Listen to this article
The mystery of why women are less likely to invest on the stock market than men has baffled the asset management industry for years. Women are independent, earn good money and have access to all kinds of online services and information that their mothers never had, yet stick stubbornly to cash savings in an era of rock-bottom interest rates. Could it be that something as mundane as a washing-up sponge holds the answer?
Asked to produce an object that best described her attitude to money, Liz, a former City worker in her mid-40s, holds up a sponge. “It explains how I feel about managing my finances,” she said. “I am like a dry sponge, ready to absorb information, but there’s simply too much to mop up. So I soak a bit up, then think ‘that’s not right’ and squeeze it out.”
As the parent of a young child, Liz’s time is at a premium. “I just want to absorb the information I can trust,” she says. But where to find it?
The 12 women in the room all nod in agreement. In their 30s, 40s and 50s, they were brought together recently by BritainThinks, the consultancy, as part of an investigation into what puts women off the investment market. And they have plenty to say.
“Untrustworthy” is a word that keeps coming up when asked what they think of the UK’s financial services industry. “Unwelcoming”, “patronising”, “male-dominated”, “complicated” and “full of jargon” also score highly.
They don’t feel that investment services being advertised by big UK providers are aimed at them. Yet these women know a great deal about managing money: one-third are the main breadwinners in the household; one-third run their own businesses (alongside raising a family) and one-third are single parents.
Highly engaged, confident and financially in control, all say they are responsible for the lion’s share of the family finances at home, from paying the bills to budgeting and saving for holidays or finding a better deal on the mortgage. All have cash savings; many have workplace pensions, and several have invested in buy-to-let property.
But none of them — not one — has ever personally invested in stocks, shares or funds. Why? FT Money this week looks at women’s reluctance to engage with the world of investment.
What women want
There is a great deal of research — including a poll that BritainThinks conducted on behalf of FT Money (see below) — that claims women feel less knowledgeable about investment than men.
“Men might be more confident, but are they more competent?” is the reaction of Sue Noffke, one of the UK’s top female asset managers at Schroders. She’s made a career picking stocks, managing the Schroder Income Growth Fund Investment Trust, and is a keen observer of women’s attitudes towards their finances.
“It’s true there is an overwhelming choice, and constant changes to the rules,” she says. “Often, women are not confident making decisions on their own and want to do it with their partner. But I don’t think men are any more educated in taking these types of decisions. They rarely fully understand what they’re doing. The difference is that women want to understand, but get bogged down in all the jargon and end up completely confused.”
Certainly, the 12 women in the room all had a deeply ingrained savings habit, but were mostly choosing to keep their cash in basic savings accounts, with puny chances of growth.
“What we found in the focus group was that for these women, the certainty of outcome far outweighs any desire for profit,” says Deborah Mattinson, founding director of BritainThinks. “The weight of responsibility is high — all the women wanted to be certain that the money they had saved would still be there for its intended purpose, and could be repurposed in an emergency. This was why savings accounts and cash Isas were so popular despite very low interest rates.”
It was striking that property was the one investment decision the women felt confident about making. Homeowners had seen the value of their properties rise strongly (it is a moot point if your own home can be counted as an “investment”) but there were envious glances when several women outed themselves as buy-to-let investors.
This involves a high level of risk; taking on debt to finance purchases, managing tenants and dealing with tax returns — a lot more complex than shoving a couple of trackers in a stocks and shares Isa. Yet the strong past performance of property as an asset class meant the women felt it was not risky.
“You can never go wrong with bricks and mortar — my mother told me that,” Dinnie, one of the breadwinners, said with utter certainty. But for those who couldn’t afford buy-to-let, sticking to cash savings seemed a better option than investing, even for long-term propositions such as a child’s Junior Isa.
“The stock market is too risky,” was the common response. “I know interest on my savings is half a per cent, but at least I won’t lose it,” said another.
One woman trying to overturn this perception is Holly Mackay, founder of consumer information website BoringMoney.com. She decries the cash-only approach to saving as “reckless caution personified”.
“I have been contacted by loads of women in their 40s and 50s who feel embarrassed that they do not understand finance better,” she says, noting the tendency to delegate financial decisions to a husband or partner.
“The facts speak for themselves — just 10 per cent of British women have a stocks and shares Isa, compared to 17 per cent of men,” she says, citing YouGov research. “Over a 10-year timeframe, you’re 90 per cent more likely to do better on the stock market. This means many women are missing out on the long-term potential upside.”
In fact, other research studies have shown that female investors who do take the plunge and invest tend to do better than men.
BoringMoney is launching a campaign next week called “Ladies Losing Out” in an attempt to educate women about investing. “There are way too many videos online containing dull lectures from besuited experts who unnecessarily overcomplicate things,” she says. By contrast, she uses props including a cocktail waiter and a bowler hat to teach women the basics.
“I’m trying to show that most people can make eminently sensible decisions about the stock market without a PhD in economics — and maybe we can have some fun along the way,” is her view.
Another off-putting factor to emerge from the focus group was the way the investment industry is advertised. “Women have changed, but financial services have not” was the hypothesis that BritainThinks wanted to explore. Browsing a wide selection of newspaper and TV advertisements for funds, insurance and banking, the women were not impressed.
A common complaint was that investment adverts were not aimed at them, as it looked like you would need “a substantial amount to invest”. Others portrayed women as “mumsy” rather than busy and hardworking.
One of the favourite ads was from Nutmeg, the online investment platform. Their slogan “Investment millionaires don’t look like they used to” ran above a picture of a young, entrepreneurial looking woman. Ads featuring children also scored highly — the reason many said they wanted to invest.
