Demystifying financial literacy and the female investor

09 June 2020 by National Bank Investments
Demystifying financial literacy and the female investor

Advisors are like financial lighthouses. Their job is to not only illuminate the shore, but also to spot potential risks that lie ahead. With women set to manage 50% of Canada’s wealth by 2028¹, what can advisors do to help navigate the waters of uncertainty for their female clientele?

Picture this…

A female investor sitting across from you frankly declares that she would nearly rather abandon ship than select the high-risk investment you’ve just recommended. It’s not an uncommon confession: only a third of women seek high-risk investments as compared to over half of male investors².

  • Our duty is to educate and provide these investors with information necessary 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

What happened to cause 75% of women to drop anchor when they hear “high-risk”? Are the waters of risk any more treacherous for them because they deal with more unpaid work like household chores and child rearing, stranding them in uncertainty and insufficient information? Or maybe they’re reluctant to raise a hand to ask questions because we’re not giving them the opportunity to?

  • Maybe still, we’re not paying close enough attention nor adequately answering their inquiries when they do.

There seems to exist an unspoken institutional conditioning of women that has resulted in leaving them on a deserted island of financial indecision and avoidance. Years of being excluded from the financial helm – including the retirement and estate planning conversations – have contributed to disadvantages in comprehension related to terminology and risk tolerance.

  • So, if advisors are the lighthouses guiding them along a path to success while simultaneously avoiding unseen hazards, how could we better steer our female clientele?

The cause and consequence of tradition

Women have historically had a distant relationship with their finances, particularly at home. This social construct in financial literacy has pushed them to make conservative investment decisions, leading them to lose out in higher future gains.

  • This seemingly gender-based tendency has led to family roles in money management as we know them: one that has traditionally placed the men of a household in decision-making positions.

Some hard facts: in Canada, life expectancy for women is 83 years in comparison to 79 years for men³. If men make most of the financial decisions at home but women outlive their male counterparts, women are not only inheriting wealth, but doing so with an overwhelming lack of crucial context. This can expose them to serious risks like common financial scams, leaving their wealth vulnerable.

Because more single women purchasing real estate alone than ever before, more marriages ending in divorce, and differences in life expectancy, the traditional role of men as financial purveyors is changing quickly.

  • It’s imperative that women be equipped with the tools necessary to conserving – and growing – their wealth as independent operators.

The future (of finance) is female

The female investor tends to approach financial risk cautiously. She will opt more for a critical assessment of the what-if’s and what-about’s of a solution.

The presumption that women are generally risk averse stands to be challenged. How many of them are entrepreneurs and have started their own business? How many own properties internationally? How many have kids?!

  • 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.

Access to data and credible research is a contributing factor to these investors’ risk profile.  Advisors need to be able to prove, using long-standing evidence, that solutions meet their financial goals. If they can find the strength and confidence to launch an online retail store, start a family, or bid on their dream condo in the Bahamas, then they have it in them to invest in more aggressive funds, too.

How advisors can improve their relationships with female investors

Advisors need to know what kind of questions to ask and what council to give. Beware of sticking to a strict script; use active listening to uncover clues in the behaviour of the investor.

  • Have a conversation that will give you insight into what you can do to help her navigate the rocks and the reefs and get her home safe and sound.

Legal notes

1. Wealth Professional Canada. Canadian women control $2.2 trillion but that’s set to double. March 2019.

2. National Bank Investments (data via Bloomberg).

3. Statistics Canada. Health-adjusted life expectancy in Canada. April 2018.

The information and the data supplied in the present document, including those supplied by third parties, are considered accurate at the time of their printing and were obtained from sources which we considered reliable. We reserve the right to modify them without advance notice. This information and data are supplied as informative content only. No representation or guarantee, explicit or implicit, is made as for the exactness, the quality and the complete character of this information and these data. The opinions expressed are not to be construed as solicitation or offer to buy or sell shares mentioned herein and should not be considered as recommendations.

National Bank Investments is a member of Canada’s Responsible Investment Association and a signatory of the United Nations-supported Principles for Responsible Investment.

©National Bank Investments Inc. All rights reserved. Reproduction in whole or in part is strictly prohibited without the prior written authorization of National Bank Investments Inc.

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