At the beginning of each of her semester-long insurance classes, Vickie Bajtelsmit gives her students a choice. They have, hypothetically, $6000, and there's a certain chance of losing some of it due to an insurable risk. Do you insure it?
"The women are always more inclined to buy the insurance than the men. The men will take a chance," says Bajtelsmit, who's been a finance professor at Colorado State University for the last 26 years. "In all the times I've taught this class, the men are more risk-takers than the women."
Indeed, the vast majority of gender differences research suggests that women are more risk averse than men in both gambling experiments and the real stock market, at every age. Women invest less money and more conservatively than men do. In one study, men held a significantly smaller share of their pensions in low-risk fixed income investments and significantly more shares in higher-risk employer stock than women did.
Financial risk-taking isn't always preferable (see: the 2008 recession). But higher-risk investments like stocks plainly make sense for retirement savings if you won't need the money in the near future. Especially since women live longer than men do, "they can afford to invest a little more riskily because they can weather the ups and downs of the market," Bajtelsmit says. In fact, because they live longer and thus will likely be retired for longer, women should invest more and put their money into riskier assets for a longer period of time than men.
Instead, they often do just the opposite. Women chronically underinvest in their retirement, and are consequently more prone to old-age poverty than men. Many women are, as one study warns, "in danger of outliving their economic resources." Why, despite their best interests, do women under-save for retirement?
The most obvious reason is that they remain economically disadvantaged compared to men: They make less and have worse retirement benefits. In other words, they save less because they have less. This may also explain why women are more likely to worry about their finances than men and tend to feel less satisfied with their ability to meet their long-term financial goals. Plus, since they're not as likely to have a financial cushion, women may not want to invest in stocks, which might require a big loss in principle in the event of an emergency.
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Another reason could be cultural. Twenty years ago, CSU switched its employees from a defined-benefit pension to the equivalent of a 401(k) plan, so employees had to decide where they wanted to invest their retirement savings. Bajtelsmit's colleague, Alexandra Bernasek, went to get advice from CSU's advisors. When she asked where she should invest her retirement savings, the guy there told her, "Well you're a woman, so you'll probably want to be in bonds." A terrible strategy for long-term saving.
"Maybe that's why we hear that women invest more conservatively," Bajtelsmit says. "Maybe someone is telling them to!" Investment options, as one study puts it, may not be tailored to fit a specific woman's risk preferences but, instead, "to fit the broker's stereotypical, possibly misguided, assessment of [her] risk preferences."
Women themselves may also fall prey to cultural prejudices about how women save and invest. Many women think that they shouldn't mess with the stock market because they're "not good at that type of thing." As one study explains, "The reasons for failing to prepare for retirement are, in part, related to the traditional roles of women in society, roles emphasizing inferiority, dependency, and passivity."
Research suggests that people who lack self-efficacy—belief that you can do something—fail to plan for situations that seem challenging. If women lack self-efficacy about retirement planning, they may not even try. Women's insecurity may lead to financial illiteracy, and people who aren't financially literate are less likely to plan for retirement. Men, by contrast, tend to be overconfident about their ability to invest, so they're less vulnerable to the self-efficacy trap.
But Bajtelsmit isn't convinced that culture is the only reason women tend to under-save for retirement. Biological personality differences could help explain why, even as our society becomes more equitable, differences in how men and women invest persist.
For example, women's predisposition toward thorough decision-making may ironically sabotage their retirement. "Women are planners," Bajtelsmit says. When women have to make a decision that has implications for the future, they tend to overthink it. "Men will make much more quick, seat-of-the-pants judgments," she says, while women ask a lot of questions and get every detail before deciding. It takes men one or two visits to a financial advisor to decide on a financial product, whereas it takes women an average of seven. "That's because she wants to totally understand it, know everything about it," Bajtelsmit says. In consequence, some women freeze and ultimately forego retirement planning altogether.
In short, women scrutinize their options and carefully weigh their risk. These are the traits of great investors—but only if they take a chance.
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