Why do women invest less than men? Blame the income gap

While demographic trends and societal norms shift, so has the way households make financial decisions. Not only are women expected to control much of baby boomer assets in coming years, but more and more studies have noted how women are also playing a larger role in household financial decisions and becoming family breadwinners. Yet, even as more women gain wealth, common stereotypes still loom large.

In our latest research, we focused on nailing down what's behind these conceptions of women investors.

Does gender or income drive investing behaviour?

We surveyed 907 US residents (437 female) to measure financial health, behaviour, and attitudes. In an analysis of the data by gender, we found that most of the supposed differences between men and women investors regarding saving and investment behaviour disappeared when controlling for income. The differences that persisted were mostly attitudinal and suggest humility, composure, and a confidence gap.

Digging a little deeper: At first glance, men and women appear to have significantly different financial attitudes and behaviours. On average, men reported more frequent saving and investing behaviour, they were more likely to think of themselves as investors, more confident in their knowledge of investments, more likely to have changed their investments in the 12 months leading up to the study, and more confident in their ability to financially handle the unexpected.

These findings are deceiving, though. In our sample, women's income scores were roughly 20% lower than men's, on average. But when we compared men and women in the same income bracket (rather than comparing all men to all women), these differences in spending behaviour, investing behaviour, and confidence handling the unknown were no longer significant.

This suggests that income is a stronger predictor of these attitudes and behaviours than gender. Yes, women in our sample saved and invested less frequently than men, but the chart below shows that most saving and investment happened in the higher-income tiers--where men significantly outnumbered women. 

Source: Morningstar. In the lower-income tiers, where people were less likely to save and invest, women represented more than 50% of the population. In the higher-income tiers, where more saving and investing was reported, men were more than 50% of the population. The result is an overall difference in investment rates by gender, but this difference disappears when income is controlled for.

What differences do exist between how men and women invest?

A few of the attitudes and behaviours we measured, however, were still statistically different when controlling for income.

For example, the overconfidence we so often read about in investor psychology studies may indeed be influenced by gender norms. In every income group of our sample, women were less likely to think of themselves as investors and reported lower confidence in their investment knowledge.

These results echo findings from global studies of financial literacy. In studies of general financial knowledge, women are more likely to answer "I don't know" than men (Bucher-Koenen et. al, 2021). This suggests women guess less frequently, but they also receive lower financial literacy scores: That is, you earn zero points for admitting ignorance but can sometimes eke out a few extra points for guessing correctly.

Ironically, women were also less likely to have made recent changes to their investments, which could indicate greater investment composure. Gender differences in trading behaviour have been found to reduce men's net returns (Barber and Odean, 2001). It seems that, while women have lower confidence in their investment knowledge and abilities, they are also less likely to face the expensive consequences of overconfidence.