There is an expanding body of global research that associates being a woman with experiencing worse financial outcomes. This association is particularly strong in studies of financial wellbeing and, most notably, those focused on measures of longer-term wellbeing.
In the UK context, one area of concern is the gender pensions gap. The average man accumulates five times the pension pot of the average woman by the age of 65 and 50% more women than men are heading towards retirement without any private pension savings. In addition to this, fewer women invest their money than men and, in terms of savings, men in their late 30s have over 60% more savings than women of the same age.
While some studies in this area report that women have lower financial capability than men, there is not enough evidence to verify this suggestion. Given the wide and diverse nature of this demographic, data obtained from small scale studies is insufficient and the evidence from larger scale studies which draw on more complex forms of analysis, such as the UK Financial Capability survey, do not present gender as a significant predictor of financial capability. A number of studies suggest that while women might tend to do less well than men in specific mindset measures, such as financial confidence, they can often score more highly than men in some measures of ability and are more likely to be in control of household finances. This does not include women who are victims of domestic abuse, who are also almost guaranteed to be victims of economic abuse (their partner controls their ability to acquire, use and maintain economic resources via economic restriction (dependency) and or/exploitation (instability).
Women are reported to be more capable savers in that they are better at both planning how to use their income and keep track of it and yet they fare less well at building up a savings balance. Women are also reportedly better at knowing how to use their income and at keeping track of money, but conversely are less capable spenders, don’t score as well as men for meeting commitments and are twice as likely to worry about meeting their day-to-day living costs as their male counterparts:16% vs 7%. Some of these findings suggest that for women financial capability is not necessarily leading to financial wellbeing in the way we might expect.
This thematic review explores these complexities further, along with what is known about the financial wellbeing gender gap and what can be done, outside of policy change, to contribute to closing this gap.
There are multiple, sometimes interacting, factors that undermine financial wellbeing and many of these are much more common among women. Most factors point to the same overall problem, which is that women – regardless of socio-economic background or personal characteristics - overall simply have less money than men. A study by Nest on retirement wealth between men and women argued that earnings are the primary factor which accounts for discrepancies in wealth.
Given that female weekly earnings are less than 70% of male weekly earnings it is not surprising that studies often show women to be faring less well in measures of financial wellbeing. When delving deeper into this income disparity it becomes apparent that women are disadvantaged in a number of ways. Research tells us, for example, that single parent families make up around a quarter of all families with children and they are likely to struggle more with finding ways to balance their childcare responsibilities with work. Furthermore, there are additional financial challenges when one parent is the sole-provider: women are more likely to be single parents which means that women are being disproportionately affected by these challenges; we also know that unemployment is more common amongst single mothers than single fathers (and even in couples the employment rate for mothers is 20% lower than for fathers); and caring responsibilities for women go beyond childcare, with almost a third of women in their late 50s caring for an adult.
Amongst those that are employed, women are more likely to be in lower paid industries, are less likely to negotiate pay and are are more likely to be on zero hour contracts than men (55% compared to 47%). Zero hours contracts are likely to be tied up with poorer financial wellbeing due to their presence in lower paid occupations and the lack of certainty associated with them. In addition, workers on these contracts are not entitled to automatic enrolment into a pension scheme and may not be eligible for paid leave.
Women are placed at further financial disadvantage elsewhere. There has been an emerging body of research demonstrating the negative impact of life events on people’s finances and The British Household Panel Survey found that women’s savings and debt level are much more likely to be affected negatively by life transitions, with savings also being slower to recover than men’s. Women are also around twice as likely to be victims of domestic abuse and more likely to experience repeated abuse.
Whilst the evidence available does not show any significant differences between women and men in terms of their financial capability, existing research does find that women experience low financial confidence (which is a driver of financial wellbeing), and this is a problem even amongst the well-educated. Low confidence seems to be a particular issue when related to making decisions about products and services. Over 1 in 10 women do not feel comfortable choosing financial products and services, which is twice the number of men who feel this way. In another study, half of men (50%) were confident in choosing the right financial product to achieve their long-term financial goals, compared with just 35% of women.
