David Kuo talks to Sheconomics author, Professor Karen Pine.
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David:
This is Money Talk, the weekly investment podcast from the Motley Fool. I'm David Kuo, and at the risk of sounding slightly chauvinist British women are reckoned to be less financially literate than man, less financially assured and more afraid of taking risk when it comes to money.
These are not my words but the words of the Financial Services Consumer Panel. They can also be found on a website called Shecomonics.com, and I'm delighted to welcome to the Motley Fool today founder of Shecomonics, and also the author of the book Shecomonics, Professor Karen Pyne of the University of Hertfordshire. Welcome to the Motley Fool, Karen.
Karen:
Thank you David.
David:
Do I call you professor, or do I call you Karen?
Karen:
No, please call me Karen.
David:
That's fine. So, can we just start by examining that statement that I said right at the very beginning from the Financial Services Consumer Panel, why do you think women are less financially literate than men?
Karen:
There's a whole host of reasons, and I think women don't necessarily access financial information as quickly or as comfortably as men do. I think a lot of the financial literature is perhaps written by men for men and women often tell us that they find it quite dry and boring, and for women money is very often an emotional topic, they bring a lot of their emotions to it, they're interested in how it affects their family and these issues aren't always addressed in the way that finances are written about or a lot of financial jargon, which sometimes alienates them and puts them off.
Some women also tell us, because they weren't very good at maths at school, they think that somehow that bars them from the world of finance, which of course is totally wrong and there's some cultural long held beliefs about the role of women and money and you know, whether women really shouldn't be bothering themselves with money, perhaps having financial prowess isn't something that society really values in a woman, although it's certainly highly valued in the male, so a whole host of reasons.
David:
I kind of take exception to that Karen, because I have two children, a boy and a girl and they both go to good schools in North London and they both have access to the same subjects, the same topics and I would say that my daughter is probably as good at maths than my son.
Karen:
Sure.
David:
So doesn't that sort of knock a hole in your argument then?
Karen:
No, it shows that things are changing, and that's fantastic, and in twenty years time your daughter is going to be just as savvy as your son, and if not she'll be outdoing him, but we're talking about women, perhaps in their forties and fifties now, who were brought up, twenty or thirty years ago by mums who didn't go out to work, who left all the finances to their husband and therefore, they weren't providing a very good role model for their daughters. So times have changed very rapidly and I hope we're going to see a real shift towards people taking charge of their money, but at the moment, we're kind of in the in-between phase where women are telling us sometimes money terrifies me and I don't know what to do.
David:
But the thing is, there are some men out there who say, you know, "I much prefer to have my wife at home looking after the house and I go out and earn a living," and some women are quite happy with that, they don't really want to be bothered with handling all the financial stuff, I mean all the stock market investments and things. They say, you know, "You handle that and I'll do something else." I mean, in my view, it might be a slightly sort of chauvinist view, is that women probably have the better of the two worlds, I mean they enjoy life whereas men go out and do all the hard work.
Karen:
Yeah, you think they're just having a great time don't you, having lunches and going out for coffee, I know you think that David! The thing is we've got to talk about the future haven't we?
David:
Yeah.
Karen:
It's not about living for today, and women, you might think, are having a nice life today, I would dispute that, I would think many women are working and they're working hard at work and they're working much harder at home, so that can be tough on them, but if they're not engaging with finance and they're not taking care of their financial future and they're leaving it all to the men then they could run into trouble.
Women are going to outlive men; we're going to live on average five years longer than men. Also, more men than women have pension arrangements. Men in this country, three quarters of them, have good pension arrangements in place, only half of women do so women are not only earning less, they are putting less aside for their future, they're going to outlive the men, and they're going to probably outlive their savings, the question is what are they going to live on?
If they're having a great time now what sort of life are they going to have when they're 70, 80 or even 90, you know, we hear now that women now have got a good chance of reaching 100. We've got to think about financial preparation for that future.
