How Women View Finance and Investing Differently Than Men

Men are financial daredevils who like risk, and women are cautious and want security — that the standard cliché. Said another way, men are thought to be more risk-friendly than women. Or to rephrase the title of a bestseller, "men buy shares from Mars and women have a savings account on Venus."

Articles published in the Swiss newspaper Neue Zürcher Zeitung (NZZ), and in various other sources, shed some light on the combination of myth and reality in these gender-focused financial stereotypes. In an interview with the NZZ, Christine Schmid of Credit Suisse explained that the sub-discipline of gender finance deals with the social differences between men and women. Anja Peter, of Bank Coop in Switzerland concurred that "naturally, there are differences between men and women, biologically and socially, and this is reflected in investment behavior."

For instance, women are generally more interested in such issues as ecology, ethics and microcredits. However, when it comes to the crunch, this interest does not always have an effect on the actual investment decision.

Another study conducted at the Centre for Financial Research at the University of Cologne found that female fund managers switch around their portfolios less than their male colleagues. Furthermore, women's strategies, and the subsequent performance, tend to be more stable.

(Find out about one lady that bucked historical trends in Hetty Green: The Witch of Wall Street.)

The German Institute for Economic Research (DIW) evaluated data on the investment behaviror of more than 8,000 men and women.

At first glance, the study seems to confirm the standard view, but not all that strongly, as 38% of women were invested in risky financial products, such as stocks, whereas it was 45% for men.

However, the DIW does not believe this confirms an inherent risk aversion on the part of women. A regression analysis found that women would take more risk if they had more money. Women generally had about half as much to invest as men, which inevitably compelled them to be more cautious — that may be the real reason for the apparent risk aversion.

In the same vein, there are still relatively few women applying for jobs or working as financial researchers or brokers. Schmid believes that women continue to gravitate to fields where there are other women but hopes that these barriers will break down over time.

Interestingly, studies by the German Comdirect Bank and the DAB revealed that while women had less confidence in their financial knowledge than men, this was not matched by poorer investment choices and management. The study found that 58% of men rated their financial understanding as good or very good, but only 47% of women said the same. Furthermore, a large sample of almost half a million private portfolios demonstrated that in 2007 and the crisis year of 2008, women did 4-6% better than men on average.

Over time, these differences are likely to decline but not disappear altogether. After all, there are centuries of entrenched gender roles, and elements of those still remain — and to some extent for the foreseeable future.

Nonetheless, we can certainly expect many of the behavioral trends to diminish. After all, never before have there been so many highly qualified women who earn well, have money to invest and want do so securely and optimally.

This in turn will lead to a number of new programs that focus on woman who invest. The International Finance Corporation's "Banking on Women" program is an example and has been followed by many others over time. The presence of female investment clubs is another sign of the times.

Barbara Aigner, of Emotion Banking in Austria, believes in a specifically female customer segmentation. She divides the female customer segment into three groups:

• "self-conscious, pleasure oriented" younger women
• "interested and open-minded active" women who are more interested in what the bank offers
• "traditional conservatives" who are loyal and risk averse

It is really only in the past century or so that women have successfully broken down many of the barriers in a male-dominated world. The role to which women have been relegated has constrained both their financial knowledge and activities. This situation is changing constantly.

Nonetheless, some of the clichés remain entrenched in the mind and some elements of the old role inevitably have stayed intact. In any event, understanding gender differences and how they are changing over time is fundamental to understanding and managing the world of investments.