Finance and investing have long been domains traditionally dominated by men. Despite strides toward gender equality in recent decades, disparities persist in areas including financial literacy, investment behavior, and representation in financial leadership roles. To commemorate this year’s International Women’s Day, one prominent economist’s research can help shed light on the complex underlying dynamic of the gender gap in finance and investing.

When women are more empowered, they make great decisions.

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Empowering women through financial independence

Antoinette Schoar, a professor of finance and entrepreneurship at the MIT Sloan School of Management, has extensively studied everything from entrepreneurial finance and fintech to consumer finance, and financial intermediation. She also advocates strongly for women to take control of their finances in their own lives and beyond.

“I think it's really important that women take charge of their financial lives,” she says. “First of all, from a global perspective, we've seen that when women are more empowered, they make great decisions. Often, they make really good decisions not just for themselves but for children and for society.”

Gender differences when it comes to investing

In her work, she explores the gender disparities in financial decision-making, and she has found that women, particularly young women, tend to save more than men. “They are very conscientious and responsible about their finances and seem to be very forward looking,” she says. “Women should feel empowered to make good decisions about their savings allocations and benefit from the equity premium.”

She says that while a more conservative approach to finances can seem like the wiser move, that this approach can also lead to missed opportunities.

“Women tend to be financially much more conservative which means that often they are not prepared to take the type of risks that might even be good for them, meaning they are hesitant to invest in the stock market,” says Schoar. “Any young woman should be investing in it as much as a young man.”

And yet, that is not what the data shows.

While researching retirement savings, Schoar and colleagues found that women stay away from equity more than men. Similarly, they found that women tend to defer to the default options given to them by say a suggested retirement savings plan or by an adviser whereas men are often more willing to question why an option is the option being given to them. “Obviously women should be as critical as men,” says Schoar.

Any young woman should be investing in it as much as a young man.

Why do women struggle more with financial independence?

The question as to why women struggle more with financial independence is a difficult, broader societal question, something more historically rooted. Referencing her work on retirement savings data, Schoar says that within the younger generation in the US, the labor participation between men and women is very similar, women are on average more educated, and they’re more likely to finish college.

“The contribution rates and the allocation rate look relatively similar,” she says. “But in older generations, where the role of women in society was more limited, it led to a situation where a woman who wasn't in the labor force decided to leave all the financial decisions to the men. A lot of advice and financial education is often tied to work life. It's tied to the employer; it comes through peers. And if you're not participating in the workforce, then it's more difficult.”

Societal norms and cultural expectations often shape individuals’ attitude toward money and continue to do so today. While the norms may have changed around women in the workforce, expectations and lessons that are passed down from generation to generation can take time to shift.

How can we address the gender gap within the finance industry?

Addressing the gender gap in finance and investing requires a multifaceted approach encompassing education, addressing cultural shifts head on, and organizational change. Encouraging young women to be confident to talk about money and investing, to take risk, and to ask questions is something everyone can do to move the needle.

Increasing women's representation in finance and investing is not only a matter of gender equality but also a sound business imperative. As consumers, women control a significant portion of global wealth, according to Boston Consulting Group1, and make the majority of household financial decisions. Therefore, fostering greater gender diversity in financial institutions and investment firms can better align products and services with the needs and preferences of female clients.

The gender gap is a complex phenomenon shaped by many factors, but Schoar’s research offers valuable insights into these dynamics and the importance of addressing them. By promoting financial education, challenging cultural stereotypes, and fostering gender diversity within finance and investing, we can work towards a more equitable and inclusive financial landscape that benefits individuals and society as a whole.

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