One major challenge facing stock exchanges around the world is the lack of female investors.
There is a definite preference for women to choose lower risk wealth growth options like term deposits or bonds over stocks, but why? One of the reasons is that the financial services industry hasn’t done a good job of talking to women about risk.
A 2014 study by the Melbourne Institute of Applied Economics found almost 60 percent of females were unprepared to take any financial risk, compared with around 40 percent of males.
When it comes to money, women are inherently more risk aware than men.
I say risk aware rather than risk averse because the difference lies not in being afraid of risk, but of not being educated in using risk to your advantage.
From a young age, girls are taught to avoid risk. It was true for me, and may be true for many others that parents are often more likely to reward boys for accomplishments or risk-taking while urging girls to be cautious.
Demystifying risk to someone who has been told her whole life to “be careful” is no easy task, and the financial services industry’s lack of diversity across major institutions like Macquarie Group Ltd (ASX: MQG) is a problem.
In Australia, only one in five financial advisors is female. Women are twice as likely as men to first seek advice from a financial advisor. However, a 2016 study from the Royal Melbourne Institute of Technology (RMIT) found there was a lack of appropriate financial advice providers that women felt comfortable with.
Research has shown that when women do consult an advisor, the advice comes more in the form of a sales pitch rather than a mutual conversation. They also feel pushed into riskier investments that they are not comfortable with. Advice needs to be relationship focussed rather than transactionally focussed.
I don’t know about you, but if I’m going to buy shares in a company with my hard earned money, I want to understand the risks involved. I believe this is true for all investors, but more keenly so for women.
Differences in risk awareness could be attributed to the distinct ways males and female process information.
A 2012 questionnaire for the Journal of Advanced Research in Management found males are highly selective in the way they process information and emphasise the upside of expected return. In contrast, women work through financial information comprehensively and are more concerned with the downside risk.
But times are changing. Women are having much more involvement in financial decision-making in households which is linked to their increasing financial education levels and earning power. This leads to improved financial literacy and understanding of risk.
If female consumers can be talked through their options, and the outcomes clearly articulated, they are more likely to accept risk, and the gender gap in equity markets will narrow.
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of February 15th 2021
Motley Fool contributor Bronwyn Bruce has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
- The legacy of language in the finance sector – October 17, 2018 12:32pm
- Nike share price reaches all time high on back of Kaepernick campaign – September 14, 2018 1:14pm
- Why women are risk aware when it comes to investing in the stock market – September 10, 2018 10:25am