Women and the Future of Investing
(First published April 2015) Discerning the ways in which women interact with and affect the investment sector has in the past been challenging, as very few serious discussions delved deeply into the subject. The most prominent conversations have tended to focus on the different approaches men and women take when it comes to investing, the disparities that exist when saving for retirement and wealth accrual, or similar comparisons. The more nuanced discussion regarding how women might shape the future of the financial services industry needs to be had. As most know, women increasingly make up significant percentages of the total workforce in developing and emerging economies alike. In most Organization for Economic Co-operation and Development (rich industrialized) countries, women outpace their male counterparts in terms of college graduation rates. And the share of global wealth and earnings controlled by women is rising at a rapid rate. All of these factors make women the largest emerging market in the world – twice as big as India and China combined – with over $5 trillion in growth since 2009. As a result, women are poised to have a massive impact on the investment and financial services spheres in the coming decades, and as such, conversations have moved away from stark gender comparisons toward discussions that focus on how the investing world must adapt and embrace women in their own right.
How Far We Have Come – And Where We Are Going
In order to understand the wave of change women will bring to the investment sector in the coming years, it is important to look at the evolution of women and wealth over the past few decades. Using 1980 as a base year for comparison, women comprised just 42.5 percent of the labor force in the United States. By 2012, women made up 49 percent – or half – of the US workforce, with nearly 58 percent of adult women employed. Perhaps a clearer contrast: the number of women working has grown by 27 million in the last 35 years, while the number of men working has grown by just over 13 million. In the same time period, the wage gap has shrunk from 35 cents on the dollar to 18 cents – not the well-deserved parity that should exist, but progress nonetheless.
What does this progress mean for the current and future state of women in the economy, and in investing in particular? The fact is, these trends are only accelerating. For example, among households with at least $250,000 in bankable assets, women currently control a third of wealth in the U.S. and Canada. As such, of the top 25 percent of high-income American households, women already comprise one third of the total wealth. Additionally, women already hold over half of all investable assets in the U.S., and that share is only expected to grow. Over the next two generations, women are projected to receive 70 percent of inherited wealth in the U.S. Finally, by 2028, the average American woman is projected to earn more than the average American man.
Viewed through this lens, we begin to see women will increasingly be the key growth market in terms of individual investors in our country. And the same is true globally. By 2018, working women will increase their earned income globally to $18.5 trillion, according to a 2014 report by the Transamerica Center for Retirement Studies. The global average of female earned income is expected to rise by about $8,000 by then. Currently, women control 27 percent of the world’s wealth, and women-controlled wealth is expected to grow at an average rate of 8 percent.
What Are The Ramifications?
Given the growing economic clout of women, there are a number of takeaways to be gleaned based upon what we know about how women invest. Perhaps the biggest shift we can expect is an increased focus on socially responsible investing, as women are known to link their values with their investments. Numerous surveys have born this out: high net worth investors were asked how important social, political or environmental impacts were in evaluating investments. Of the women surveyed, 65 percent said these factors were “somewhat” or “extremely” important, while only 42 percent of men said the same. Another survey similarly found nearly 42 percent of the women questioned report they are “likely” or “very likely” to make environmentally responsible investments, compared with just 27 percent of men. Interestingly, these views are also true for financial advisors. Female advisors report to be more interested than their male counterparts in using sustainable investing funds or strategies – that is, those that integrate environmental, social and governance (ESG) factors into the investment process – by a margin of 59 percent to 34 percent. As women invest more wealth, we are likely to see a much greater demand for socially responsible investment vehicles.
Which brings us to another expected trend: greater numbers of female financial advisors. The Certified Financial Planning Board of Standards is already trying to entice more women to consider the business of financial advice. Large financial advisory firms see the writing on the wall, and you can expect they will begin to place more emphasis on building their internal expertise on socially responsible investing. Hiring more women not only helps them do this, but it also allows them to better attract female clients. The beginning phases of this move have started to take place, as large firms such as BlackRock, Barclays and Bank of America begin to place greater emphasis on both impact investing and hiring more women.
Finally, I think the coming decade will see a surge in the number of publicly traded companies with women in senior positions and on their boards. Catalyst, a U.S. non-profit focused on expanding opportunities for women in business, continues to deliver research on the relationship between the representation of women on boards of directors and corporate performance. In its 2011 research, Catalyst found a 26 percent difference in return on invested capital (ROIC) between the top-quartile companies (with 19-44 percent women board representation) and bottom quartile companies (with zero woman directors).
The Challenges Ahead
Even with these changes shaping the way investing is done now and in the future, a number of obstacles remain. The wage gap remains, particularly for older women and women outside of the United States and Europe. In the US, Brazil, China and the UK, women earn 15-20 percent less than men. In other major economies like Russia and Japan, the wage gap can exceed 25 percent. In South Korea, it is over 37 percent! And while women are closing the pay gap, it reemerges over the course of their careers. In the United States, by age 65, women will have lost more than $430,000, on average, in lifetime earnings because of the gender pay gap. So the pay gap will still have significant implications for women and our ability to accrue and invest wealth over a lifetime, both in the United States and around the world.
Secondly, even though I believe we will see progress, the number of women in upper management positions remains unacceptably low. While a larger percentage of women work in white-collar management positions than their male counterparts, that has not translated to the upper echelons of firm leadership. If you look at the composition of all S&P 1500 boards, only six – less than 1 percent – have a majority of women! While the percentage of women on Fortune 500 boards has risen from 16.4 percent to 19 percent in the last 5 years, and rose to 22 percent in 2014 among Fortune 100 companies, this is still embarrassingly low.
Article by Mellody Hobson, President of Ariel Investments (www.arielinvestments.com )
Mellody directs Ariel’s firm-wide management and strategic planning, overseeing all operations outside of research and portfolio management, and serves as chairman of Ariel Investment Trust’s board of trustees.
Mellody is vice chair of the Board of Starbucks Corporation and a director of JPMorgan Chase. Her community outreach includes serving as chairman of After School Matters, a non-profit that provides Chicago teens with high quality, out-of-school time programs. Furthermore, she is dedicated to financial literacy and regularly contributes to CBS News, the Tom Joyner Morning Show and Black Enterprise magazine. She is a board member of the Lucas Museum of Narrative Art, The Chicago Public Education Fund, and Sundance Institute, where she has been appointed emeritus trustee. She is also on the executive committee of the Investment Company Institute’s board of governors.
Mellody earned her AB degree from Princeton’s Woodrow Wilson School of International Relations and Public Policy. She also received honorary doctorate degrees in humanities from both Howard University and St. Mary’s College.