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You probably know about the wage gap: Women make 77 cents for every dollar a man makes, and the figures are even worse for women of color. Statistics are often framed in ways that make the pay gap seem a bit smaller like this Department of Labor release that states, “In the U.S., women who work full-time, year-round, are paid an average of 83.7 percent as much as men.” Those extra 6.7 cents would be great, if women did not face discrimination during the job application process. Oh, and that is still 16.3 cents short of gender equality.
But the investing gap can be even more detrimental to women and non-binary* individuals than the wage gap. The two are deeply connected: Women actually save a greater portion of their money than men, but that higher savings rate is not enough to make up for the wage gap. The amount saved is also often not invested by women and non-binary individuals who may choose to invest less of the money they are not spending each month.
Why Do I Care About the Investing Gap?
This investing gap impacts women and non-binary individuals in a few ways. First, they miss out on the compound interest of all the dollars they did not earn from their employer. Second, they miss out on the compound interest they did not earn on the money they saved but did not invest. Not worried about the compound interest? That compound interest is worth more than $1 million over a typical career.
To add insult to injury, women then live longer than men on average, meaning they have less money to cover a longer retirement (assuming the same retirement age as a male counterpart). This increases the risk of elderly women running out of money before the end of their lives. If you have any compassion, this is concerning in itself. If you lack that compassion, consider that supporting these women who are victims of the investing gap will be the reason your tax dollars will increase over time.
Finally, if the economic wellbeing of women throughout their entire lives is not enough of a reason to worry about the investing gap, an estimated $3.22 trillion would be invested today if women invested at the same rates as men.
MORE THAN THREE TRILLION DOLLARS.
That lost $3.22 trillion could revolutionize entire industries, influence the most important social initiatives, and quite literally change the trajectory of global objectives. In my biased, but I believe correct, opinion, the world would be a much better place.
Why Don’t Women Invest More of Their Savings?
Women save more of every dollar than men, but they do not invest more of every dollar. The number one reason is fear according to Tori Dunlap. It is easier for society to attribute this fear to antiquated gender stereotypes than actually address the major block hindering women from investing at the same rate dollar-for-dollar as men: Investing is marketed specifically towards men.
Picture a stockbroker working on Wall Street. How many of you pictured a petite Black woman? I did not think so. Investors are portrayed as white cis men, and investing is marketed towards white cis men. Some folks attribute this to men being “better at money,” but women actually monitor household budgets and spending more often than men in households with heterosexual partners. Despite women handling the household budgets, men still typically control investments because it is more heavily marketed towards them.
The fear women and non-binary individuals feel regarding investing stems from the fact that they are not the intended audience of financial advisors and other folks selling investing to customers because women and non-binary folks are portrayed as having less money because they have lower incomes. The vicious cycle of sexism.
This cycle is exacerbated when a woman recognizes she needs to invest but this fear hinders her from starting to invest on her own. To fix her knowledge gap in a topic that is not marketed to her entire demographic, she seeks out a professional: a financial advisor. If that financial advisor helped even the playing field, that would be great, but that does not generally happen.
The Problem with Prevailing Sexist Perspectives of Financial Advisors
Nearly 70% of financial advisors are men, and it shows when it comes to prevailing stereotypes within the financial advising community. Women are assumed to be more risk-averse when investing, steering away from growth assets that come with high risks. Even if an individual woman could steer her financial advisor in the correct direction eventually, any financial advisor that believes this stereotype is problematic.
If a financial advisor generally suggests five investment strategies ranging from the lowest risk to the highest risk, he (because he is a he here due to that 70% number) may suggest the lowest risk, low risk, and medium risk to any woman seeking financial advice while he suggests the low risk, medium risk, and high risk to any man seeking advice. If both advice seekers are young and can tolerate high risk, the woman’s medium-risk portfolio will not perform as the man’s high-risk portfolio in a booming market. By the time her financial advisor realizes she can tolerate the high-risk portfolio, she has missed out on a year of growth and all the compound interest those additional earnings would gain over her entire life. Again, hundreds of thousands of dollars over a typical career.
As a woman who is comfortable with taking on a certain level of investment risk, it is deeply concerning that women who make the jump to seek financial advice to invest their money are instead being pushed into investments that do not necessarily match their risk tolerance, age, or financial goals. Women have financial brains, too! In fact, I was the person who discovered the FIRE movement and then fully investigated the math behind it, realizing that Patrick and I were already on the path to early retirement and could get there in a relatively short amount of time if we focused on it. Luckily, showing him the numbers was enough to show him to quickly realize early retirement was both possible and a smart idea.
Closing the Investing Gap
Closing the investing gap cannot happen instantly. There are some large gaps to close when we consider intersectionality, and even the gender investing gap is quite large and consequential for society as a whole. (Remember that $3.22 trillion!)
The first step to fixing this gap is not an artificial “improve women’s confidence around money by promoting financial literacy” campaign. Men are just as financially illiterate, and they are still investing. The first step is encouraging more women and folks without debilitatingly sexist stereotypes to become financial advisors that will not make assumptions about the clients talking to them. Sexism is a continuous cycle, not just one detail in the process that can easily be overcome.
For individual women, non-binary folks, and anyone seeking to overcome investing gaps on a person level, there are two approaches you can take to overcome your personal investing gap:
1. If you want to use a financial advisor, use a fee-only financial advisor or financial planner. This means, you pay for the time the financial advisor takes to talk about your financial plan or walk you through investment strategies, but the financial advisor does not get a commission by selling you on certain investments or based on the size of your portfolio. Using a fee-only advisor generally means you have more control over your investments but also get the advice of a professional. If you notice the financial advisor may have some biases, it is also easier to “break up” with a fee-only advisor.
Our approach at Phippen Tax is to empower people to take control of their own finances. You are always in the driver’s seat, and we are just here for your questions!
2. If you want to take control of your own investing, start with The Simple Path to Wealth, a book written by a father guiding his daughter about the easiest way to accumulate wealth over her lifetime. If you want to get started more quickly, at least read our article, Where to Invest When You Don’t Know Where to Invest before guessing when it comes to investing.
After sorting out your own investments, help the other folks in your life who suffer from any investing gap to improve their investments and close the investing gap one step at a time! This is important, and it also adds importance to the preceding steps. Too often, I meet women who have a negative opinion of investing to grow wealth. I get it; the cycle of sexism that perpetuates the investing gap feels unbeatable in its entirety. However, if you just overcome that investing gap for yourself, you then have the opportunity to help someone else overcome it for themselves. This is the only way to make that gap a little smaller. We all have $3.22 trillion to account for, so get started with your individual contribution.
* We still lack complete data surrounding wage gaps for transgender and non-binary individuals, but it is pretty clear that the wage gap is even worse than it is for cis women.
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