Blogs | August 29, 2018

Is finance really a man’s game?

Merle van den Akker looks at the facts on how men and women handle money.


Women often take a back seat when it comes to financial decision-making. Stock investments, mortgages, insurance and pension plans can sometimes be pushed into the hands of husbands, fathers or male advisers.

This can be due to a commonly held, stereotypical belief that men are better at financial decision-making than women. But, with women outliving their husbands and overall female independence, is this really a belief that should go unchallenged?

The idea that men are more rational and calculating has tended to support ideas about finance, especially stock-trading, being a male dominated sector. According to 2012 research, on average, women obtained lower gains than their male counterparts from their investments.

But stop right there: this difference shrinks if only men and women with a financial education are compared. Studies by professors of finance Haiyang Chen and Ronald Volpe supported these results. They explain that lower stock-performance can be a result of lower financial literacy.

Subject of discussion
This might be because the women studied, for example, might have less enthusiasm for financial topics than men – or that they are less confident about the subject.

So far, it seems less likely that it is whether you’re a man or a woman that determines investing success – but whether you have an appropriate level of financial literacy, experience or education.

When it comes to equal levels of education, research does not bear out male superiority in finance. Research by the University of Leeds showed that men and women have different ways of making financial decisions. However, both strategies led to similar outcomes in terms of profit.

How risk-averse are you?
And research in 2013 goes well beyond claiming that women rival men when it comes to finance – it suggests that women may actually be better at it. The study examined investment choices by female executives, compared to male executives. Men made more risky company acquisitions and also more often issued loans to companies.

Women seemed to be taking less risk, making more stable company acquisitions and issued loans less often.

Perhaps this was due to being less confident in their decisions. However, the men’s acquisitions earned returns that were two percent lower than those made by women.

Of course, it’s not the first time that academics have made a link between taking less risk and feelings of confidence. In fact this is a common theme across the literature on gender in financial decision-making.

Research done by the University of California found that the more (over)confident a man is, the more he overvalued his information, trading more shares against a minimal or non-existent gain – with a worse effect on performance overall.

Women, on the other hand, traded less and had a stable stock performance, getting better overall results.

Confidence versus ability
Overconfidence has been linked to increased levels of testosterone, a hormone typically produced in higher amounts by male body chemistry, and can result in worse decisions.

A 2011 research review showed that increasingly high testosterone levels lead to investing decisions that overemphasise short-term gains. It’s thought that testosterone can encourage people to take on more risk at the cost of long-term benefit.

When investing, men were more likely to have riskier stock portfolios and traded excessively. Women invested in less risky stock options, and stuck with them. This led women to outperform men in terms of profit.

Equal opportunity
When people are educated the same, women really do not underperform compared to men. There are many opportunities for women.

Read up on stock and bond investments, insurance and pension schemes, mortgages and other loans, get acquainted with finance and take charge of your own (financial) future.

It can be easy to leave these decisions, especially if they seem complex or boring, to others – as behavioural science has shown. But finance can be anyone’s game.

InvestingPersonal financeWomen

eZonomics team
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