Note: It was announced in November 2023 that MoneyOwl will be acquired by Temasek Trust to serve communities under a re-purposed model, and will move away from direct sale of financial products. The article is retained with original information relevant as at the date of the article only, and any mention of products or promotions is retained for reference purposes only. 

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Do men and women require a different approach when it comes to financial planning? MoneyOwl’s CEO and CIO weighs in.

As we approach Mothers’ Day (8 May) and we think about our roles as mothers and/or daughters, it inevitably leads to thoughts about our finances and type of legacy we want to leave behind. Of late, there has been some debate about whether financial planning, products and advice should be gender-based, as advisers, fund managers and banks got into the game of targeting women as a relatively untapped source of business.

In a 2018 study conducted by HSBC on the “Future of Retirement”, the researchers looked into how women think about retirement/financial planning. Here is a summary of the findings –

• Women in general are less financially prepared for retirement than men (41%  compared to 31% men don’t know how much to save or have not started)
• Women are also less likely to report better financial knowledge and assumed less responsibility for household financial decisions (e.g., where to save/invest, household bills, credit cards, large payments)
• Women in retirement are more likely to rely on spouse’s pension (57% vs 36%) or children (70% vs 53%)
• Women more likely to take leave (37%), reduce workings hours (25%) or stop work (25%) to look after family.
  • As a result, 21% of working women have contributed less towards their retirement compared to their partners
• Women, however, are more positive about life after work compared to men
  • Look forward to pursuing new interests
  • More positive take on relationship with children and younger people
  • Still be in control/choices in life

So what are some of the key takeaways we can glean from the findings above?

Lower confidence does not mean reduced success

Indeed, what the studies say about the lower confidence, higher risk aversion and devolvement of investment decisions to partners among women is apparent in some of our interactions with our clients. There are several examples of high-powered female executives among our clients who may be the first party checking us out, but they end up referring the follow-up and final decision to their husbands. Overall, we have consistently more male clients than female clients across all our products and services. That said, the mix is roughly 55% male/45% female, which isn’t too major a skew.

However, the lower confidence and higher risk aversion may not be because of lower levels of knowledge or competency. It could just be that women see themselves that way – they are more likely to report that they do not know as much. Beyond the area of personal finance, we do know that women may underestimate themselves; a classic study being that women would not apply for a job until they know that they are 100% qualified for it, whereas men would apply once they have ticked 60% of boxes. Women may also be more open about bad experiences with a trusted adviser, and see them as their mistakes, as opposed to blaming it on an external factor.

This lower confidence does not mean that women will be less successful at financial planning or investing.

To the contrary, it means that women may be more willing to take professional advice and benefit from it, provided, of course, that they have access to good advice. In addition, they might be better at budgeting and risk management. They have a more holistic view and focus not just on returns, but also on risks, and also contingent risks associated with the people around them and the various aspects of their life.

This brings me to a commonly asked question – should advisers plan differently for women?

There are some differences in the way we would go about a financial plan for women, but this is based less on psychological make-up than on actuarial and socio-economic realities. What we know for certain is that:

1. Women live longer
2. Women are in general paid less than men
3. Women are more likely to give up their work for a period of time for their family, and being a homemaker is an unpaid job. This results in lower savings and contributions to CPF and retirement plans in general.
4. There is additional morbidity risk from female-related illnesses and childbearing

What this means when we approach planning for women is:

1. Women need to plan for a longer period of required retirement income.
2. We may talk more about legacy planning, not just in terms of bequest but also Lasting Power of Attorney and end-of-life arrangements, to ensure that women’s needs are taken care of as they may outlive their partner
3. We ask clients to think about splitting the responsibility for children’s education funding between husband and wife, not necessarily in equal shares
4. For women who have not been working, we ask clients to consider having their spouse or children make use of CPF top-up schemes to top up their accounts (instead of just a cash allowance or gift), which also has tax benefits for the family members
5. Factoring in a higher cost of insurance as women have to pay higher premiums for critical illness and disability-related insurance. They may also benefit from certain special type of insurance related to women (e.g. maternity insurance)

Another question we often get is, would we advise female clients differently, in terms of philosophy and products? Not really. Except for where the objective facts differ, we don’t have an approach based on mindset differences as such.

I recently read about two types of gender-based solutions in the investment industry, which are markedly opposite to each other. One approach is to push women to take more risk and invest more into markets. Unsurprisingly, this comes from the investment robo-advisory space. The other approach is to create lower-risk investment products and market them to women as being especially suitable.

I think there is a basic fallacy in both of these approaches. Their proposition is that just because the majority of women (according to studies and anecdotes) tend to report lower confidence and higher risk aversion, that there is a one-size-fit-all solution or product. Professional financial planners know that risk tolerance or mindset is only one of many factors that go into a person’s financial plan.

Ultimately, for both men and women, a financial plan must take into account a client’s objective financial situation as well as personal and life goals, which will differ from person to person, even if they have a similar mindset.

In investing, in particular, whether one should invest, and in what one should invest, depends on your need, ability and willingness to take risk. A person may be naturally risk-averse, but with greater knowledge (and especially if they are willing to take advice), may become more amenable to taking risk, if she realises, after being advised, that she has the ability to ride out volatility through a globally diversified, market-based portfolio.

However, another person may not be able to accept this risk even after risk coaching, and/or may have no need to take this risk, because she might already be quite satisfied with her CPF Life payouts and a stable retirement income insurance plan for supplementary income, even if the returns for the latter are not the highest. At MoneyOwl, we always advocate focussing on sufficiency of return to meet your life goals and the reliability of this return, rather than maximising absolute or even risk-adjusted returns. Because ultimately, whether one is a woman or a man, money is only an enabler. Your investment plan serves your financial plan, which in turn serves your life goals, and these can’t be the same as half the country’s population just because you are of the same gender.

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