David:
But let's have a look at that second statement on your website, which says that, 'Women are less financially assured and more afraid of taking risks than men." Isn't it a good thing that women aren't taking excessive risks?
Karen:
Yes, absolutely, but then women aren't taking risks because they perceive putting financial arrangements in place, any financial arrangement as a risk, so women talk to us and they say, "Yeah, I've been meaning to get a pension but I haven't actually got around to it because I'm so confused and some of the options seem quite risky, so I haven't done anything."
Now, the worst thing you can do when you're faced with risk is to do nothing, because in fact, if they put any arrangement in place it's probably better than nothing, so the not taking any risk in that case works against them, but then on the other hand, as we know with investments, sometimes being a bit risk adverse can pay off in the long term and we know that women don't take the risks that men take and out-perform them over the long-term, so you know, it's for's and against always.
David:
Yeah, but I look at the Forbes rich list and I look on the rich list because I want to see if my name ever appears.
Sadly, my name is still not on the list, but if you have a look at the list, you have to go to number 12 before you find the first woman. The first 11 names on there may include names like Warren Buffett, and Bill Gates, Michael Dell, I mean they are all men and you have to go to number 12 before you find Alice Walton, right.
Now Alice Walton is part of the Walton family that founded Wal-Mart, and really, it was Sam Walton's wealth that was passed onto her, so that she became, you know, the twelfth richest woman in the world. Now, what do you think is stopping women from being rich, from being one of those top 11?
Karen:
Well, you're talking there about probably a lot of historical reasons because it's taken those men quite a while to get to the top and I think there are rich women, but they're not at the top as you say, because when it comes to getting right to the top I think it's probably more testosterone fuelled, I think men are very competitive, I think they would be a much more aggressive moneymakers and I think they probably, many of them, will have what it takes and we don't know what sacrifices they may have made along the way to get to that really, really prime position. They may have been willing to sacrifice relationships, time at home, time spent with the kids, that perhaps women aren't so prepared to compromise on.
David:
So is it always a balancing act? Are we always talking about compromising in order to ...?
Karen:
Life's a balancing act, David, yeah.
David:
I mean, are we talking about in order to be rich we have to be ruthless and sacrifice our friends all the time? I mean, is this really what it sort of comes down to, why men are better at money than women because they are that ruthless?
Karen:
I'm sure they have to be to get that rich. I think it probably means they are the sort of guys who are going to put a lot of time and a lot of energy into making money, building their businesses.
David:
But the thing is, if you don't put the time and effort into it you are not going to be wealthy at the end of the day.
Karen:
Sure, but at the end of the day, wealth isn't everything, we're not just talking about being supremely wealthy are we? We're talking about life as a balancing act and I'm sure if you ask a lot of guys and a lot of women about what do you want in life? What's going to make you happy? Is it just loads of money? No, it's not is it?
David:
So, is it women that have got their work/life balance right and that it's actually men that are actually skewed towards work and not so much towards life?
Karen:
Yeah probably, if you think about those jobs that count hours spent in the office as success I think probably men are going to win out every time, it's the male jacket that's going to be on the back of the chair still at nine o'clock at night rather than the woman's.
David:
It sounds like my jacket on the back of mine.
Karen:
I hope your wife's listening to this.
David:
Now there's an old adage that says you need to speculate to accumulate, and that means taking risks, now why are women so risk averse?
Karen:
Yeah, attitude to risk is a really interesting difference between the sexes and you're right, men are much more willing to take risks in all aspects of life, seatbelt wearing for example, it's been found that more men are more likely to leave off their seatbelt than women.
David:
Do we have to wear a seatbelt?
Karen:
Did you not know that, David? Yes, you're supposed to.
David:
I thought that's what the airbag was there for!
Karen:
So yes, women are known to be more risk averse than men, this is true of smoking behaviour, seatbelt use and financial behaviour.
