By Anna Rich
“Women are less financially literate than men.” That’s the opening statement of Fearless Woman: Financial Literacy and Stock Market Participation, a research paper released by the Global Financial Literacy Excellence Center earlier this year. The lack of financial literacy means that, to a greater extent than is the case with men, women don’t know what they need to know to make informed financial decisions.
But the researchers noticed another trend when they were assessing the data: women tended to choose the “do not know” option to questions designed to measure financial knowledge far more often than men did.
Don’t know, or think you don’t know?
Following from that observation, the researchers wondered whether women really lacked the knowledge, or whether the issue was confidence. They decided to dig deeper, removing the “do not know” option from a subsequent round of research, which meant that the respondents were forced to answer. The result of this experiment? When the “do not know” option was unavailable, women often chose correctly. The researchers determined that a third of the financial literacy gender gap could be explained by “women’s lower confidence levels”. The “fearless woman” of the title of the paper is what the authors hope for, rather than a reality.
Why it matters
Knowing the precise reason for lower levels of financial literacy can help tailor the approach taken to improve the situation: the researchers recommend financial educational programmes that are designed to boost women’s confidence, because a one-size-fits-all approach is not effective enough.
The outcome of women’s lower financial literacy levels, though, is that they don’t invest their money to the same extent as men do. Research has established that financial knowledge and confidence are both important prerequisites for getting involved in the stock market.
Participation in the stock market is important, say the study authors, because it results in a large difference in wealth in the long term, compared to saving in risk-free assets.
“The reason we invest is because we want higher returns than we would get in a money market fund, or a bank deposit, where we’d be getting a set interest rate,” explains Anthea Gardner, founder and managing partner at Cartesian Capital asset management, and author of Make Your Money Work For You: Think Big, Start Small.
An investment pot accumulated over time provides us with an income when we no longer earn a salary. “We need returns that are above inflation to retire comfortably,” says Gardner.
Bringing it home
As is the case elsewhere in the world, South African women lag in terms of stock market participation. “Men are twice as likely as women to invest in shares, ETFs, cryptocurrencies and offshore – and 50% more likely to have unit trusts,” says Brandon de Kock, director of storytelling for BrandMapp. This was one of the findings in the annual BrandMapp survey, a large, independent study of economically active South African adults.
These results are mirrored in other surveys, such as the 2020 10X Retirement Reality Report: 44% of women don’t save or invest, and 53% say they don’t have a retirement savings plan. Only 13% of women said they invested their money for growth, compared with 22% of men.
The following commentary from the 10X report paints a bleak picture for all, irrespective of gender: “A frightening number of people have not formally planned how they will fund their retirement. Of those who have, most don’t know whether or not they are on track to meet their goal to be able to support themselves in retirement, never mind in any comfort.” But as the report also points out, women tend to live longer than men do, which exacerbates the inadequacy of their retirement funding.
EasyEquities online investment platform keeps track of the gender split across their investment products. The pattern of lower levels of investment by women is reflected in their metrics too: of their almost 450 000 investors, 40.18% are female, and 59.82% are male.
The fear factor
Further metrics in the 10X report showed that women are a little more likely than men to be cash savers: 32% of female respondents said they saved money, compared with 28% of male respondents. BrandMapp also saw greater uptake of savings products among women. While this might sound positive, savings do not generate the necessary inflation-beating returns mentioned by Gardner.
On self-perceived attitudes to risk, BrandMapp’s survey showed that women are far more risk averse when it comes to finances.
Behavioural research echoes this. “In our research, we found that females were more likely to be part of the ‘avoider’ archetype, which means that they invest in relatively safe assets and show far less engagement with their portfolios,” says Paul Nixon, head of technical marketing and behavioural finance at Momentum Investments. “This was in stark contrast to the ‘assertive’ archetype, which is predominantly younger and male.”
But the tide is turning. “Women are taking up investing and we have moved the needle on this a lot over recent years,” says EasyEquities chief executive Charles Savage.
