11-01-06

ISU professor studies gender differences in investment behavior

AMES, Iowa -- Ask any husband and wife about how they manage money and they may do it very differently. A new study by an Iowa State University faculty member suggests that gender also extends to different investment strategies. Among the results: women find investing more stressful and less exciting than men do, and therefore prefer less risk when it comes to money matters.

Tahira Hira, ISU executive assistant to the president and a professor of consumer economics, joined with Cäzilia Loibl, an assistant professor at the Department of Consumer Sciences at The Ohio State University, on the study of 911 randomly selected U.S. households with annual household incomes of $75,000 or higher. They produced a report titled "Gender Differences in Investment Behavior," which they recently presented to the NASD Investor Education Foundation. NASD -- the world's largest private sector securities regulator -- provided the research grant that supported this work.

"The overall purpose of this research project was to gain knowledge about key factors that influence investment behavior and ways these key factors impact investment decision-making processes among men and women," said Hira. "It further explored types of educational processes and materials that can transform investment behaviors among women."

Data were collected through telephone interviews conducted between October 2005 and February 2006 by staff from Iowa State's Center for Survey Statistics and Methodology. Information was gathered on various aspects of respondents' investment behaviors, attitudes, and beliefs.

The demographics profile

About two-thirds (65 percent) of the respondents were men. On average, they were 48 years old, with the majority being white (84 percent) and married (90 percent). About three-quarters of them held college degrees. Half lived in three- or four-person households. Most respondents worked full time, typically in highly professional positions. Half of them reported an annual income below $120,000. They also reported average household assets of $1,139,477, and financial obligations of $232,767. On average, women respondents had lower annual incomes, fewer assets and greater financial obligations than their male counterparts.

While both sexes reported involvement in daily money management tasks, women (59.6 percent) more frequently reported being responsible for these tasks than men (41.5 percent). Yet more men (80.9 percent) than women (77.8 percent) reported saving or investing in every month over a six-month period. Men also were more likely to adjust their investments, either by increasing the amount or by altering their investment mix. By contrast, women investors were more likely to seek the advice of a financial professional.

"While women were more likely to describe financial advisors as source of information and careful listeners, men were more likely to describe financial advisors as exerting too much pressure and charging too much for services," said Hira.

According to the study, women were more likely to seek investment information from personal sources such as friends and colleagues, while more men preferred getting information on their own. Men also reported greater use of computers and the Internet for information.

Women respondents expressed less confidence than men about their financial futures, knowledge of their retirement needs, and their current financial situations. They also were more dependent on their spouses for financial security.

Investing exciting to men, stressful to women

Men (69.7 percent) were more likely than women (61.7 percent) to find investing "exciting." More men (80.8 percent) than women (78.4 percent) found investing "satisfying." Women on the other hand found investment decisions more stressful (m: 68.5 percent, w: 79.4 percent), difficult (m: 62.1 percent, w: 70.9 percent) and time-consuming (m: 73.5 percent, w: 74.3. percent) than men. Only about half of women -- considerably less than men -- described themselves as being confident or knowledgeable about investing or regularly reviewing and comparing their investment performance with market benchmarks.

Two-thirds of respondents considered the level of risk they are willing to take before making specific investment decisions -- with both men and women holding risk as the most important factor to consider before making an investment decision. But men reported a significantly greater willingness to take above-average (m: 44.5 percent, w: 27.8 percent) or substantial investment risks (m: 6.5 percent, w: 3.4 percent).

"Women invest much more for apparent security," said Hira. "If you feel confident that you know what you're doing when it comes to investments, you're more likely to take an appropriate risk. Not clearly understanding the relationship between risk and return results in making investment decisions parallel to gambling. Since women may have had less formal investment education and experience, and therefore felt like it was more stressful and difficult, they were probably less likely to take that risk than men."

About one-third of the respondents identified either both parents or their fathers as the most important influence on their understanding of money management. Yet very few mentioned their parents and teachers as strong influences in how they were taught about investing. Instead, most respondents indicated that they enjoyed learning about investing and women were particularly interested in getting information from a personal contact. On the other hand men preferred finding the information on their own by reading or exploring the internet.

When parental influence was a factor, women often said that their mothers had the most important influence on their approach to money management strategies. By contrast, more men reported being influenced by their fathers. More men than women cited teachers and other adults as having had an impact on their money management and investment decisions.

"This study raises some questions that provide guidance in establishing a shared context for learning and a focus for exploring the underlying beliefs held by women about the management of money and investments," said Hira.

She reports that the results of this study will be used as a foundation for further analysis and development of recommendations about general financial education materials and an investment educational program for women. The next phase of the study is ongoing and will be completed by early next year.

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