The Emotional Traps of Financial Investing: Women & Investing

I tend to work with a lot of women who are either just starting their careers and unsure how to invest or who find themselves single again after many years of marriage who also often are unsure how to invest. The younger women came of age at a different time where women are working more and making more money than ever. Often these women are the primary bread winners and make most of the major financial decisions.

Woman who began their families 20 or 30 years ago often played a more passive role in family finance.  Now, because of the death of a spouse or divorce, they need to take on a role they never had to before, and this tends to cause a great deal of anxiety.

There is research showing that women feel fear, anxiety or shame around financial matters more acutely than do men. This study and others point to the fact that women are typically the primary care givers in the family and thus have more issues of concern on their minds.   Having enough money for college, weddings and retirement is a major trigger for anxiety.  These fears can be compounded when a woman deferred financial matters to her husband for 30 or 40 years and suddenly has to make these decisions herself.

A recent Forbes Magazine story pointed out a significant “Confidence Gap” when it comes to men and women and the topic of investing. According to this story:

  • 75% of the 1,407 American women (age 25 to 68) polled said having enough money to maintain their lifestyle throughout retirement was very important
  • However, only 14% were very confident they could meet this goal.
  • 20% said they felt prepared to make smart money moves
  • 20% said that they don’t feel the financial services industry really understands their needs and concerns
  • 41% of women said they understand stocks and bonds well compared to 56% of men

Confidence is a double-edged sword: too much or too little can be disastrous. I’m inclined to think that this 41% of women know more than they realize and that the 56% of men may not know as much as they think.

The point is that the emotional trap for women regarding investing is often a hesitancy to act on the unknown and a strong protective instinct that makes some women very cautious. While for men, the emotional traps can often be the exact opposite: too little caution that leads to bad decisions.

Of course, there are plenty of men who lack confidence when it comes to investing and many women who throw caution to the wind when it comes to stocks. The point is that these emotional traps can be used against you if your advisor puts his or her self-interest ahead of yours. In my next post, we’ll talk about “Men and the `Missing Out’ Trap.”

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