,000.
The problem
isn't so much gender bias as structural inadequacy.
Women have
different lives to men. They typically take time out to have kids, they work
part-time when they re-enter the workforce, and in order to have flexibility
with their family responsibilities, they often work on contract from home or
they do informal work for cash. All of these choices take contributions out of
their super.and other savings than men. And yet the great paradox is that they
actually make better investors than men, so what's going on and how can it be
addressed?
The
Australian Government's study, Financial literacy – women understandingmoney, (PDF file) highlights a raft of differences in the attitudes, confidence and
actions of women and men. Women are less confident with planning for their
financial future and ensuring they have sufficient money in retirement.
Significantly, 52% of women said that dealing with money is stressful and
overwhelming. Many said thinking about their long-term financial futures makes
them feel uncomfortable. Thirty four percent said that dealing with money is
boring.
But that is
only part of the story: it turns out that women actually make better investors.
A recent
study by USA consulting firm Rothstein Kass, found that hedge funds led by
women far outperformed the global hedge fund index in 2012. In fact, hedge
funds run by women made an 8.95% return while the global hedge fund index
returned 2.69%. That's well over three times higher returns compared to
male-led funds.
The great
American investment guru Warren Buffett is a legend due to his high investment
returns over many years, and his home-spun philosophy. In August, his Berkshire
Hathaway company reported a 46% increase in profit over the previous year.
Louann Lofton's
recently published book Warren Buffett Invests Like a Girl: And Why You
Should Too, is getting plenty of attention in the USA. She says that his
success is partly because he exhibits many of the traits of women investors.
Research studies have shown eight particular traits of female investors versus
their male counterparts. These include exhibiting less self-confidence, trading
less, being more risk averse and being more willing to learn from their
mistakes.
So if women possess
traits that potentially make them more successful with money and investment
than men, why are they less confident in planning their financial futures? Why
do they find dealing with money more stressful?
Australian-based
research released in September as part of Smart Money Week, shows that family
and relationships have a significant influence on most women's approach to
personal finance.
"Our
research confirms that gender very strongly shapes financial decision-making
and well-being" said the leader of the study, RMIT's Professor Roslyn
Russell. Women are very articulate about what they would like to do and
achieve, but there is a gulf about how they are going to get there. Another
thing important to consider, and why we need a special program for women, is
that women don’t talk about themselves for financial security; they talk about
the family. … There is often a lack of savings because women might be thinking
or planning more for their children’s education instead of taking care of
themselves. Women, in other words, are far more focused on taking care of
others than they are on satisfying their own needs.
"Several
women allowed all large financial decisions to be made by their partner or
spouse, and in many cases this put them at significant disadvantage."
Professor
Russell says that while financial literacy is important, it is not enough on
its own to motivate women to make changes to their financial management habits.
So how do we
address this conundrum? Perhaps we need to look at approaches that work well in
other aspects of our lives.
Education is
- as always - a great asset and a great enabler. Along with increased knowledge
and skills, it engenders confidence. In addition to financial education,
perhaps women should actively seek support and guidance from other women who
are more experienced in finance and investing.
Aggravating
matters, women’s low financial literacy and confidence keep them from seeking
advice from, say, a financial advisor.
“People who
are not comfortable or do not know,” said Lusardi, (Annamaria Lusardi, the
Denit Trust Distinguished Scholar in Economics and Accountancy at GeorgeWashingtonUniversity)
“will be less likely to use an advisor because they might not understand or be
able to follow the advice they get. It’s the same as with health. I have heard
so many times that women talk to the doctor and feel they are not listened to.
They might think the same thing will happen with financial advisors, and then
they will not consult one.”
Mitchell (Olivia
Mitchell, International Foundation of Employee Benefit Plans Professor at the
Wharton School of the University of Pennsylvania) and Lusardi both said that
better financial literacy, beginning as early as possible, is one key to
improving women’s savings rate for retirement. Education about the importance
of the employer match in retirement plans is critical, said Mitchell, and for
employers that still offer defined benefit plans, women need to learn what a
lump sum vs. a lifetime payout can mean to them.
Women
mentoring other women - in their careers, in entrepreneurship and running
successful businesses - is now commonplace. Perhaps we need to look at the
mentoring of women by women in money, attitudes, skills and investing to
address the unpalatable facts that they retire with far less superannuation and
other savings than men, and are more likely to rely on the age pension
As offensive
as the idea might sound, women’s financial literacy is simply not as good as
men’s. And that’s true, Mitchell said, across the globe, not just in the U.S.
Citing the results of a global study that asked “very simple questions in about
25 different countries,” she said, “we have a pretty global picture of
financial literacy differences.” And they are legion.
“Women are
less likely to understand compound interest, which is central to things like
credit cards, mortgages, student loans — you name it,” she began. They’re also
“slightly less informed about inflation — there’s not too much of a difference
there, but they’re (also) much less aware of risk diversification. That would
lead women to put too much money into a single asset: a home, for example, and
not to diversify across different categories.”
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