Men don’t have a monopoly on financial ability
New Zealand women are less confident about their finances than men, a recent survey suggests. Should they be?
The online survey, conducted by Westpac, found that considerably more women than men feel financially insecure and worry daily about their financial future.
They are more likely to have no idea of how old they will be when they retire, or of much money they will need in retirement. They are less inclined “to list putting money into savings or investments as a current focus”, and more likely to rely on NZ Super as their main source of retirement income.
Meanwhile, however, twice as many women as men control household budgets, and four times as many control household spending, the survey shows.
The question arises, then: are women less competent financially than men?
Other research shows that men tend to rate their own financial knowledge considerably higher than women rate theirs. But when they are quizzed on what they know, there’s little difference.
While confidence is generally regarded as a good thing, male overconfidence could be as damaging as female under-confidence in things financial.
Study after study finds two clear differences between the genders:
- Men tend to take more financial risks than women.
- Men tend to trade investments more frequently than women.
Taking financial risks is currently unfashionable. Compared with a few years back, people are more likely to take out smaller mortgages and pay down their mortgages, and to save in bank term deposits rather than in investments with higher expected returns.
But risk in investing is not a dirty word. If you diversify, understand what you are investing in, won’t need to withdraw the money for some years, and know you could cope with a worst case scenario, taking financial risk can be wise.
You are likely to end up with higher returns than in a low-risk investment. And over long periods, that makes a huge difference to total savings. If you invest $100 a month over 40 years with a return of 3 per cent after fees and tax, you will have about $92,000. At 6 per cent, you will have $192,000 — well over twice as much.
Men’s propensity to take higher risk probably partly accounts for the fact that the average weekly income for a man over 65 is $610, while for a woman it’s $464, according to Westpac — although women’s lower average pay and greater tendency to take time out to care for children would also contribute.
But men don’t always take wise risk. A while back the Australian Securities and Investments Commission reported that a full 90 per cent of the victims of cold calling investment scams were men.
Turning to frequency of trading — of shares, bonds, property and so on — plenty of research shows this is not clever.
There will always be some frequent traders who do well at the start, probably because of luck as much as skill. But over the long run, the costs of trading, including tax, eat into returns. Those who buy and hold — who are disproportionately female — are much more likely to prosper.
So where does this leave women? I’m not saying be complacent. Obviously it’s a great idea to make a long-term financial plan. And the sooner you put it into action — even if it’s just saving a few dollars a week — the more effective it will be.
Let’s replace women’s worry and insecurity with quiet confidence that you are on the right track.
And for the blokes? How about toning down the trading, and taking care with the risks?
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Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it.