These findings clearly indicate that women seem to have all the qualities needed to build long-term wealth – patience, discipline, diversification, calculated risk-taking, and persistence. Perhaps because of their greater experience in managing family budgets, they also tend to be more careful in managing their individual accounts.
However, the question arises as to why, despite being good at managing finances, women are not equal to men when it comes to making investment decisions.
Financial independence
According to a study conducted by the International Center for Research on Women –
“A woman is economically empowered when she has the ability to succeed and thrive economically and the power to make and act on economic decisions.” Lack of autonomy and financial institutions are the main reasons for women’s lack of equal participation in investment decisions.
According to each other, the CRISIL and AMFI study found that self-employed women are more likely to make their own financial decisions (55%) than salaried women (39%). Research indicates that women who make regular decisions feel more comfortable investing their extra money. It has also been found that women’s financial autonomy varies with income source, age, and wealth. Financial independence increases with age – 65% of women over the age of 45 manage their own finances. Similarly, 58% of affluent women show higher independence than 38% of semi-rich women, apparently due to greater literacy and resources.
Financial Literacy and Knowledge
Recently, financial awareness has increased among Indian women, which has led to an increase in investment activities. Although the percentage of female investors has remained stable over six years, their share of industry assets has increased from 15% in March 2017 to nearly 21% by December 2023. This growth is particularly significant in the B-30 cities, where women’s share of wealth increased from 17% to 28%. But women still have a long way to go in making smart investment choices. A CRISIL DBS report found that, in India, women allocate 51% of their funds to fixed deposits and savings accounts, compared to the average household investing 46% in the same instruments. Similarly, they invest 15% in capital markets, compared to 8.4% for households.
Therefore, with a thorough understanding of investment options, associated risks, and possible returns as discussed above, women are better equipped to build a well-diversified and profitable investment portfolio.
Income level affects investment capacity
There are structural income gaps between women and men, with women earning 17% less on average. To reach financial parity, women must save about 20% more, which reduces their disposable income. Low wages and job breaks further limit women’s earning potential and investment capital, often making them invest more conservatively than men.
Risk tolerance
Risk appetite is shaped by financial goals, personality traits, life experiences, and broader life responsibilities. In a male-dominated society, women are faced with various financial aspects that hinder their risk appetite. Consequently, women start the investment journey later than men. In a 2024 survey in the United States, more than 70% of women expressed regret that they didn’t start saving more earlier in their retirement. In India, women’s risk-averse nature is reflected in their investment choices. Women’s investment portfolios include mutual funds and more traditional investment options, such as stocks, gold, and real estate.
In summary, women’s reputation for risk aversion can be a significant advantage in building sustainable, long-term wealth. The power of compounding benefits those who practice perseverance and patience – many women demonstrate. By increasing financial literacy and making informed decisions, women are better positioned to build diversified, high-performance portfolios, highlighting the importance of their approach to securing financial success.
(The author is Chief Investment Officer, India’s First Life Insurance Company)
