The gender pensions gap is a scandal, and it’s a problem the world over. In the UK, a recent government report showed that women’s private pension pots are typically worth 35% less than those of their male colleagues by the time they reach 55.
The problem is particularly acute among ethnic minority women. The report found that 54% of black women, for example, have little or no retirement savings at all.
So why is the gender pensions gap so wide? Why are women often poorly served by the financial services industry? Why do relatively few women choose to become, say, fund managers or financial advisers? And what can be done about it?
Those are the questions I put to Dr Ylva Baeckström from King’s Business School for the latest episode of The Investing Show. Dr Baeckström has devoted much her career to addressing financial inequalities between men and women.
I’ll be honest, I learned things from this interview that I didn’t know about and which really surprised me. Did you know, for example, that women weren’t allowed on the trading floor of the London Stock Exchange until 1973? Or that they couldn’t even open a bank account or take out a loan in their own name until 1975?
As Dr Baeckström says, there’s still a long way to go the gender pensions gap — and change will only happen if we make it happen.
The Investing Show is produced by Regis Media and sponsored by Timeline, an evidence-based investment solution for financial advice firms in the UK. Why not subscribe to The Investing Show’s YouTube channel here?
TRANSCRIPT
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Robin Powell: Hi, Abraham. We've got a really thought-provoking interview for you this time.
Abraham Okusanya: Who is it with Robin?
Robin Powell: Well, it's with a very smart woman who had a successful career in finance, latterly as a financial adviser to high net worth individuals. She now works as an academic author and campaigner on behalf of what she calls excluded customer groups. Her name is Dr. Ylva Baeckström, and she's based at King's College London.
Abraham Okusanya: So what excluded customer groups in particular?
Robin Powell: Ethnic minorities for a start but her main focus is on women, who are less likely to invest, for example, or to seek financial advice than men. According to a government report, women's private pension pots are typically worth 35% less than those of their male colleagues by the time they reach 55. And - would you believe it? 54% of black women, for example, don't have any retirement savings at all.
Abraham Okusanya: Yes, I saw that. Part of the problem, of course, is that women take more career breaks than men - I don't know if we can even refer to these things as career breaks. If you factor in child bearing and raising children, more of the burden is on them; and, when they do invest, they invest less than men do. And another factor is that women tend to be cautious investors.
Robin Powell: That's right. Women's portfolios are on average more cautious than men's, but for Ylva Baeckström, the full picture is rather more nuanced than that. Let's hear what she has to say.
Dr Ylva Baeckström: In general, female investors tend to have a lower risk tolerance than male investors, and that means that women have a tendency to hold more of their savings in cash rather than buying assets that can yield a higher return. So that's the general picture.
However, there's also research that shows that women who have become successful in their professions - who are senior managers, who are entrepreneurs - might not have a lower risk tolerance. There is a tendency for people to underestimate women's risk taking abilities and, actually, it's unlocking the higher risk tolerance that is good for female investors - or, indeed, women who don't invest at all - to convert cash to investments.
Robin Powell: So, many women - especially successful ones - do invest enough for retirement and do take sufficient risk. But why don't more women do so? For Dr. Baeckström, it's largely down to a lack of confidence.
Dr Ylva Baeckström: Financial markets, investing - it's a newer domain to women than it is to men, and that's evident in how women couldn't open a bank account in their own name without a male signature until the 1970s; they couldn't become members of the stock exchange until 1975 or 1973; and lots of evidence like that - couldn't apply for credit in their own name until 1982. So therefore, women do not necessarily naturally belong in finance, and that is what can sometimes suppress women's confidence.
Robin Powell: The good news is that a lack of confidence, or at least not being overconfident as many male investors are, isn't necessarily a bad thing as long as you do invest.
Dr Ylva Baeckström: Underconfidence is problematic to women because it means that they tend not to go there, to not invest in the first place - and that's the problem. However, when you compare a man who invests with a woman who invests, the woman can very often outperform. And that is because the men, more than the women, suffer from overconfident behaviour - and that means that men tend to do less research; they trade too often, which means they generate high commissions; and they hold on to their losing stocks for longer than women tend to do. So they kind of have exaggerated behavioural biases in their investment decision making process quite often. So overconfidence is a problem and lack of confidence is a problem. So we kind of need to work together to create the right level of confidence.
