Women: a missing financial resource

March 7, 2011 - 0:0

LONDON (Reuters) -- Corporations love women – at least judging by the countless commercials aimed at women. Whether it is selling the latest toys, promoting the sales of bulk goods, or pitching a luxury item that may be on our wish list, advertisers recognize the power of women in making household decisions.

In fact, most of corporate America – and anyone else trying to sell something for that matter –knows that more than 95 percent of women play a role in financial decisions, with one-fourth acting as primary decision-makers.
According to the fifth biennial Prudential Financial survey, “Financial Experience and Behaviors Among Women,” women’s involvement in household decisions about money has grown by about a third in the past decade.
It is, therefore, both ironic and disturbing, that the analytical skills honored by major product and service companies in America are not recognized or respected in the financial world. Women constitute only 16 percent of executive and board positions in the financial services and less than 10 percent in fund management.
Bloomberg research indicates that women in finance earned 63.9 cents for every dollar men made in 2000, and 58.8 cents for 2001. In fact the financial services sector represents the biggest gender gap in any of the 13 industries surveyed by the Government Accountability Office.
Women now account for nearly half of the entire U.S. labor force. However, they represent a pathetic 10 percent of all traditional mutual fund managers, a figure that has barely budged over the past decade despite the increase in the number of women with degrees in finance and certified as financial advisors.
The disparity is even more apparent in the world of alternative investments, where women managed a mere 3 percent of the approximately $1.9 trillion invested in hedge funds in 2008.
Some argue that women do not have the skills or acumen to manage large amounts of money. Nonsense! In 2002, the last year for which government statistics are available, women started new businesses at twice the rate of men and represented one-third of all business owners, generating about $939.5 billion in revenues.
Nearly 1.2 million women are top wealth holders, comprising some 43 percent of Americans with gross assets of $1.5 million or more.
It is important to understand that having women in positions of power in finance is not just a moral issue, but also a financial one. In a 2001 paper entitled “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment,” researchers found that overconfidence among single men investing in common stocks resulted in widespread over-trading (as much as 67 percent higher when compared with single women), leading to reduced gains and increased portfolio instability.
In 2002, the International Journal of Bank Marketing published research documenting that women process investment-related information more comprehensively than men in the same context. Women in the study tended to take into account a greater level of important detail, whereas men were more likely to simplify data and make decisions based on the overall message or schema of the investment.
Women tended to consider information that was contradictory or that did not confirm an initial decision. By comparison, men in the study tended to ignore such information and process only information that confirmed their initial decision.
As a result, women’s outcomes tended to stay consistent even when the complexity of the decisions increased (in terms of both the number of details and the consistency of the information), while men’s outcomes tended to be less positive as the complexity of decisions increased.
Sort of makes you wonder, would the global financial crisis that hit in the fall of 2008 been any different if women were in charge?