The Gender Investing Gap

To me, finance always meant stock markets, shareholders, dividends and other ominous words that I could maybe define, but didn’t really understand. I just realized this when a friend of mine asked me (after I finished my first year of studying economics) what the stock market was. “Yes”, I thought, “I know this”, thus began 10 minutes of me stammering about interest rates, investments, savings and the circular flow model. I could recall what I learned at uni, but when he asked me specifics, like who invests in what and how that actually works and what the bank gets, I wasn’t sure either. Society just assumes you know how to do your taxes, invest or save your money, but there is barely any effort to explain it to young people. Recently I listened to this episode of NPR’s The Indicator (a mini version of Planet Money) and found out - to my surprise - that for many women this is an issue throughout their adult life.

On the episode Sallie Krawcheck - who worked successfully on Wall Street for many years - spoke about the Gender Investing Gap. Basically, we have all heard about the Gender Pay Gap (women make 78ct to every dollar a man makes ), but as it turns out women also tend to invest much less of their money leaving them with fewer savings once they retire. Krawcheck explains this in greater detail and comprehensibly in this post for "Ellevate Network" or you could listen to the podcast if you want to know more.

Here’s a quick overview of her argument:

  1. Why is it a problem women invest less?
    First, we miss out on earning interest on that money over time and second, inflation reduces our purchasing power. The rise in relative prices (inflation) means that you have the same absolute amount of money, but because prices have gone up you can effectively buy less with it.

  1. Why should I want to invest?
Your goals in investing money can be diverse, you could want to save for retirement but also for some big event or project (like a wedding or a car). The reason I find most convincing, is what you can call “f*ck you money”. It’s like a financial safety net that lets you say the f-word to the job you hate and have a cushion to fall on to while searching for new employment. Sallie Krawcheck also calls this also calls this "take your hand off my friggin' leg" money; it can give women the power to leave uncomfortable work situations.

To answer why the Gender Investing Gap exists, you might want to turn to the financial sector itself. Even today women only account for 18% of jobs in finance and if you put the words “investment banker” into google image search an endless void of men in suits awaits. You can imagine different reasons why there are fewer women in finance; there’s a stereotype of women being worse at math, finance is portrayed in media as a men’s club (remember Wolf of Wall Street?) and working hours are highly inflexible. All this can be received as signals of discouragement to women to even think about choosing this career path. Coupled with the stereotype that men take care of the financial household, this might start to explain the gender investing gap. But, Krawcheck says, 90% of women manage their financial household themselves at one point in their lives, so women do control their money and thus, could invest.

We should educate young people (girls and boys) about finance and increase their financial literacy so they can make smart decisions for their future. And we should make finance more accessible to women, something that Sallie Krawcheck is now doing with her company Elle Invest, which focuses on investment support for women.
The company’s report “Mind the Gap” is free to download and has interesting and important information on not only the Gender Pay and Investing Gap, but many more. It is written comprehensively and features some info on Beyonce as well as John Oliver, so you should read it (or just the chapters you’re interested in) to see why investing in and as a woman is important for your future (and also, not as hard as one might think).

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