In general, the women agreed there were far too many ads urging them to take on more debt, and too few explaining why they should invest in shares or a pension.
“I associate investment with wealthy people. It’s hard for me to relate to,” said Molly, a female breadwinner and lover of cash savings accounts.
One obvious solution would be to pay for professional advice. But again, the women felt they were “not wealthy enough” to do this.
“If I inherited £100,000, then I would have to find an independent financial adviser,” said one woman. “That sounds expensive,” said another.
This is a stark illustration of the “advice gap”— as it refers to those who can afford to put money aside regularly, but don’t want to pay for advice on how to invest it.
Most independent financial advisers will offer a free initial consultation, and women should not be afraid of asking “pointed questions”, says Angela Murfitt, a chartered financial planner at Fairstone.
“What are the services you provide, and how do you charge for them is the obvious question,” she says. “If you like and trust them, you can agree a fixed fee for a particular job rather than paying an ongoing annual charge.”
“Unless you have quite a large pot of money, you’re pushed into guidance as opposed to advice,” adds Ms Noffke. “Guidance” — a legal definition which places the responsibility for making a final decision on the individual — is summed up by her as: “We can tell you lots of things, but not what to do.”
For all the “dry sponges” out there, the thought of soaking up more and more information only to have to make that crucial final decision on their own is precisely why they say investing is “not for them”.
But the wealthier women are, the more likely they are to ask for advice — and pay for it. The proportion of female users searching for an adviser on the portal Findawealthmanager.com has tripled in the past 12 months and women now make up 16 per cent of those searching. The majority were in their 50s, and said they worked in banking, accountancy or the legal profession.
Wealth managers are making more of an effort to appeal to female customers, recognising that many become significantly richer following a divorce or after being widowed, at which point they need to take sole responsibility for their finances — perhaps for the first time.
This has prompted the wealth manager Killik & Co to start running face-to-face seminars about investing for women, which it says have been oversubscribed.
At the younger end of the spectrum, there is evidence of a generational attitude-shift towards money and investing.
“Young women come out of university nowadays having had to really engage with their finances and deal with debt,” says Ms Murfitt. “As a result, they are more empowered about finance, and are bold enough to ask lots of questions.”
If you’re a woman with a little — or a lot — of money that you want to start investing for your future, here’s what financial experts have highlighted as areas that women of different ages should be thinking about:
Finance for females — what you should be thinking about, and when
“When it comes to your finances, time can be your biggest ally, or your biggest enemy,” says Angela Murfitt, a chartered financial planner at Fairstone, a financial advisory firm. “The earlier you get to grips with it, the better.”
At this stage of life, paying off university debt and saving up for a housing deposit are likely to be the two biggest concerns. Savings accounts with a government bonus — the Help to Buy Isa and next April’s Lifetime Isa— will be a no-brainer for many. But making a start on your pension is also crucial.
“In your 20s, pensions and retirement will seem a long way off, but it’s the time you most need to invest, and the time you can least afford to,” she says.
Even if you can only afford to save a small amount into a pension, contributions made in your 20s are still valuable as they will compound over time.
“Don’t be put off from doing something,” says Sue Noffke of Schroders. “Getting started is very important. Take advantage of any matched contributions an employer might pay into your pension.”
Having got on the property ladder, this is the time of life when many professional women will be building up savings and investments. Ms Murfitt recognises the pressure to get “mortgage free”, but with interest rates likely to remain low, she thinks it’s better to invest money rather than pay off the mortgage early to avoid “wasting 10 years’ worth of investment potential”.
“It is a ‘ladies’ problem’ but you need something more racy than cash,” she says. “Don’t invest your long-term money in a short-term environment. The value of that cash over a 20-year period could be half of what it could have been.”
A tax efficient stocks and shares Isa is the first thing to consider (the annual limit rises from £15,240 to £20,000 next April). Held within this wrapper, no tax is payable on capital growth or dividends (which can be reinvested to maximise the power of tax-free compounding).
From next April, the under-40s can put up to £4,000 of their allowance into a Lifetime Isa, which attracts a 25 per cent government bonus on top. However, this cannot be accessed penalty-free before 60 unless you are buying a house.
So what to put in your Isa? Picking individual shares is risky and requires constant monitoring, but you can invest in funds (where you’re paying a fee for a professional manager to pick stocks) or cheaper tracker funds, which track an index such as the FTSE 100.
“Multi-asset funds — which offer exposure to many different types of equities and bonds — are another option, and these are now more openly available to smaller investors,” says Ms Murfitt.
As retirement looms on the horizon, many panic they have not put enough aside.
Women in this age group are more likely to seek independent financial advice if they are hit by a “curveball” such as divorce, death or serious illness, says Ms Murfitt, who anecdotally notes a rising trend of divorcing female clients in their late 50s.
“The first thing in any retirement plan is to work out your income needs,” she says. “What are your outgoings likely to be; how much do you need to survive, and how much do you need to really live?”
An adviser can work through what pensions and other assets you have and “how and when to pull them in” in future. “It may be too late to fix big shortfalls, but there’s still time to plan and make choices about working for longer, changing your aspirations or downsizing your property,” she says.
“What bothers me is the self-sacrificing instinct that women have to put their children before everything else,” adds Ms Noffke, particularly when it comes to the desire to save for children’s housing deposits and university fees. “There’s not the same motivation for women to save for their own retirement despite greater longevity and the impact that taking a career break can have,” she says.