David:
Smoking is risky?
Karen:
Did you not know that either?
David:
I didn't.
Karen:
You're learning such a lot today!
David:
I am yes, now carry on.
Karen:
I think there are probably evolutionary reasons for this, you know, men had to take risks to beat off their competitors and win the prey, so women, if they took many risks would be risking their offspring and so on...
David:
Sure.
Karen:
And threatening their nurturing role, so I think we've evolved to be more risk averse as women, and you've evolved to be much more of risk taker!
David:
I'm just wondering about these testosterone charged men, yeah that's right.
Karen:
Yeah, this room's filled with testosterone, not mine I would hasten to add!
Anyway, so the thing is, income and net worth are known to correlate with an individual's willingness to take risk and it may be first of all that men have greater income and higher net worth, so therefore are the risk takers, but it's also been shown that actually women, if they take financial advice are more likely to be offered lower risk options, so the perception of women, coming from advisers is that they would prefer lower risk options.
David:
And I thought I was chauvinistic.
Karen:
This has been shown in a Study, Wang in 1994 showed that women are more likely to be offered low risk products by their advisers, so perhaps the message is that perhaps they should be changing their advisers so there is some chauvinism still going on there.
David:
And I presume the advisers are men rather than women?
Karen:
Usually.
David:
Yes.
Karen:
As we know, so there are various reasons. I think also, women have been found to be more conservative investors than men so they're more likely to have a more balanced portfolio, a less volatile portfolio because they prefer not to invest in risky stocks and this can again, mean this works out in their favour in the long run but they do better.
David:
That is actually very interesting because one of our writers wrote an article fairly recently quoting a piece of research that was done back in 2004 by a company called Digital Look, and what they actually found was that women's portfolios outperformed men. Now, in some ways I think it's confusing people, on the one hand you are saying that yes, women are not up there amongst the 11 richest men in the world, they only rank it number 12, and yet, on the other hand, when they do handle their own money, when they do look after their own finances they are actually performing better than men, so how do you square all of that then? I mean, this is really confusing people.
Karen:
It is, it's very interesting isn't it, but the Digital Look survey found first of all that only 13% of the investors were women.
David:
Yes.
Karen:
So you've got to remember men are outnumbering women by eight to one roughly, when it comes to investment. What they found was that the men were trading more frequently than the women, 45% more active than women traders, women investors, and as a result...
David:
That's because it's a fun pursuit you see!
Karen:
Well you see, I think there's an interesting analogy there. You say "fun" and I think it's a bit like a sporting pursuit sometimes for men. I think it's rather like, you know, the competitive thing, the male thing of winning, of beating the opposition, outperforming the market, I think there's an interesting parallel there between financial behaviour and sporting behaviour and again, something that women don't perhaps buy into quite as much, so I do think that's an interesting difference that the men are much more active and the women will perhaps be in it more for the long-term, they won't be checking their stocks as frequently as men and again, there are studies that show the more somebody monitors their investments the worse they do, and of course it's Warren Buffett's philosophy isn't it that activity is the enemy of investment, so women are much more in it for the long-term.
David:
So are you saying Warren Buffett is a girl?
Karen:
What I'm saying is, there are certain characteristics of individuals, let's strip gender out of this ...
David:
OK.
Karen:
... because having eight times as many men in a study as women, skews your results anyway because that means that small proportion of women, there's something different about them, they perhaps embody the characteristics of good investors, whereas the men might have more of a spread of different characteristics. So I think if you took the top 1,000 women who were successful and the top 1,000 men who were successful investors, I think what you might find is that they're the same, they both have the same types of characteristics.
They probably both have a similar attitude to risk, which is slightly risk averse, which is that they probably trade slightly less frequently and they probably don't fall foul of this tendency to go with the herd or to try and compete with their other male counterparts and perhaps have a slightly even less aggressive attitude. So, I think all these characteristics of what makes a good investor can be found in both men and women, but the only problem is that when studies look at investors they look at all the men who are trading and you get an awful lot more men than you do women.
