On the 6th of April this year the British government enacted a new law requiring all firms with more than 250 employees to publish the gender compensation statistics within their organisations. The European Union (EU) also have several laws, policies and treaties in place to address the same issue. However, despite broad government action, the gender pay gap still persists. Currently, that pay gap stands at an average of 16% across the EU.
Within the UK the office of National Statistics reported in 2016 a 18.6% salary difference between men and women for all types of employment, and 9.4% for full-time employees. Progress on this matter seems frustratingly slow - these number were 27.5% and 17.4% in 1997. However according to Deloitte the current trend in place will only see eradication of the gap and equal pay by 2069. Digging into the statistics reveals fascinating details. Discrimination in the UK is far lower in the early years of employment, and increases over time with the progression of a woman's career.
If the gender pay gap is incredibly common, there is another stark but perhaps less discussed gap that also persists. A study by the Telegraph revealed that women are just as likely as men to have savings accounts and cash ISAs. However, only 10% of women have stock and shares ISAs compared to 17% of men, and only 7% held other investments or unit trusts compared to 14% for their male counterparts. In other words, women on average are chronically underinvested and prefer to keep their earnings in cash, an option they deem far safer than the risky stock market.
Lower tolerance for investment risk plays a large role here, and an incumbent finance industry with a history of bad advice (lack of trust) and high fees (affordability) has done themselves no favours. In fact, research indicates that the four biggest factors that dissuade women from investing are: affordability, risk, trust, and a feeling of not knowing where to start. This highly attuned nature of risk avoidance means that on average women are more focused on financial security and stability over the short term, whilst men tend to focus more on achieving long-term investment goals.
So, we have a glaringly obvious gender pay gap that seems to be more acute in the later years of women’s careers. We also have an investment gap where women often save more than men, yet don’t invest those proceeds for higher future growth. How can we in the finance industry help women to navigate these challenges?
The fact of the matter is when women do invest they often turn out to be better investors.
The fact of the matter is when women do invest they often turn out to be better investors. The University of California Berkeley’s study of 35,000 brokerage accounts returns from 1990 to 1996 found that women on average outperformed men by 1 percentage point. More recent studies indicated a 2% point outperformance from 2007 to 2009, whilst Fidelity also reported women outperforming men in investment return in 2016. This trend is not only evident in retail investors, as female hedge fund managers outperformed their male counterparts in a 6 year period until 2013 according to Rothstein Kass Institute.
Men, with their increased risk tolerances, tend to overtrade (increasing their costs), exude overconfidence, and are susceptible to over-exuberance in exaggerating the likely upside of markets. The lower risk tolerance and demands for prudence and more caution from women therefore turns out to be a feature and not a bug when it comes to investing. Furthermore the fact that women tend to have prudent savings means an incredible opportunity to use those savings to have their money work for them. If employers won’t pay equally for hard work, then having their money work at least as hard seems essential.
We believe so far we have been successful managing biases in recruitment, gender pay discrimination and glass ceilings. But we are concerned that less than 10% of our customers are women. We need to ensure that we are cost-effective, straightforward, transparent and clear in our messaging around where the risk and benefits lie. We should help women invest for the long term, in investment portfolios that meet their long term investment needs. We should show them how to leverage a cautious investment approach as an asset in growing their earnings and wealth over time. As a new investment firm with the mission to democratise finance, that is exactly what we work hard at every day.
We know you are often not paid fairly for your hard work. Therefore why not let your money work harder for you? For the next month any woman that opens and funds an account with ETFmatic will have zero investment management fees for 6 months.