For centuries, gender equality has been a struggle for women. While women have progressively obtained more rights in society, there are still major differences between the sexes in many social spheres. One of these places where the gender gap still exists is in finance.
Lacking in financial literacy, women make less decisions around money and defer to their male counterparts, a dynamic that actually is financially worse for society as a whole. At the same time, women in financial leadership roles are few and far between. Recognizing these deficiencies, some companies are working toward complete gender equality in the financial world, but creating such equality will continue to take time before it is fully achieved.
Women lack financial leadership opportunities
The finance industry is still disproportionately controlled by men. The harsh reality is that women rarely hold executive level positions at financial firms. Studies show that women account for less than 2% of financial institutions’ CEO positions, and less than 20% of their executive board members. When it comes to private equity and venture capital, women hold only 10% of all senior positions.
Financial research and academic publishing is another area where women are not represented fairly. Women publish less financial research than men as a whole. Women are given fewer resources and opportunities to conduct financial academic research, and it is therefore harder for them to publish as a result.
CEO Charlotte Crosswell of Innovate Finance, a nonprofit supporting the UK’s fintech community, highlights this issue:
“We currently have 48% of investors with no women on their investment teams. We have to inspire more women to sit there, we have to go into schools and say “you know what? Technology and finance can be for women!””
One reason, says Croswell, is because women aren’t supported enough to believe they can make a difference in finance. “The key here is that women respond to value and purpose when they’ve got a role where they think they can make a difference,” she said.
Financial literacy and decision making
In finance, like in many things, knowledge is power. However, most financial knowledge still lies in the hands of men. According to the International Monetary Fund (IMF), women fall by the wayside in almost every area of finance. The IMF states, “Women are underrepresented at all levels of the global financial system, from depositors and borrowers to bank board members and regulators.”
This financial knowledge is the foundation of decision-making, something that women currently lack. A financial literacy study was conducted by the American College of Financial Services to compare financial literacy between the sexes. A quiz given to men and women between the ages of 60 and 75 found that 35% of men passed the literacy quiz while only 18% of women passed the exact same test. Worldwide, 35% of men are financially literate, compared to 30% of women. This dynamic leads to women who are not confident in their ability to make prudent financial decisions. As a result, women are less confident about their financial standing. Compared to men, women are three times more likely to believe they aren’t able to save for retirement.
Traditionally, it has been the role of the man in a household to make financial decisions as he was the person bringing in all of the income to the family unit. While progress has been made on this front, 56% of women still defer to their spouses on financial decisions, while 85% believe their spouse knows more about financial matters.
These statistics are alarming given the fact that women are often placed in situations where financial management and literacy is that much more important. In European countries, up to 30% of all families in a single country are single parent homes. With a large percentage of these parents being mothers, financial decision-making becomes that much more important. Additionally, women are also three times more likely to quit their jobs to care for a member of their family and put themselves in more difficult financial situations.
Men don’t see the problem
Even though the data is clear, men still aren’t awake to these financial gender issues. LinkedIn compiled responses from finance professionals which showed that, “While men believe women have equal access to promotion and raises, women do not.” This difference is highlighted in responses to the question of whether men and women are equally as likely to become leaders in their industry. 56% of male respondents agreed that the genders are on equal footing, while only 37% of women agreed with the same sentiment. Meanwhile, only 47% of women feel that women are promoted at an equal rate to men, while 74% of men believe this to be true.
Women, on the other hand, clearly recognize the difference. According to one female managing director at an NYC investment firm, “Even if you do the same amount of work as a guy, it’s like you have to work harder,” she said. “Then you have to talk about it all the time and you have to talk about it with more people.”
Unfortunately, society as a whole loses out when women aren’t given the same financial opportunities as men.
The economic benefits of inclusivity
The sad truth is that the financial world is missing out on a great opportunity by excluding women. It’s not just that it is an ethical dilemma to exclude women from financial firms and institutions, it would actually generate a more balanced, and likely more profitable business. Women have a skillset that would complement men in the financial realm. Studies show that men and women invest differently. Men are more open to taking risks, while women are more apt to plan for the long term. These two investment styles are complementary, and would prove to be very effective if used in tandem.
A recent study by the IMF shows that by including more women as users, providers, and regulators of financial services, better monetary and fiscal policy could be achieved. According to the study entitled, “Women in Finance: A Case for Closing Gaps”:
“New evidence suggests that greater access for women to and use of accounts for financial transactions, savings, and insurance can have both economic and societal benefits. For example, women merchants who opened a basic bank account tend to invest more in their businesses, while female-headed households often spend more on education after opening a savings account. More inclusive financial systems in turn can magnify the effectiveness of fiscal and monetary policies by broadening financial markets and the tax base.”
One psychology study debunks the myth that men are better financial decision-makers than women. It proved that while the sexes differ in their financial decision-making strategies, “these strategies have no significant impact on the ability to perform.”
A disconnect in the importance of gender diversity could be losing some funds valuable investments. According to a study by the International Finance Corporation 30% of general partners view gender diversity as important, compared to 65% of limited partners. Seeing as limited partners are the lifeblood of capital into a venture capital or private equity fund, it is clear that taking gender equality more seriously will directly pay financial dividends to funds themselves.
It’s clear that a balance of gender diversity in financial systems would benefit everyone involved without sacrificing financial performance. Instead, the gender imbalance perpetuates a society of women who are made to feel inadequate in making financial decisions.
Closing the gap
The first step in closing the gap between the sexes in finance is addressing literacy. Giving women an equal opportunity to learn and understand finance will empower them to make their own decisions.
Recognizing this need for a financial industry of equality, companies and leaders have stepped up to the plate looking to fill in the gaps. Girls Who Invest hopes to make it easier for women to obtain executive level finance roles. The organization is a nonprofit organization which is dedicated to, “increasing the number of women in portfolio management and executive leadership in the asset management industry.” Then, there are bloggers who dedicated their time to providing financial information and resources to women. Some of these blogs include Young Money, The Female Money Doctor, and many more.
On top of improving literacy, there is a movement of creating financial tools specifically tailored toward women. Finmarie is an online investment solution made by women for women serving the European market. It provides professional financial advice and assistance to women looking to take control of their finances. Ellevest is a robo-advisor for women which has already garnered $77.6 million in funding from investors.
For women looking to excel as finance professionals, conferences like European Women in Finance help connect female industry professionals with one another and support one another in their goals of obtaining senior level positions in the industry. In Great Britain, the government has set up a Women in Finance Charter for companies to make a commitment to achieving gender balance across the financial services sector. It requires firms to publicly report on their progress in bridging the gender gap and meet self-imposed targets for diversity in the workplace.
Losing an opportunity
Bridging the gender divide in finance isn’t just about doing the right thing, it’s also a good business decision. It’s estimated that $782 billion in investable assets is lost by firms due to their poor relationship with women. Time and again it has been proven that including women in financial decisions is beneficial for society as a whole. Women have progressively achieved more inclusivity in other areas of society and the economy. It’s time that they start being taken seriously in the realm of finance as well.
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