David:
And I think that was the conclusion I came to as well, because I thought if you have a look at the distribution curve of how the men performed, at the very top you're going to get some men who have done fabulously well, in other words they've made shed loads of money, then also at the bottom end you're going to find some men have made huge losses.
Karen:
Losses.
David:
That's right.
Karen:
Yeah.
David:
And so therefore, that bell-shaped curve becomes a little bit more squashed whereas the women tend to be more concentrated in the middle.
Karen:
That's right.
David:
You're not going to have the two extremes.
Karen:
Absolutely, so they're not making huge gains, they're not making huge losses, but overall, when you average everything out it looks as if they're doing slightly better.
David:
But surely, industry wants those extremes, which is why there are more men in the city than there are women, would you agree with that? That they actually want the idea of the testosterone men, they don't mind having just say 10% of men making huge amounts of money because that could offset the 10% who make big losses, but as long as you have more people making gains than those making losses then you're going to be doing OK.
Karen:
The trouble is you don't know who the men are who are going to make the huge gains and the ones who are going to make the huge losses do you?
David:
You don't.
Karen:
Very often they're the same man.
David:
But they could be the same man. It's interesting you say that because on this podcast we had Barbara Stcherbatcheff, who is City Girl and she was saying that if you look at the men on her trading desks and the women on her trading desk, what you actually tend to find was that the men could actually make a loss of a £100,000 in a week and yet the following week they could make a quarter of a million pounds, and so therefore, they would actually balance the losses with the huge amount of gains that they make and then when they went to their bosses and said, "Look, over two weeks, I've made you £100,000," the boss pats him on the back and says, "Well done, here's your bonus," whereas the women tend to be slightly more cautious and so therefore they might say, "Do you know what, I didn't make any losses but I've only produced £10,000 worth of profits." What does the boss want, £10,000 worth of steady profit, or the volatile trader who comes up with losses of £100,000 followed by £200,000 gains the following week?
Karen:
The trouble is, we know where those volatile traders got to, what a mess we got into, and I think the recent financial crisis was a result of that recklessness wasn't it and that very overconfidence that we're talking about.
David:
Are you saying that if we had women in charge we wouldn't be in this mess today?
Karen:
Yeah, I'm sure I'm not the first person to have said that, am I?
I think it's a commonly held view, and it's one that we don't know about, but what we can see is the underlying causes of that recent financial collapse are those traits that we're saying also damage men's trading ability, the overconfidence. There was an epidemic of overconfidence wasn't there preceding the recent financial collapse, as late as July 2008 when we were already on a downward trajectory the US Treasury Secretary said, "Our banking system is a safe and sound one," even at that stage, in the face of huge evidence to the contrary when we had debt piling up, house prices falling, sales beginning to slide, he was saying, "Everything's fine, we've got a safe and sound economy," and this overconfidence is one that we see time and time again in male attitudes to investment, that they over-estimate their own ability, they over-estimate the accuracy of information that they have and they have what we call a self-serving bias as well, if I can be a bit psychological here.
That is when you make successes, when you make huge gains they tend to make what we call an internal attribution, they put it down to themselves. When they make huge losses, they tend to make an external attribution, that is it's market forces. So, a lot of male behaviour is about protecting, that's a way of protecting.
David:
It sounds like me!
Karen:
Yes, it's a way of protecting the male ego isn't it, when you've done well, oh it's because of what you did and the way you are, but when things go wrong, oh it can't be helped, it's the market and it's external forces outside of your control, so we see this huge overconfidence building and it probably affects male traders as well in that they continue to behave in the way that they do and trade in the way that they do because they erroneously think that when they're doing well is due to their own behaviour, it's due to their own actions.
David:
OK, so you've had a pop at men now, so can you redress the balance by telling me where are women's weaknesses then? I mean do they have any weaknesses or are you saying they are the super gender and they do everything right?
