NANDI MXOKOZELI: Women undervalue their financial nous despite rising earnings, studies show

A behavioural analysis of banking and investment clients will assist greatly in the creation of appropriate products and services as well as tailored advice and viable opportunities. From a demographic perspective, women are starting to earn more than before and are becoming more included in formal financial systems, but they often underestimate their own financial competencies.

While research suggests gender differentiators may not be as prominent regarding analysing investment behaviour, financial institutions should be equipped to anticipate and address key trends. 

Financial inclusion

Acknowledging that there are still great strides to be made, and contrary to what most might believe, the World Bank reports that financial inclusion among SA men and women is actually on par. Perhaps less surprising is that SA women are faring significantly better in terms of financial participation and inclusion than women across other Southern African Development Community countries, a big factor being ongoing grant payments.

If international developments are anything to go by there will soon be a big shift in wealth from men to women. Statistically, women live longer than men. Stats SA recently placed the country’s life expectancy figures at 60 for men and 65.6 for women. Not only does this mean they will need to plan for a longer retirement and higher medical expenses, but that they are also more likely to acquire money and assets left to them in a spouse’s will.

According to recent SA Revenue Service data for 2017, only 22% of taxpayers with taxable income above R1m were female. In 2020 this number increased to 26%. The number of women-owned businesses reached 22% in 2021, according to The Mastercard Index of Women Entrepreneurs  in March 2022, despite the detrimental impact of Covid-19 and ongoing gender disparity. As SA women are becoming more economically active and can generate their own wealth, a long-awaited balance in the distribution of wealth might occur in future.

Financial decisions

Regarding successful portfolio managers in the SA and global investment industries, women tend to focus on longer-term investments that are more needs-driven and less risky. As such, they are less likely to look at hedge funds, short selling or trading desks.

SA female home buyers recently spiked and there has been a 68% increase in women talking more about their finances within their families. These figures clearly demonstrate that women are essentially more goal driven regarding investment decisions, consistently take other stakeholders into account and mostly focus on collective family wellbeing, such as educational policies for their children or a dream house.

A recent study conducted by Nedgroup Investments, the Investor Personality & Behavioural Report 2021, separated participants into a high-composure group — those individuals who are less emotionally invested in the short term — and low-composure investors, who tend to be more sensitive, skittish or stressed about their decisions and respective outcomes. The findings showed that female recipients generally fell under the low-composure group and demonstrated a higher desire for guidance, especially in reaction to market movements and risks.

The research further indicated that women experience more daily financial stress, with female respondents overrepresented in the study’s “stressed” category. The challenge is that when investors are anxious and under pressure, regardless of demographics, it’s more difficult to take on a longer-term financial view and make informed decisions.

Financial competence

In stark contrast with men, women — even quite successful ones — often underestimate their understanding and grasp of financial concepts and are constantly selling themselves short regarding financial planning. A recent academic study, “Exploring women’s perceptions regarding successful investment planning practices”, revealed a positive connection between investment knowledge and success. Women who are informed are thus more likely to be content with the returns and growth they obtain from relevant investments and how these can help them to attain their financial goals.

Yet, when consulting with a “stressed” individual, which many women are likely to be regarding financial decisions, it is essential that they are not overwhelmed with options and overloaded with financial instruction. Guidance that aligns needs with objectives will prove more successful in the long run. 

While understanding that general human behaviour is pivotal, these current and future gender-related trends do provide a unique opportunity for financial services players to adjust and tailor their strategies. These include offering suitable advice to female clients and offering the products, solutions and investments these individuals are actually looking for. The most critical factor is that the optimal time to educate someone on a specific financial move is when they are making the actual decision.

How should an adviser present the decision in a way that a client accepts it and continues to stick with it? Individuals have different facets to their lives and personalities and, therefore, differing financial ambitions and aspirations, be it educational, entrepreneurial or charitable. Behavioural science can assist greatly in revealing what these are and determining a best-practice approach for financial players to support these goals in an effective way that empowers investors for long-term success and wealth.

Mxokozeli is COO of Nedbank Wealth.