By Sunidhi Gupta

Abstract

This article aims at reviewing that though women do face problems in financial decision-making and lack of financial security in various stages of life, they are not always because of a lack of financial knowledge but sometimes the policy framework and the household environment as well as perspectives.

The empirical literature generally is of the view that women have lower levels of financial knowledge which hampers their power of financial decision-making in various spheres of life including investments as well as keeping a tab of savings and household expenditure. There are no essential reasons which are discussed for this lack of financial knowledge or decision-making capability. There are times when between couples, men tend to be specialized in handling finances and the women are not even aware of the financial investments and security that the spouse has. All they are aware of is the money for household expenses that is given to them and how they are completely dependent on their husband financially. This is why married, divorced, and widowed women do not develop their financial knowledge and feel lost in a change of circumstances. But there are other instances where the empirical literature is based on a biased set of data and men are more likely chosen as financial representatives of the household for the purposes of the survey. These are situations where the husband’s education and cognitive scores are considered bigger predictors and put on a higher pedestal than the wife’s cognitive scores and education.

WOMEN AND HOUSEHOLD FINANCES

Recent surveys suggest that women have taken a larger role in household finances in the past few years even after the fact that there are still most of them who are financially dependent and have less say in the household financial decision. The data according to a report from consumer research from Hearts and Wallets in 2020 stated that nearly nine out of ten women who are married or live with a partner said that they were involved in spending and investing decisions in their household which had increased from 42% in 2012. Moreover, over 31% of women who live with a significant other said they are responsible primarily for financial decision-making. In this context, the men do not even agree with it and only 5% of men agree with the fact that their partners have a lead role in saving and spending decisions in the household. Additionally, men and women are on different pages in terms of sharing responsibility for household finances with their spouses or partners. Only 40% of men agree with this as compared to 56% of women.  

Moreover, a study by Prudential Financial and the Center for Retirement Research found that women in two-income households have more difficulty saving for retirement than women in one-income households. In comparison to 32% of married women in single-income homes and 39% of all single women, the survey found that approximately 46% of women in two-income families are on track to save less than they need for a decent retirement. According to Jim Mahaney, Vice President of strategic initiatives at Prudential, this is partly due to a lack of planning that can happen when just one person in a two-income household has access to a workplace retirement plan.

There is another notion to the idea of women contributing to the financial decision-making of the household. This notion refers to no comparison between men and women and rather the recognition and preservation of their gender differences. This idea respects the fact that women are different and that in every case pressing for equality, equality would not work but rather equity would be the solution to the problems. Many people ignore the widespread perception that women make a home tidy and orderly. This may not solely result from conditioning or role-playing, but rather from a natural propensity for practicality, simplicity, process, excellence, aesthetic beauty, and incorporation of the many demands of the household. Family finances gain from women’s capacity to contribute something special to the table. Equitable money management in the home considers this variety. The opposing factions are represented by men and women. That complementarity helps decisions. The diversity that women bring to the table adds value to their participation in decision-making. They can reframe the issue from their own point of view, identify what might have been overlooked as a solution and what might not matter, see various variables and factors at work, imagine outcomes and repercussions that the man might have missed, comprehend how the procedure can be improved, and so on. Society has undervalued women and their special talents by expecting them to perform like men or by insisting that they are only equal to men when they behave like them, making them feel inferior in a society that views achievement solely through the lens of men.

A similar mistake is made in terms of finance whether personal or business acumen. It is thought that being able to manage the finances of the family independently should measure a women’s involvement in finance. It is expected of her to go through the same routine and process in terms of work as the men and manage and view the portfolio just like a man would do. It is important to think about how the women in the home could contribute to these choices. Take the woman along and ask for her opinion to involve her in the process.

WOMEN AND DISPARITY IN INVESTMENT ACUMEN

According to historical statistics, men and women have varied perceptions of their investment savvy. According to Hearts & Wallets, 42% of married or paired women stated they were highly confident about their saving and investing decisions, compared to around 50% of married or coupled males. However, at least for men, there are considerable variances between generations. Compared to 48% of Gen Xers and 45% of male baby boomers, 58% of millennial men indicated they were at least moderately confident. In contrast to the 40% of Gen Xers and 42% of Boomers who voiced confidence, 32% of Millennial women said so. Even though investing and saving might be challenging for women for a variety of reasons, separate research from Prudential Financial indicated that women place greater priority on financial security than men. It was discovered that women are more likely than men to say that financial goals are important to them, explained Mahaney, Vice President of strategic initiatives at Prudential. However, the data also shows that women face larger gaps between where they are and what they want to achieve. Factors such as well-documented wage disparity between men and women, disproportionate caregiving responsibilities and varying degrees of debt are cited. According to Mahaney, women are more likely than males to graduate from college with excessive student loans or those that consume more than 10% of their monthly gross income, and getting out of debt is going to be difficult enough, but it also limits the ability to save. On average, women spend more time on caregiving or household duties, with an average of 28 hours per week. In 2020 Mahaney stated that the pandemic could increase financial disparities associated with caregiving because older persons and their grown children will be less likely to choose assisted-living care facilities soon. This could lead to more elderly persons moving in with their children, with women bearing a disproportionate share of the care load, he said. “There may be even bigger challenges ahead.”

But as it is discussed above about the women having different perspectives about investment, there can be quite a few ways by which the existing gap can be decreased by acknowledging these differences. Vanguard, a large investment management firm based in the United States, examined over 4 million retail accounts to check for gender discrepancies. They discovered three significant characteristics of their female account holders. Women preferred balanced funds over males; women used their accounts less digitally and traded significantly less than men; and women were better aligned with the long-term investment concepts of diversification and discipline. These differences were determined to be substantial in their huge data set. Diversification is the key to personal economic success. The need to find the best investment option drives most family investment decisions. Then, overcome by the dread of losing everything, money is invested in this and that, and the household ends up with a bag of generally over-diversified investments. If you tell a woman that diversification implies considering what one product does to the portfolio while ignoring the merits of that product in isolation, she will immediately understand. Most research investigations have found that diversification is instinctively appealing to women. It is required for a household’s portfolio.

In the minds of women, investing in equity evokes a sense of risk. Many people have advanced this idea. What is overlooked in this reasoning is that many households associate equity investment with stock trading; gambling and speculation do not appeal to most women. Men trade substantially more than women, and they examine and remodel their portfolios significantly more than women. There is also a study showing that men and women behave differently amid a crisis or collapse. Men want to act, whereas women prefer to wait. The long-term benefits of equities investment, the portfolio method of holding many sectors and stocks, the managed technique of weeding out underperformers, and the emphasis on sticking with the best without too much reshuffling are all the themes that appeal to women. No one considers women to be the primary target audience for index funds.

CONCLUSION

We stereotype women as family-oriented, compassionate, and nurturing, and we believe that excluding them from investment decisions is a good strategy. Households that do not involve the woman in financial decisions miss out on the benefits of discipline and dedication to long-term goals that are widely accepted. Studies have repeatedly demonstrated that women adhere to processes considerably more than men, particularly those that benefit the family and children. It is important to understand how to get women to the table and empower them to add value not only at home but in the world.

About the Author

Sunidhi Gupta is a student at Jindal Global Law School in her third year of BA. LLB (Hons.)

Image Source: https://www.womensworldbanking.org/what-we-do/womens-digital-financial-inclusion-advocacy-hub/