Demystifying financial literacy and the female investor

Picture this…

You might be surprised if your client told you that she would rather stay away than take the high-risk investment you recommended. Yet this is not uncommon as only a third of women seek high-risk investments compared to more than half of male investors².

• Our role is to educate and provide comprehensive information that will allow your clients to make sound investment decisions if it’s ultimately in their best interest and in line with their financial goals.

Where the industry went wrong

Are the risks perceived to be greater for women because they have traditionally taken on more unpaid work such as housework or child-rearing, keeping them out of these decisions? Are they sometimes reluctant to ask questions because they are not given the opportunity?

• Or are we simply not paying close enough attention to their questions or not adequately answering their inquiries?

These assumptions that, for years, have kept women out of financial decisions–including retirement and estate planning–has also kept them away from the jargon and risk tolerance associated with the financial sector. These conditions have also contributed to financial indecision and avoidance.

• So, if our role is to help women see things more clearly, how can we do it better?

The legacy of tradition

We know that, historically, women have been mostly kept out of financial decisions. This lack of financial literacy would, in some cases, result in overly conservative investment decisions at the expense of more advantageous future gains.

• This traditional division of roles in the household, which has given men a major role in financial decisions, still has consequences today.

In Canada, life expectancy for women is 84 years in comparison to 80 years for men³. If men continued to take care of financial decisions, this would keep their spouses in the dark and expose them to the risks of financial scams when the time comes to transfer the wealth.

With single women buying real estate more than ever before, a growing number of marriages ending in divorce and given the gap in life expectancy between men and women, men's traditional role as financial providers is rapidly changing.

• It is crucial that women be properly equipped to preserve, protect, and grow their assets with confidence and independently.

The future (of finance) is female

The female investor tends to approach financial risk cautiously. She will opt more for a critical approach to the opportunities and issues presented by a solution.

One can question women's risk aversion, given that many of them own businesses and properties abroad while managing their household.

• The female investor isn’t scared of taking risks in life, but she is selective about where she takes those risks by seeking information before committing to big decisions.

Advisors must be able to demonstrate, using credible data, that the proposed solutions adequately meet the expressed financial objectives. If women have the strength and confidence to start an online store, raise a family or make an offer on a dream condo abroad, they can also invest in better performing solutions.

How advisors can improve their relationships with female investors

To be able to offer the right advice, advisors need to be able to have a frank conversation and ask the right questions. Don’t stick to a script.

Be proactive and use active listening to find out what each investor is looking for based on her risk profile. That's how you'll know what you can and should do to help each of your clients achieve their financial goals with transparency and confidence.

¹ The changing face of wealth in Canada and its implications for financial advisors, IPC Private Wealth.
² National Bank Investments (data via Bloomberg).
³ Statistics Canada. Health-adjusted life expectancy in Canada. April 2018.