Money impacts our lives in a variety of ways: our jobs, relationships, lifestyles and retirement. Significant financial decisions are inevitable in our lifetime, some easier than others. A few factors that can impact the financial choices we make include age, family values, priorities and earned income.
Many people don’t realize how much gender may affect your financial decision making too. Let’s take a look at how men and women approach financial decisions and investing differently.
The gender wage gap challenge
We’re still seeing a gender wage gap even with a growing female workforce. Data from the U.S. Census Bureau shows women make 21 percent less than men for the same jobs when looking at median earnings of full-time workers. In addition, females of Hispanic and African American descent face an even wider spread to their male counterparts than Caucasian women.
Women working well-paying jobs aren’t immune from the gender wage gap either – data shows even women with MBAs tend to earn less than men. A 2015 research study by Bloomberg found that amongst 2007 business school graduates, the salary spread between men and women was $7,000 ($105,000 versus $98,000). But in just seven years, the spread widened dramatically to $35,000 ($175,000 versus $140,000).
The gender gap in income has a direct impact on how much disposable income women have compared to their male counterparts. So what are some of the causes of the gap? Frequently cited, women tend to be less proactive when it comes to negotiating salaries and raises.
While men tend to push harder during negotiations, women can lose out if they stay quiet. When it comes to negotiating higher compensation, if you don’t ask you probably won’t get.
Additionally, research points out that women are also less likely to hold high-ranking positions and work in higher-paying sectors. Notably, women tend to avoid applying to jobs unless they meet 100 percent of the job requirements versus men that generally apply they meet just 60 percent of the job requirements.
Differences in personal debt management
What’s interesting to note is that even though women tend to take home smaller incomes than men, they are better at managing personal debt. On average women have slightly lower debt balances than men. According to Experian, the average male’s debt balance for auto loans, credit cards and personal loans was $27,627 versus $26,610 for women in 2015.
When it comes to student loan debt specifically, however, men tend to pay off their education costs faster than women. A study by the American Association of Women found that three years following college graduation, men had paid off 44 percent of their student loans on average versus 33 percent for women.
Despite women’s overall lower average debt balances than men, women had more active credit cards than men last year. Women had 3.7 credit cards on average versus 3 for men. The average 2015 Experian credit score for women was also slightly higher: 675 for women versus 670 for men.
It’s possible that women need more credit cards due to having lower wages than men and thus having a more difficult time paying bills. Why then do women’s credit scores tend to be slightly higher than men’s? Income isn’t a direct factor in determining credit scores and having more active credit cards can help raise a score if the bearer uses a small portion of the credit line and pays the balance in full every month.
Variances in savings by gender
A commonly suggested personal finance goal is for every individual to have an emergency savings balance large enough to cover at least three to six months worth of living expenses. Unfortunately, many Americans haven’t met this objective. Data released in June by Bankrate revealed that 66 million Americans have zero dollars set aside for emergencies. That’s worrisome.
The average emergency fund balance amongst people who do have money set aside is about $46,000. What’s interesting to note is men have close to 58 percent more money saved for unexpected events than women (roughly $58,000 for men versus about $33,500 for women). That’s a significant spread.
There are also notable gender differences when it comes to retirement savings. Even though women tend to have lower incomes than their male counterparts, women are more likely to open retirement accounts. A study by Vanguard found that 14 percent more women than men participate in employer sponsored retirement plans. In addition, women save at higher rates then men across all income levels.
However, men’s retirement account balances tend to about 50 percent higher than women’s, largely due to the gender wage income gap. This coupled with longer female versus male life expectancies and women receiving less social security than men due to lower wages, can leave many women vulnerable to financial difficulties in their retirement years.
Contrasts in investing
With the number of differences between men and women when it comes to money, it comes as no surprise that men and women invest differently as well.
Women tend to be better than men at diversifying their portfolios. They are also less likely to take unnecessary risks with their investments than men. Taking fewer risks may result in more moderate than outsized gains if stock prices are going in the direction one wants, but can provide more downside protection if things take a turn for the worst.
There’s also a sizable difference in trading frequency when you compare women and men. A study by Berkeley’s Haas School of Business found that men engaged in 45 percent more trading activity than women. Being proactive with one’s investments is good practice, but trading too frequently can cut into profit margins as shown by research. In the six-year investment period monitored by Hass, higher trading volumes resulted in men having lower net investment returns than women.
Strengthen your weaknesses
Regardless of gender, everyone is capable of improving their financial situation and investing knowledge. Understanding differences in money management and investing between men and women is one way to help you pinpoint your individual weaknesses and areas for improvement.
Investing in securities involves risks, you should be aware of prior to making an investment decision, including the possible loss of principal. An investment in individual stocks, or a collection of stocks focused on a particular theme or idea, such as a motif, may be subject to increased risk of price fluctuation over more diversified holdings due to adverse developments which can affect a particular industry or sector. Investments in ETFs can include those with a narrow or targeted investment strategy and can be subject to similar sector risks than more broadly diversified investments. Motif makes no representation regarding the suitability of a particular investment or investment strategy. You are responsible for all investment decisions you make including understanding the risks involved with your investment strategy.
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