The Downside of Not Addressing the Gender Investing Gap

Women tend to get paid less than men. According to recent data, in the U.S., women earn about $0.83 for every $1 that men earn -- another way of thinking about it is that women get paid about 17% less than men.

This gender pay gap is also causing big problems for investing, retirement savings, and building wealth. Women get only about 70% of the amount of retirement income that men get, and have only about 32% of the level of total wealth that men have.

If people -- not just women, but men, too -- and our companies, organizations, and governments do not take action to address the gender investing gap, everyone will be made poorer by it.

Let's look at a few big downsides of not trying to fix the gender investing gap.

1. Women will be poorer in retirement

Women tend to live longer than men, making it even more important for women to save and invest for retirement. But all those years of working at a 17% discount compared to men add up to lower retirement savings, less money in Social Security, and other disadvantages.

According to data from the American Association of University Women (AAUW), women's average Social Security benefits are only about 80% of what men get. The AAUW's data also shows that the average annual income for white men ages 65 and over is $44,200. Here's how retirement-age women's income compares:

• White women (ages 65+): $23,100 (52.3% of white men's retirement income)
• Black women (ages 65+): $21,900 (49.5% of white men's retirement income)
• Latina women (age 65+): $14,800 (33.5% of white men's retirement income)

The gender pay gap shows that women's labor is not adequately rewarded -- leaving them with lower incomes in retirement. Fixing the gender investing gap can help women build wealth for more secure golden years.

2. More families will live in poverty

Women are more likely than men to live in poverty. As of 2022, more than 1 in 9 women (15.5 million women) lived in poverty in the U.S. The problems of financial insecurity are also reflected in how many lower-income women handle their banking. According to FDIC data, 15.9% of single mothers are unbanked, leaving them vulnerable to high fees and predatory loans. When people don't have enough money to feel like it's worth having a bank account, it's even harder to invest for the future.

Many women who make enough money to save for retirement and invest in stocks are not at severe risk of being in poverty. But lower-income women and their families can also benefit from an increased focus on closing the gender investing gap. When companies pay women better, offer family-friendly benefits like flexible work and paid family leave, and provide better opportunities for career advancement, lower-income women (and their children) will benefit, too.

One public policy that would make life better for lower-income families would be to expand the Child Tax Credit. We already know it works: The expanded Child Tax Credit in 2021 helped nearly eliminate child poverty by increasing cash payments to families.

A stronger social safety net for families could help more women get breathing room in their budgets each month -- and start to have enough money to meaningfully save and invest for the future.

3. The financial industry will be too much of a "boys' club"

Do you ever feel like the richest people in the world are all men? You're not wrong: The top 15 wealthiest people in the Bloomberg Billionaires Index are all male. Sometimes it seems like capitalism is a men's game.

The truth is more complicated. If you look beyond the uppermost reaches of the billionaires, 60% of U.S. women invest in stocks, according to a Fidelity study. The financial industry needs women to be investors, and women are good at investing! Women are actually better investors than men, on average: Women tend to earn average annual investment returns that are 0.4% to 1.0% higher than men!

There's no clear answer for why women get better investment returns than men. But it could be because women are more willing to manage risks, understand potential downsides, and avoid getting into speculative investment fads that go up in the short run, but can plummet even faster.

There are many ways to be a successful investor, and most of them don't involve being an aggressive, obnoxious dude on social media who eggs on other dudes to make risky, self-sabotaging decisions. Some of the best money moves are made silently, behind the scenes, by patient investors who are making well-informed choices for the long term. Does that sound like any woman you know? The financial world needs more investors like this.

4. The world will miss out on great ideas, investments, and innovations

This reason to end the gender investing gap is impossible to calculate, but could be the most important of all: When women don't have wealth, when women can't invest, when women can't contribute to the allocation of capital in the global economy, all of us are made poorer by it.

The gender investing gap is causing all of us -- men and women -- to miss out on great ideas and untapped human potential. We are missing out on all the small businesses that didn't get started, all the cool inventions and life-changing products that didn't get built, all the wealth that didn't get created and shared.

Bottom line

Buying stocks is not just about saving for retirement -- it's about investing in human collaboration, creativity, and ingenuity. When investment decisions are largely controlled by less than half of the population, we're missing out on some of humanity's best ideas. More women investing can make all of us richer.