Gardner has also noticed increased participation in the stock market among women. A high proportion of her clients are female, and she says they are not afraid of taking risk. “My clients want to earn the returns, and to earn the returns, they understand that they need to take risk. But I suspect that they are among the minority of women who have taken control of their finances.”
As for the rest, Gardner does not mince words: “It’s an absolute must for women to take their heads out of the sand. They need to take control of their own financial situation.”
Returning to the idea of risk, she adds that understanding it is crucial. Risk is a personal issue in that markets go through cycles, and there is the risk that you may need to disinvest your money at a time when the market is down, Gardner explains. “Over the long term, equities have outperformed any other asset class. But if you had a sum of money invested at the beginning of March 2020, then needed to withdraw it on 24 March 2020, you would have crystallised a 30% loss. If you had waited a few months, you would have made back the sharp drop in the local stock market in those few weeks, and if you’d waited a year from the beginning of March, you would have made a positive return on your investment.”
Age is another facet of risk. Pension funds take age into consideration, says Gardner. “The closer you get to retirement, the less risky assets they put you in, and when they say less risky, they mean less volatile, which often equates to lower returns. When you’re younger, if there is a crisis and the market falls, you can comfortably sit out the volatility, but if you are close to retirement and do not have sufficient funds, you may have to consider staying in the more volatile asset classes to make up for the lack of initial funding of your investment – a decision based on personal risk and return expectations, which requires everyone to educate themselves.”
But there’s another key point: the need to diversify. “Diversification is a risk mitigation strategy; you’re making sure you don’t have all your eggs in one basket,” says Gardner. “Never have all your money in one asset class or geography.”
Incomes that don’t stretch to investments?
The gender pay gap – the average difference in pay between men and women in the workforce – is well-documented globally. StatsSA’s Inequality Trends report, released in 2020, stated that “Female workers earn approximately 30% less, on average, than male workers.” There are many reasons for this pay gap, including the differences in the types of jobs chosen, hours worked, levels of education, and experience, but the gap often persists even when men and women do work of equal value.
For Gardner, lower earnings cannot be held up as an excuse for not investing. “I get that we earn 30% less than men, and I know that for households on the breadline it’s hard to put away R100, but the risk of not doing it is too great.
“EasyEquities are game changers here. By designing a product that allows people to invest small amounts, they are making investing accessible,” she points out. In fact, you can invest as little as R10 or less – there are no minimums.
The option of outsourcing financial health
“You must see a financial adviser,” says Gardner. “Go onto the Financial Planning Institute (FPI) website to find a Certified Financial Planner (CFP).” But she adds this rider: “...if you can find one who will talk to you”.
Financial advisers use various remuneration models: some charge a set fee, either for their time at an hourly rate, or for a particular activity; some charge a monthly or annual retainer that covers all tasks done, regardless of the time they take; some work on an asset-based consulting fee, where on-going advice and maintenance is provided on a percentage of a client’s assets; and some work on commission.
“If you can find one who will talk to you”? By this, Gardner is referring to the assets under advice remuneration model. “Some financial advisers charge a percentage of the client’s investments,” she explains. “If you invest R100 and your adviser charges 1%, they’re getting R1 for their services. It’s a simple commercial calculation: they are more likely to work with the person who is going to invest a million rand because 1% of a million rand generates R10 000 in income for the adviser, whereas with the person who invests R100 000 it is only R1 000.”
Gardner raises the issue of jargon. “People want to invest their money with the smartest person they can find. And how do asset managers prove to you, the retail investor, that they’re the smartest asset manager in town? They speak a language that is above and beyond most people’s comprehension, using terms like ‘price-earnings ratios’, ‘internal rates of return’ and ‘EV to EBITDA valuations’. That just scares half the people away, which is a shame (and partly the reason I wrote a book – to make people more comfortable with the world of investing).”
There’s jargon, and then there’s being patronised. “Women who responded to a US survey said that financial services providers talk down to them, and are full of jargon,” says Nixon, citing a publication by Meir Statman, a professor of finance in the US, for the CFA Institute Research Foundation. “Financial advisers are predominantly male and look to the male in the relationship to make the decision, which leads to disengagement in women,” he adds.