Karen:
Yeah, they have one weakness, it's not recognising how good they are.
David:
Chocolate, is it chocolate?
Karen:
No, nothing to do with chocolate. Their one weakness I think, is not recognising how good they are, is not knowing they have the very traits that could make them successful, and the fact there are so few women investing and engaging in trading behaviour etc suggests to me there's something holding them back, a self limiting belief about their own ability, so whereas men have this huge overconfidence, I mean unfortunately women are having an under confidence crisis and are getting out there and doing it. I'd like to see more women investing, since they're so good at it why aren't they giving men a run for their money?
David:
OK, so my final question then is, for people who are in a relationship, what can the couples learn from each other? First of all, who should be handling the family finances? Who should be doing the investing and what can the couple learn from each other in order to make sure they go down the middle road rather than to veer towards the left, which is not making a huge amount of money, or veering towards the right and losing a lot of money, so what can they learn from each other?
Karen:
Well I think men could learn by talking to their wives about their decisions.
David:
Talk?
Karen:
Talk yeah heard of that? Communication David, it's a good thing, especially in a marriage, so instead of just reacting, talking to mates down the golf club or down the pub where everybody kind of whips each other up and they all go off and overreact, it might be a good idea to talk to your wife, get your wife involved in those decisions as well because she might just be the one that says, "Hold on a minute, give me that remote controller, I'll do a bit of research, we'll just take our time before we make this quick decision." So, I think men can involve women in financial decisions and women themselves could get more involved and take more responsibility.
David:
But they're not interested.
Karen:
They've got to get interested because of this whole thing about what happens when the guy's not there anymore and you can't find where he's put the money, or in the case of one lady told us on our website, her husband died and she realised she'd never written out a cheque, you know, we can't go on like this so women have got to seize back the reins as well, and like anything in a relationship, it should be shared because I think two heads are better than one, I think men and women together would make a very good team.
David:
I said that was my last question, I have actually another one, which is one that's been bothering me for a long time, is there any such thing as women's intuition? Do you believe that?
Karen:
Yes, I think there's human intuition.
David:
Right.
Karen:
I think we all have an intuitive side, and it's generally shown in a lot of women that they have it in a greater proportion than men, that they tend to me more, what we call, right-brained, that is to respond emotionally to a situation, which can be good, we're much more sensitive to other people's emotions, we're better at picking up social signals etcetera, so there is evidence for women's intuition, definitely.
David:
Is that why men always buy rubbish presents for their wives?
Karen:
Oh, don't get me started on that. What's interesting is, I read this morning that some MBA courses are now teaching ...
David:
Men how to buy presents!
Karen:
Emotional intelligence, which might translate into better presents in the long term, you don't know, but they see emotional intelligence as a really important component of male success in business and in finance so I'm pleased to see that's happening.
David:
So you believe men can train themselves to be more 'women-like' and women can train themselves to be more 'male-like'.
Karen:
Yeah, why not? We all want to improve ourselves as human beings, so if another person, be they male, or female have traits that we feel would benefit us why not try and get some of that?
David:
Quite right, I'd just like to sort of say before I go that I'm actually quite a good cook, is that a woman's trait or a man's trait?
Karen:
And you're wearing a lovely dress, David.
David:
Thank you very much. Well thank you for coming in today Karen. Now I end each podcast with a quote and today's quote comes from a former prime minister of the UK called Stanley Baldwin, who said, "I would rather trust a woman's instinct than a man's reason."
Karen:
Love it!
David:
There you go! This has been Money Talk, I have been David Kuo, and my guest has been Karen Pyne of Shecomics.com. If you have a comment about today's show, you can do on the Money Talk web page, which you can find at www.fool.co.uk/podcast, and if you have a topic you would like to suggest for future shows you can email me at moneytalk@fool.co.uk. Have a great week, everyone.
