Everything you need to know about the "gender wealth gap"

It's not just lower salaries that place many women at a financial disadvantage. Women are less likely to make sound investments with the money they have—and the problem starts in childhood

January 14, 2020
It's not just women's earnings that matter—it's how they invest them. Photo: Prospect composite
It's not just women's earnings that matter—it's how they invest them. Photo: Prospect composite

It's not just women's earnings that matter—it's how they invest them. Photo: Prospect composite

The gender pay gap recently received considerable attention in both the Labour and Liberal Democrat manifestos during the election—but this much-debated economic and social phenomenon has a stealthy and under-discussed sister. Solving the ‘gender wealth gap' would increase the independence and long-term security of UK women. It’s not just about the salaries women receive; it’s about what they do with that hard-earned money.

Women are better investors than men. Repeated studies have shown that among those that invest, women consistently outperform men, by rates of anywhere from 1.8 per cent to 0.94 per cent. This is partly due to a higher propensity among male investors to pick more speculative stocks and hold riskier investments. This fits into a wider social and psychological narrative that men are innately more risk-taking than women—though this has recently begun to be challenged by research showing that risk preference is environmental and learned, rather than inherent.

Yet, interestingly, we have a £15 billion gender investment gap in the UK. Women hold just £14.3 billion in investments to the £29.3 billion held by men. This is the ‘gender wealth gap’ or ‘gender investment gap’. It starts young; just 4.4 per cent of millennial women have an investment product in comparison with 7.3 per cent of millennial men. The chasm widens further in Generation X, where 16.1 per cent of men are investing versus 9.6 per cent of women.

To some extent, the gender wealth gap is generated by differences in the typical saving styles of men and women. In 2015/16, the last year for which data is available, 892,000 women invested in government stocks and shares ISAs, whilst 1.1 million men did.

In contrast, the same period saw 1.2 million more women than men invest in cash ISAs, which, though safer, are significantly less lucrative than stocks and shares ISAs.

What’s more, research suggests differences in saving styles may have their ultimate origin in childhood. In 2018, a survey of 500 children found that 64 per cent of boys had received a talk from their parents about money, compared with just 54 per cent of girls of the same age. Indeed, parents are 17 per cent more likely to report male children as ‘intelligent with money’ compared with female children.

Such attitudes are the unfortunate products of a society that discusses money in a highly gendered manner. Sixty-five per cent of articles about money in women’s magazines characterise women as excessive spenders, and encourage them to budget better and impose spending controls on themselves, rather than consider investments as a viable option. In contrast, 70 per cent of men’s magazines emphasise money-making as a masculine ideal, portraying investment as an exciting frontier.

The ultimate effect of this social message that women are fed from childhood—that they are ‘bad’ with money—is a lack of confidence. Only 13 per cent of women believe they have a good knowledge of investments and the stock exchange. This lack of confidence puts women off investment and encourages them to cache money in instant access savings accounts. £1 invested in such an account 10 years ago would now be worth only 87p. In contrast, that same pound put into the FTSE 250 a decade ago would be worth £2.53. In short, women are self-inflicting profound damage in avoiding investment products, however much they have to save.

Hearteningly, closing the gender wealth gap is a straightforward proposition. Unlike the gender pay gap, where women find themselves and their salaries buffeted by hostile external forces, the gender wealth gap rests to a great extent in the hands of women themselves. It can be reversed with speed, and does not require gargantuan institutional and social change, as closing the gender pay gap might.

Past evidence suggests that individuals may begin to invest more simply by learning more about the opportunities and risks of buying stocks and shares. Government and the private sector should act through targeted public information campaigns to stimulate a national conversation which will highlight the gender wealth gap, and increase female awareness of and engagement with investment products.

To make women more financially secure, it’s a conversation we need to have; a conversation beyond the fundamentals of the pay packet.