Growing job insecurity, financial market volatility and rising prices have created an extremely uncertain environment for UK savers. The country’s welfare provisions are among the lowest of all OECD countries and the national pension system has been systematically dismantled in recent years. Even well-known money-saving experts have run out of ideas to help those struggling with their finances.
In such tough times, people planning for old age must be even more canny about their money to ensure there is enough for a comfortable retirement. Pension planning typically starts with a long-term savings goal to ensure an adequate income during retirement. Then savers usually make regular contributions to suitable investment products in line with this goal over the course of their working lives.
Our recent research shows, however, that there are differences in the way people decide on and work towards those goals. We believe these differences may contribute to a wealth gap between men and women in the UK, with more women in danger of being left financially vulnerable than men.
The commitment you make when you set a goal essentially motivates you to achieve that goal, according to certain behavioural science theories. In other words, people with ambitious savings goals can be expected to end up with more money in their retirement accounts, compared with those with modest savings goals.
Less ambitious savers may not strive to put away more than planned because they believe they will fail. Based on our recent research into long-term savings goals, we believe such differences in attitudes may contribute to the £15 billion wealth gap between men and women.
Growing gender wealth gap
Our study explores long-term savings goals among 1,760 clients at a well-established UK investment firm, combined with insights from 56 interviews with another group of UK-based men and women savers. It uncovers a third possible explanation for a rising gender wealth gap in the UK, besides income differentials (based on the gender pay gap, the child penalty, the motherhood penalty) and investment differentials that generally show men earning higher financial returns because they tend to take more risk. This third reason, our analysis suggests, is that gender norms influence attitudes towards saving. This tends to negatively affect women in couples most of all.
We found that men and women who are married or cohabiting tend to strongly diverge when it comes to their chosen savings goals, compared with those who live on their own. More specifically, married or co-habiting men are more likely to be in charge of long-term saving for the household and they typically choose more ambitious personal savings goals.
Those higher savings goals were not affected by expected levels of income and so could not be attributed to a gender pay gap. Similarly, we also controlled for varying attitudes toward risk-taking in investment portfolios.
The role of gender norms
So why do men and women in couples save so differently? Our research shows that these differences are linked to the traditional gender roles often assigned to particular members of households. When women are in charge of caring and domestic work such as childcare, grocery shopping and short-term budgeting, there is a tendency to focus on short-term financial security. Perhaps in anticipation of adverse events affecting their daily budget management, these women tend to choose modest savings goals and accessible financial products such as individual savings accounts (ISAs).
On the other hand, we found that men in couples tend to choose more ambitious goals and use investment products that are designed for longer-term savings habits and have the potential for better returns. For example, self-invested personal pensions provide more options and control over what you can invest in and when, compared with a standard personal pension or an ISA.
Men are also more often assigned to the role of managing long-term investing tasks, according to our research. This encourages a focus on long-term wealth growth and reinforces their willingness to set challenging goals. These findings are intensified within couples with a more “traditional” division of roles – that is, when the man is the breadwinner.
For single people, however, men and women perform both the short- and long-term financial tasks and we found no gender differences in savings goals among this type of study participant. This absence of any gender-based effect among the people in our study who are not part of a couple shows a clear need to move beyond simply accepting that all men and women think differently about saving and investing when discussing retirement planning and financial risk-taking.
Exploring the context in which people make financial decisions is much more important. Highlighting when goals are unambitious compared to people with similar wealth and incomes, for example, could reduce the effect of gender norms on financial decisions. In particular, it should be emphasised that, by leaving their male partner to accumulate money for the household, women may increase their financial dependency. In that context, late divorce or separation could have a dramatic effect on financial security for those without legal protection.
Given the continued uncertainty around the economic outlook, addressing the gender wealth gap in this way will help to create a more secure future for all UK savers.
Jerome Monne, Assistant Professor of Finance, ESSCA École de Management; Ariane Agunsoye, Lecturer in Economics at Goldsmiths, University of London, Goldsmiths, University of London; Dimitris Sotiropoulos, Senior Lecturer in Finance, The Open University, and Janette Rutterford, Emeritus Professor of Finance and Financial History, The Open University