Local anecdotal experience bears this out. “I’ve been told by several women who have gone with their husbands to male financial advisers that the adviser talks mostly to the man and talks down to her, as if she doesn’t know what’s going on,” says Gardner. “When that happens to independent, strong-minded women, they won’t deal with that financial adviser.”
For Janet Hugo, a CFP and director at Sterling Private Clients, the issue of being “talked down to” has personal resonance. “This is the very reason I chose to complete the postgraduate and advanced postgraduate qualifications in financial planning; my husband’s financial planner couldn’t explain things to me and I felt like my concerns were being dismissed.”
Solving the problem
Hugo stresses the importance of finding the right financial adviser for you. “It’s the adviser’s job to interpret the complexity of investments and tax so that you can understand it,” she says. “Interview financial advisers until you find one you connect with, as that person is going to be the financial director in your life. They’re not going to be the CEO – you are – because you make the final decisions, but you need to be fully informed by them.”
Being fully informed comes at a price, Hugo notes. An hourly rate might be the most cost effective, but not everyone can afford this out-of-pocket expense. She charges an hourly rate, but finds that few people are happy with this payment structure – besides professionals such as lawyers and doctors who work on hourly rates themselves.
Though Hugo has never sold products for commission, she says this could be an option if you can’t afford fees, as you still benefit from financial advice this way. “Don’t use fees as an excuse for not making an effort to get a retirement plan,” she adds.
“Rather than measuring the gender divide in investing, the focus should be on the numbers of female versus male financial advisers,” Gardner suggests. “Male domination of the industry is one of the barriers to entry for female investors. I can only hope that there will be more female role models so that women can go, ‘Oh, hang on, the stock market isn’t just for men,’ because that’s the way it looks at the moment.”
As greater numbers of women become involved in financial planning and occupy more leadership roles across the financial services industry, this will make a big difference, says Nixon.
The proportion of female financial advisers registered with the Financial Planning Institute is currently 34%.
But even though the zeitgeist is changing, South Africa is still a very patriarchal society, says Nixon. Having more women in financial planning won’t help if women themselves believe that finances are the domain of males, he notes. Gardner concurs: “There is an ingrained societal norm that men will provide, and until that changes, financial behaviour won’t change either.”
Hugo urges women in relationships to be involved in financial decision-making, rather than risking a hard wake up call down the line.
Gardner says EasyEquities has intermediated the financial services and asset management industry by enabling people to invest directly. The platform provides information about investing, with the option of opening a demo account to build confidence. Easy Equities pegs their costs at 64 cents per R100 invested.
Another financial institution that provides an accessible solution is Momentum, through its Velocity Club: six-month subscriptions at R99 a month to “Get financially healthy” or at R199 a month to “Get wealthy”. These include interactions with a personal relationship consultant. How often, though? “At the start, the client and relationship consultant agree on the frequency and medium for their check-ins,” explains Andiswa Gqwaru, client success lead at Momentum. “The frequency depends on the client’s money challenges and goals. The minimum is once a month, and the client is able to contact the consultant at any time if they have a specific need.”
The consultants and financial planners are salaried employees and do not earn commission, says Gqwaru. The financial plans do not necessarily include product recommendations, but if they do, and the client takes up any of them, Velocity Club earns commission.
“Just start,” Savage urges. “And the sooner the better, because time is the investor’s greatest asset, not which shares you buy. The later you leave it, the harder it becomes to win capital back from consumption. The best investors develop investing habits first and what’s left over after investing is for consumption ‘fixes’.”
“Don’t let your fear of making a mistake stop you from taking the first step in the journey,” says Hugo. “Yes, you can optimise by looking tax efficiency, but even if you start with a ‘vanilla’ balanced fund with a long investment horizon, it’s better than doing nothing. The first step is saving something. So is it going to be the new shoes or the savings plan?”
This article first appeared in the 3rd quarter 2021 edition of Peronal Finance quarterly magazine. You can buy the latest digital version of the magazine, or recent backcopies, from Zinio.