Behavioural finance—or behaviour-oriented financial market theory—is a rapidly growing field in finance that examines the effects of human emotions and behaviour on financial decisions. In other words, what experiences or emotions influence the way I invest my money? It combines elements of psychology, economics and finance, examining statistics that show how people behave on the financial market.
Behavioural finance: why women invest money differently to men
At first glance, it is immediately apparent: Most women behave completely differently on the financial market than the majority of men. But what is the difference? The majority of men are much more willing to take risks when it comes to finances and see this as a kind of competition, the opportunity to “beat the market”, as Anja Heßeler puts it. Women, on the other hand, want to take as little risk as possible when investing money and also want to understand all financial options in their entirety—which makes them much more aware of possible risks. The problem is that if you always play it safe, you don’t increase your money, but actually make a loss in the event of high inflation.
We speak to Anja Heßeler, Head of Asset Management and Liquid Assets at Bethmann Bank in Frankfurt. She strongly advocates a complete change in women’s financial behaviour. Not only for such pressing reasons as extreme poverty in old age, which is a particular threat to women, but also because she wants women to be more confident when it comes to investing money.
Do women and men really invest their money differently?
Absolutely. Men and women invest completely differently. When it comes to investing in shares, 7% of all adult men have invested more than women. There are various reasons for this significant difference, one of which is the distribution of wealth. Historically, men are more likely to be in managerial positions and are more daring. Society is slowly beginning to change here and abandon the old role models. But we are still at the beginning.
Behavioural finance, the science of behavioural economics, shows us that women are much more anxious, they need much more knowledge and want to understand the product better before they invest. Many women think: There’s no way I should do something where I’m not 100 percent sure it will succeed. But that’s not how the market works. And that’s exactly why we need to offer much more financial education to take away women’s fear of investing.
Because women think about it more, they are less confident about investing?
Exactly. They are more insecure. Male clients like to say to me with a broad chest: “I’m beating the market!” Women never actually say that. They are much more reserved.
Does that put women at a financial disadvantage?
Absolutely. Just look at inflation over the past two years. With a fixed-term deposit, you currently receive between 0.5% and 3% interest on invested liquidity, depending on the bank. This has not compensated for the devaluation of money or inflation over the last two years and purchasing power is dwindling. What women often don’t realise is that if they shy away from risk and don’t participate in the financial market, they suffer a real loss. The calculation is very simple: with 3% interest and 7% inflation, at the end of a year you have less than before, namely a real loss of 4 percentage points. And that is precisely the trap that women fall into. They may not be taking a risk, but they need to be braver if they don’t want to suffer a real loss of capital.
What should my first steps be if I want to invest money wisely?
I work at a bank, so of course I say shares and funds – preferably in combination with good advice. It’s good to know that many banks are now positioning themselves differently and taking women’s concerns into account, for example there are many female advisors who specialise in the topic of “investing safely”. As head of asset management, I would of course put my money in a well-diversified asset management company or fund. You don’t even have to deal with this yourself, but put it in professional hands. Of course, every bank first asks about the framework conditions: how many shares, bonds, alternative investments (which women hardly ever want) and what the risk profile looks like—everything is worked out and discussed together. As asset managers, we try to get the best out of these framework conditions for our clients.
Is there a minimum amount that should be invested?
It’s best to start with smaller amounts so that you get a feel for it and learn how the market reacts. Even a small amount is enough, even 50 euros (approximately INR 4,500) a month—it will most likely pay off in the end.
Do women invest in stereotypical funds?
Funds should generally not be stereotypical, they follow different standards. There are always considerations to create a mandate specifically for women. But I don’t think that’s a good idea. What should be put in there? L’Oréal? Hermès? That would not be my recommendation. One thing I would never do, not even as a man: one-sided investments, e.g. only investing in gold. Investments must always be broadly diversified.
What helps with reservations—what is the best first step?
We try not to push anyone into anything. You can also get advice from three or four different banks. This type of competitive analysis doesn’t really suit women either. Men often look at different banks because they want to get the best deal in the end. Women should change their behaviour when it comes to finances – just like men, we are allowed to get rich. We can have more confidence in ourselves.