Robin Powell: Women who do lack confidence when it comes to investing often turn to a financial adviser, but thereby hangs another problem. That's because - according to the latest figures from the Financial Conduct Authority - only around 16% of advisers in the UK are women.
Dr Ylva Baeckström: More women would definitely seek financial advice if there were more women advisers to choose from. There's no doubt about that. I know women who've called up CEOs to demand a female adviser. I have
friends who are extremely frustrated that they can't find a female adviser and therefore do not seek advice.
Robin Powell: Why then are there so few women working in financial advice and the financial sector generally? Well, it's a question that Dr. Baeckström has devoted her career to finding answers to.
Dr Ylva Baeckström: One of the main reasons why there is a lack of female financial advisers, I believe, is that we portray financial advice as a quantitative sales role. However, financial advice is about relationship building and trust building and deep relationships with clients. In my research, I find that a woman, or a man, or people of any gender that come to an adviser; they assume that they're going to receive financial advice, but what they're really looking for is for their emotional anxiety to be held and to feel understood. When I analyse transcripts of interviews with people who are advised, their emotional language is much more prevalent than their rational language when they talk about their adviser. So they're really looking for that deeper relationship connection - and that's what financial advice is really about. So it's an extremely good role for women, and we need more women to become advisers in order to look after the excluded customer groups.
Robin Powell: Another reason why Dr. Baeckström believes that women are less interested in finance, and investing, and in working in financial advice than men are is parenting. So what exactly can parents do to help redress the balance?
Dr Ylva Baeckström: Parents have a really important role to educate their children equally about finances. In fact, parents need to educate themselves more about finances too. We all do. It's easy to get caught up into the gender stereotypes, and to maybe talk more to your sons about money and spending and saving than you do with your daughters. But it's very important to bring the daughters in immediately into that conversation and talk about money - explain how it works, explain how investing works. It's never too young an age to start. We will have a more inclusive future if the leaders of today and the leaders of tomorrow - and the leaders of tomorrow, I'm educating at the Business School - if they stand up and say, we will no longer tolerate this, and they make sure that's lived throughout the organisation and we address the cultural issues that we have within organisations, that's how we really make a change. But if we don't make that commitment: unfortunately, the trend is going to continue as it is.
Abraham Okusanya: I see why you said the interviewee was thought- provoking, robin. She clearly feels very passionate about making financial services more representative of the society as a whole.
Robin Powell: She certainly does, and I know you are as well, Abraham. What's your own view on why the financial sector and the financial advice profession in particular are so dominated by men?
Abraham Okusanya: This is a really important subject, Robin, and one thing I hadn't realised until I listened to that interview with Dr. Baeckström is that there are all these historical issues that we forget. They're all too easy to forget today. So I didn't know, for instance, that women couldn't open bank accounts in their own names until the 1970s, and they couldn't become members of the stock exchange until 1973 or 1975. These are really important historical issues. Now, we can look at things today and just think that they've disappeared - but their impact is still very much with us, and that's why I think every leader in financial services: everyone in a position of influence or authority should really listen and pay attention to what Dr. Baeckström has been talking about.
Robin Powell: Do you think the financial sector - and particularly the advice profession - are doing enough to diversify the workforce? And what more would you like to see done?
Abraham Okusanya: We clearly aren't doing enough. And, again, if you listen to what Dr. Baeckström was talking about: the language, for instance, the way that we portray the job of a financial adviser more as a product-focused or sales job; when, in actual fact, it's about relationships. All the things that we women are naturally better at than men. So I think there is a lot that needs to improve in terms of the language, in terms of how we hire people into the profession, and in terms of how we serve clients. There is just a whole lot of things that need to change with within organisations: how we hire, how we incentivise people, how we promote people within financial services businesses.
Robin Powell: As a parent yourself, Abraham, what's your opinion on this idea that parents have a key role to play in encouraging children to take more of an interest in money matters - saving, investing, and so on, and particularly girls?
Abraham Okusanya: As a father of three daughters - and husband of one - I couldn't agree more. I think that there is a lot more work for us to do - for parents to do - in terms of how we teach and educate our kids about money, about business, about the way the financial world works. I tend to think myself that we've done a fairly decent job with our own children but - again - listening to Dr. Baeckström earlier on, I feel that there is much more work to do. We have to introduce them to the world of money and continue that education throughout their lives.
So you've heard our opinions. What did you make of our latest interview? Please send us your views. Until next time, goodbye.
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