Studies suggest they have been saving a lot more than previous generations of women as a percentage of their earnings, which is a positive step.
However, there are still structural barriers that mean they tend to be savers rather than investors, and tend not to be as financially resilient as their male counterparts.
This is a moment when advisers can really demonstrate their value.Talking to FTAdviser In Focus, Tania Allerton, head of UK advisory distribution for Vanguard, explains why these structural barriers still exist and how advisers and their female clients can overcome them to become both financially independent and financially resilient.
FTAdviser: Is it fair to say that women, in general, are saving less than men?
Tania Allerton: The evidence suggests that women actually save a similar amount to men - as a percentage of their earnings. However, in general women own fewer assets, and have smaller savings balances.
There are a number of long-standing social and economic reasons why this is the case, but I’m optimistic there are tangible steps that can be taken to make progress.
FTAdviser: What are the factors creating this savings gap?
TA: From my perspective, I’d say there are four main factors at work.
Firstly, in general, women earn less than men over the course of their careers. The gender pay gap for full time-workers aged 18-39 is almost zero, but then widens from age 40.
This ties into the second point – women are more likely to take a break from employment to care for children or elderly relatives.
Acting as the primary carer also ties into the kind of jobs women seek. There are more women than men working in lower paid, part-time jobs that have a degree of flexibility.
Finally, I do think women are often less confident than men in investing. This caution can actually serve women very well once they do invest, but it can be a barrier initially.
Some of these factors may have been exacerbated by Covid-19. Those able to continue working from home during the pandemic may have had less expenses to undertake.
On the other hand, a disproportionate number of women work in sectors that were affected, such as retail and hospitality. This may well have had a bigger adverse effect on their earnings. Whether this remains an enduring trend remains to be seen.
FTA: Are young women aware of the need to save - and how does this translate into practice?
TA: I do think women are aware of the need to save, and its importance, yet I don’t think it is always as simple as that. In practice, young people tend to save little due to high living costs or debts such as rental expenses or student loan repayments.
I would say, however, that auto-enrolment has made a real impact with young investors thinking more about their pension pots and retirement planning.
Younger women are notably less confident when it comes to long-term saving and investing.There is also a clear distinction when it comes to shorter-term household finances and investing for the long-term.
Studies suggest there is much less of a gap between women and men when it comes to confidence in managing the short-term day-to-day household finances, whereas women, and particularly younger women, are notably less confident when it comes to long-term saving and investing.
Interestingly, women typically view savings and investment as separate decisions.
Women are also more likely to be ‘unconscious’ investors, for example they may be contributing to a pension, but not considering it an investment.
Q: How do we get young people - young women in particular - to stop being 'unconscious' investors? And how can we get them out of cash and into stocks and shares?
TA: As an industry, we need to shift the characterisation that investing is inherently “male”. Again, I think a lot of that comes down to education, both in regard to risks and rewards, but also in areas like busting the myth that you need to be wealthy to start investing.
The data suggests women are often very disciplined about saving cash regularly. However, they may need more information about investing before they are persuaded to take their first steps into the stock market.
That said, this very discipline that I have seen many women apply to their cash savings often serves them very well when they do invest.
FTA: Are there still behavioural biases that hinder women as investors?
TA: Quite the opposite. I think women show behavioural biases that help them as successful investors.
Women trade less and tend to apply a long-term approach, without buying and selling into lots of the funds, which in turn helps keep costs down and improves their chances of investment success.
In a recent Vanguard research paper on gender differences and investing, we studied over 4m Vanguard US self-directed retail investors.
Women traded up 50 per cent less than men and were more likely to hold their assets in balanced or target date fund. They were also a lot less active with their accounts – logging in about half as much as men. Those are positive trends!
FTA: Some studies have shown a wall of cash built up over the pandemic as younger people saved more. How can we encourage this habit to continue?
TA: I think this is a moment when advisers can really demonstrate their value. We have seen a rush of new investors into the market over the past 18 months, and they will need help and guidance.
Accessibility, in terms of convenience and transparency, will be key in terms of helping people to understand the value of advice.
Also, there is more to be done when it comes to financial education. We need to allow the younger generation to be empowered, to take ownership of their finances by having basic financial understanding and building good savings habits.
It’s really important to engage and encourage people to get involved in their finances early on.
