Evidence shows alarming numbers of US workers nearing retirement insufﬁciently save for this next life stage. Moreover, many women invest too conservatively. This ﬁnding is of particular concern as women typically live longer than men do, and thus, rely on accumulated savings for longer periods of time. A recent study extends work in the psychology of investing by examining the relationship between gender and investment risk and the role ﬁnancial self-efﬁcacy (FSE) plays. Financial self-efficacy refers to individuals’ perceived ability to manage their finances. Data collected from 182 US student subjects tested the hypotheses that women make less risky investments than men do and that FSE is positively related to the level of risk taken within investment portfolios. The results not only supported the hypotheses but also the analysis shows that FSE might account for the frequently observed gender difference associated with greater ﬁnancial risk taking.
A recent article from the “International Journal of Consumer Studies” addresses the issue of inadequate retirement savings among Americans, especially women. The data analysis showed that as expected, when they were given an investment scenario, women chose to invest a smaller percentage of a windfall in stocks than did men and that the participants’ subjective feelings of ﬁnancial self-efﬁcacy (FSE) were positively related to this same percentage. When both gender and FSE were examined simultaneously, the gender difference almost vanished. This ﬁnding suggests that it is because women have lower FSE than men do, they tend to make less risky investment decisions, which paradoxically, yield lower returns in the long run. Although, the ﬁndings do not provide evidence one way or another for the debate of where women’s lower risk taking comes from, they do suggest that women chose the less risky investment options partially because they do not feel they are able to make such decisions was well as the men do. When they are equally as conﬁdent in their ﬁnancial decision-making ability, the women chose similar investment options. This ﬁnding is consistent with Badunenko et al.’s (2009) ﬁnding that men and women professional investors, deﬁned as ‘individuals who are highly qualiﬁed professionals working in ﬁnancial services industry’ (p. 17), reported equal levels of risky ﬁnancial decision making, suggesting that either self-selection into these ﬁelds or professional training and knowledge removes the gender difference. Agents seeking to encourage women to make riskier investment decision might focus their efforts on directly addressing this issue and ﬁnd ways to enhance women’s feelings of ﬁnancial efﬁcacy. Just telling them to invest in stocks rather than bonds is not likely to raise the percent of risky investments they make. Women make less risky decisions than men do across the board (Byrnes et al., 1999), and so this decision-making domain is not unusual. Much of the explanation for this particular instance, however, might lie in their ﬁndings, which suggest that changes can be effected. In addition and somewhat surprising, the research found overall stock allocations of both males and females fell towards the lower end of the risk spectrum (mean of 33%). Existent research ﬁnds younger participants typically allocating larger portions of their portfolios to stocks. Research conducted by the Investment Company Institute (2013) found participants in their 20s had 74% of their 401(k) assets invested in stocks. As a comparison, the same study found individuals in their 60s had roughly 48% of their 401(k) assets invested in stocks. Thus, the ﬁnding by this study of 33% allocated to stocks was both surprising but perhaps can be explained by the overall relative inexperience of these participants in making such decisions. Note the small positive correlation (0.20) between risky investing and age, indicating that in this limited sample, older participants were willing to take additional risk. This research identiﬁes several areas for future study and suggests several propositions. While the generalizability of this research is limited because the ﬁndings are more suggestive than conclusive, encouraging aspects remain. One limitation of the study could be the nature of the sample. While university students were viewed as ideal subjects as many will soon be making investment decisions, the fact that some have not yet had an opportunity to gain a considerable amount of experience may have hindered the results. Perhaps conducting a future study of working professionals such as Badunenko et al.’s (2009) did, who have had actual investment opportunities and experience, would yield supportive results. Another important limitation to the generalizability of the study ﬁndings is that they are likely not applicable to people unable to invest in stocks owing to limited ﬁnancial resources or to the lack of a need to invest owing to pensions or government support. One promising direction for future research stems from ﬁndings by Prudential Research (2010–2011) showing some women are choosing to play a more active role in their ﬁnances. These ﬁndings present a valuable opportunity to understand these changing gender roles and their impact on the effectiveness of social norms. An additional direction for further research is the impact that ﬁnancial education programs have on behaviour. Recognizing the need to improve ﬁnancial literacy, a wide range of government agencies along with private and non-proﬁt organizations have pushed for the avail ability of more educational opportunities for consumers (Fox et al., 2005). While the effectiveness of these programs remain in question (Lusardi and Mitchell, 2007; Morrin et al., 2012), examining the relationship between these programs and social norms would aid in better understanding consumer behaviour. Finally, future studies must consider the impact of relevant moderating variables, such as reference groups (aspirational and dissociative), prior investment success and current economic climate.