What’s the ‘Investment Gap’ and How Is It Hurting Women?



KCM spoke to financial planner Stacy Francis on why women should be investing more than men

When it comes to investing, women have historically lagged behind. That “investment gap” developed over generations of women who had been locked out of the financial world, and persists because of other cultural forces, financial planner Stacy Francis told KCM. 

“It’s just creating this vicious cycle that leaves women very much behind the eight ball,” Francis said. 

According to the Census Bureau, women age 65 and older are twice as likely than men to live in poverty. That’s because on average they live longer and earn less, which means women actually need to be investing more than their male counterparts, Francis said. 

We spoke to Francis about other long-term effects of the “investment gap,” and what women can do to better set themselves up for retirement.

KCM: Studies show that men generally invest more than women. Why do you think that is?

Stacy Francis: Essentially women tend to lack the confidence. They typically don’t have as much experience when it comes to investing. You can imagine that when you get behind the wheel of a car, the first time it’s quite frightening, but after you’ve done it for many years, you don’t think about it. It feels very natural. And that’s really one of the biggest things there — what we call a confidence gap between men and women. And even sometimes a knowledge gap, again where they just don’t have as much exposure or experience with investing. Sometimes, this can start very young, where young girls were not really talked to in the same way as maybe sons were about investing. 

Often we see this gap really coming into fruition when individuals couple up. What’s interesting is a few studies show that the generation least engaged with their finances is actually currently millennial married women. We often thought that the older generations of women were not as involved in the long-term investing in a marriage.

So it’s just creating this vicious cycle that leaves women very much behind the eight ball. And to be honest, it puts a lot of pressure on their partners to have to shoulder that responsibility on their own.

Can you talk more about this pattern that emerges when women — and increasingly millennial women as you said — get married, and how they tend to step away from investing?

What ends up happening is that when individuals get married, a division of labor develops, and it becomes even more pronounced when you have children. We typically see women are much more likely to be involved in the budgeting and bill paying. And men often are more involved with long-term investing and financial planning.

Are there differences in how women tend to invest compared to men?

Francis: We do tend to see that women invest more conservatively than their male counterparts. It really comes back to that lack of confidence and lack of experience. But what’s interesting is that when women do take control of the investing, they tend to outperform. They also spend more time researching an allocation. Once they actually implement that, let’s say 30% bonds and 70% stocks for example, they are much more likely to stick with that allocation in both good times, which is much easier, but also in bad times, which is much harder. 
With men, we see much more frequent trading. We know that with day trading typically you underperform because you’re trying to time the market, and it’s very rare that you can find someone who can do that consistently. And with that you also have to factor in trading fees, commissions and taxes. So on average women actually outperform men by about 1.8%.

What about when it comes to saving for retirement? How do women typically perform in that area?

Well it’s interesting. Women do actually — as a percentage of their pay — put more money away toward their retirement than their male counterparts. That’s excellent. The challenge is that even though it’s a higher percent of their pay, if you look at the wage gap, the dollars that they’re putting in is actually less compared to men. And then if you couple that with her possibly having a more conservative portfolio, she’s setting herself up to start retirement with a smaller nest egg. 

For a lot of women, they hope or expect to be partnered up through their lifetime, but relying on your spouse to either cushion and beef up your nest egg or possibly manage the finances is actually quite foolhardy because of our life expectancies and the rate of divorce as well. Nine out of 10 women at one point in their life are going to be solely responsible for their finances. How this shows up, according to the Census Bureau, women age 65 are twice as likely to live in poverty than men. Those numbers have not gotten better over the last couple decades. 

So while we think about the wage gap, the even bigger problem is what we call the retirement wage gap — where women are typically receiving less in social security and are starting retirement with a smaller nest egg.

So how can women better set themselves up for retirement, given those obstacles?

Women need to contribute anywhere from about 7% to 16% more than men to their retirement. That’s a big number and it’s actually a lot harder because we have lower salaries and tend to be out of the workforce for a longer period of time to raise families. So for women in particular, we need to try and start as soon as we can with saving.

What advice would you give to women who are right at the start of their careers and are interested in investing?

At this point, the world is your oyster and every nickel and quarter you can put away is going to make a huge impact on your overall financial health. So try and put as much money away as you can into your retirement 401(k), or at least enough to get the full match from your employer. And every time you get a raise, you should be increasing your savings and not necessarily your spending, which is often what happens. 

If your employer doesn’t have a retirement plan, like a 401(k), you should open up an IRA and start putting money into that.

Stacy Francis is a nationally-recognized financial expert who attended the New York University Center for Finance, Law and Taxation, where she completed the Certified Financial Planner™ (CFP®) designation. She comes with over 18 years of experience in the financial industry and is dedicated to her ongoing professional education. Stacy is a Certified Divorce Financial Analyst® (CDFA®), a Divorce Financial Strategist™ as well as a Certified Estate and Trust Specialist (CES™). She is the Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter, the National Association of Personal Financial Advisors (NAPFA) and the Financial Planning Association (FPA).