Women show a lower level of numeracy and financial literacy skills than men and it has been suggested in many academic sources that women are less engaged in financial markets as a result - although it has also been argued that, again, a lack of confidence may be playing a role here.
So why are women rating their confidence so low when compared with men? And why, even though women are more likely to control day-to-day household spending, do their confidence levels not match up? Some recent research suggests that stereotypes around women’s financial ability and mindset may be playing a part in reinforcing these issues. For example, women tend to rate themselves as more risk averse with investments, yet other evidence provides a more complex picture. The more money women have to invest, the more risks they are likely to take, suggesting that it is women’s comparably low income that leads to caution, rather than an inherently cautious nature. Research also suggests that women are offered lower risk investments based on this perception of risk aversion. Women are less likely to consult financial advisors than men and commonly use terms like ‘unwelcoming’ and ‘patronising’ to describe the wealth management industry, which could mean that these stereotypes are able to go unchallenged.
In summary, women’s lives and the life events they experience, alongside their comparative access to finances, and their relative lack of financial confidence, means they are more susceptible to negative financial impacts, and at higher risk of experiencing greater negative outcomes as a result of those events, than men. Women’s lives also perpetuate the issues around financial confidence, and the short-term barriers women face (such as low pay) make it harder for them to achieve long-term financial wellbeing (including pensions savings).
We know that poor financial wellbeing has negative impacts for the individual as well as those around them. It is one of the main causes of stress for adults and can impact both mental and physical health as well as often negatively affecting close family and friends. Beyond this, there are consequences for business with negative impacts on engagement and productivity.
Improving people’s financial management skills would have substantial effects on stress-related illnesses and the outcomes associated with such problems and would therefore have lasting benefits for individuals and the wider economy.
Ensuring that working parents are in jobs that match their skillsets, and that valuable skills are not lost through additional time spent out of the labour market, can also boost national productivity. It’s argued that greater female labour supply would add considerably to economic growth and could raise UK GDP by 10% by 2030.
The evidence we have explored in this Thematic Review suggests some areas which appear particularly key to supporting women’s financial wellbeing:
Pensions: while policy change is urgently needed to help close the gender pensions gap, there are ways to design programmes that can improve the situation for women. Information should be provided to those embarking on maternity, parental or paternity leave about the risks associated with lower pension contributions during this period. Programmes will have greater effect when targeted around ‘moments that matter’, such as interventions through employers and pension providers that contact savers at key age milestones, or targeted campaigns at graduates and school leavers. Such programmes should highlight the cost of taking time out of the workforce, as women often must, and empower women with the knowledge and confidence to act to compensate against this.
Investments: we know that women who are in a position to invest, are not investing as much as men. We also know that women in general, have less money, so it is not only a lack of interest that would explain the investment discrepancy. As well as this, there are stereotypes that not only inform financial advisors’ interactions with women but how women view themselves when it comes to investing. The little evidence available suggests that programmes should aim to demystify investing and stocks and shares for women as well as challenge stereotypes.
Confidence: programmes should look to address low financial confidence among women, and there are a number of suggestions for tailoring programmes to improve financial confidence in our Thematic Review on this topic, here. Programmes should challenge common gendered financial stereotypes and enable women to gain confidence in the skills that they do have, and to gain positive financial aspirations. As with designing any programme for women, the design should be tailored through a gender lens to take into account varying dynamics in women’s lives, and use appropriate forms of communication, considering other demographic and cultural factors that may be relevant.
Stereotypes: how are stereotypes around women’s financial habits serving to create and exacerbate problems for women’s financial wellbeing? For example, are women ‘buying into’ these stereotypes, and are these ideas impacting the way that women are treated by finance professionals? Particularly around long-term savings and investments.
Auto-enrolment: What is the impact of auto-enrolment on younger savers, for whom there is still time to make a dramatic difference to their retirement? With particular attention to under-pensioned groups like young women and Black, Asian and Minority Ethnic women.
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