Ever thought about your pension? E&M‘s Laura Worsch had not until recently, but found out how educating yourself on long-term financial security is also a way to close the gender gap. While women are often insecure about investing their money, taking your finances in your own hand is crucial. Laura takes us with her on her journey to her own female financial literacy.
As young adults, we discover many features of life for which school or university education did not prepare us, such as health insurance, or tax declarations. Another aspect that we – quite naturally – do not think about are retirement provisions. When you just start working, you care about other things than what might happen in 50 years.
However, studies show that young men in the EU not only have more investment plans, but in general have a much higher financial literacy than women of the same age. Financial literacy describes the general ability to understand and use financial skills, such as budgeting, investments, and financial management. I began to educate myself on these matters only last year, and cannot claim to be an expert. The point of this article is, therefore, not to give any investment recommendations. Instead, I hope to dispel doubts and insecurities, in order to motivate more women to actively engage with their financial future.
Only for experts?
While the Gender Pay Gap is something often talked about and criticised in European media, the gender gap in financial literacy is still lacking attention, even though it critically impacts women’s financial independence. Although for women to earn the same as men is crucial, it is not enough to close the financial gender gap. Women also need to be able to effectively make use of their money to be financially secure in the long term. So far, differences between men’s and women’s financial knowledge also contribute to gender gaps in retirement savings. While, in our parents’ generation, financial investments may have been something “complicated” and only for “experts”, many of today’s equity markets focus on being easily accessible and more understandable.
It is commonly believed that engaging with these issues is both too complicated and exhausting
Nonetheless, there are many reasons for why young women, and women in general, invest less in their financial future. Firstly, it is commonly believed that engaging with these issues is both too complicated and exhausting. The image of investors is still one of Wall Street, where stressed people do nothing else but buy, sell and re-sell shares. While it is true that it takes some time to inform oneself on the various investment options in order to make an informed decision, you don’t necessarily have to engage with your shares again until you are ready to sell them.
Small steps can be worth it
This is connected to a second myth about investing: that it only makes sense to invest if you have large sums of money to spare. Among young people who just entered the job market, this is normally not the case. However, you do not need to spend a lot of money. Many accumulation plans start with (relatively) small amounts of 25 Euros which you pay into your depot every month. Especially exchange-traded-funds (ETFs) can be ideal for young investors, because they neither require large investment amounts nor a lot of attention once you bought into them. Many ETFs are specifically designed to run long-term, which means that you are not supposed to sell them for at least ten years. While certain shares or ETFs might be more risky or seesawing, others are designed to be quite steady. Your profit margin might not be as high, but when you’re investing long-term for the next 20 to 30 years, it will still be worth it.
When you’re investing long-term for the next 20 to 30 years, it will still be worth it
Lastly, many people simply have no trust in banks nor the stock market, or fear that their money will be used for drugs, weapons or companies that are environmentally harmful. While the banking sector certainly has done a great job in destroying its credibility in the past years, this does not mean that we should not use their means for ourselves, and to do some good. Social responsibilities and environmental features have been increasingly included in the equity market. For example, it is possible to invest in exclusively sustainable ETFs which exclude certain companies, regions or sectors.
“Do not know”
Of course, all of the above does not exclusively apply to women. However, as a team of Dutch, German and U.S. researchers found out, the crucial factor responsible for the gender gap in financial literacy is confidence: financial literacy tests typically include the response option “do not know”. The study found that more women than men will select this option if they do not know the answer. When they excluded this answer, however, women were more likely to select the correct answer. In the researcher’s study, the gender gap in financial literacy decreased from 28 percent to 9 percent when the participants had to decide for a yes-or-no answer. Hence, educational programs should not only aim to increase girls’ and women’s financial knowledge, but also convey the confidence that is needed to make conscious investment choices.
In the end, investing always bears a risk. That is why, after several months of informing myself about my options, and of watching the stock market go up or down, I just had to bring myself to start and buy shares. And even though I not always feel completely confident with my choices, I am happy to have made a first step towards a more secure financial future.
Cover photo: Photo by Fabian Blank on Unsplash