Financial decisions are hardest – but are women better at them?

Research by UCL and Barclays has confirmed that people struggle most of all with financial decisions. But while some women are emerging as more confident investors with the rewards to show for it, others are being left behind. Article by Nick Green.

Believe it or not, people agonise more over where to invest their money than they do over choosing a partner. At any rate, this is according to research by University College London (UCL) commissioned by Barclays Plan & Invest. When asked to rank the trickiest decisions they face, both men and women include choosing a new squeeze in the top five – but only just. And although 21% consider picking a new boyfriend or girlfriend to be one of the hardest choices, considerably more say they struggle over where to invest money (25%), how to spend that money (also 25%), whether to take a new job (27%) and most of all, what home to buy (32%).

What’s interesting is that men seem to have more trouble with these decisions than women do – and perhaps even end up making worse decisions. When it comes to investing, nearly a third of men consider this to be a difficult decision, compared to just 21% of women. There are also indications that female investors are more successful. Over a three-year period on the Barclays Smart Investor platform, return for male investors was just 0.14% above the performance of the FTSE 100, whereas women beat the FTSE 100 by 1.94%.

Why are financial decisions so difficult?

It is telling that both men and women ranked financial decisions as bigger (i.e. more difficult) than such a personal decision as choosing a partner. One reason for this may be that settling on a romantic relationship is at least ‘home territory’ – people instinctively know what they look for in a partner, what traits they value and what habits they hate – whereas financial knowledge has to be learned first.

Dr Bastien Blain, research associate at UCL, suggests that this need for information might lie behind people’s fear of financial decisions. He says, ‘We are consistently bombarded with choice, often creating a sense of decision fatigue. This may well explain why financial decisions are consistently ranked the hardest, as they require the most attention.’

Robert Smith, head of behavioural finance at Barclays Wealth Management and Investments, takes a similar view. ‘It’s easy to be overwhelmed by the sheer number of investments on offer or be put off by the amount of jargon – particularly if you’re new to investing. When deciding where to invest, some may instinctively choose to invest in the market closest to them or may be swayed by what is trending in the news.’

This claim is backed up by the report’s finding that the most popular basis of investment decisions – for women, anyway – was simply ‘gut instinct’, with 43% of women investing this way. Men were more likely to carry out research, but as the results showed, this was often less successful than the intuitive approach taken by the women.

Men vs women – different investment attitudes may be the key

So are women more naturally money-savvy than men? The truth is a bit more complex. Surveys of investors (such as the Barclays-UCL study) will focus by definition on those who are already investing – not on the population as a whole. A 2017 study by Kantar confirmed that men are simply more likely to invest: just 10 per cent of women have a stocks and shares ISA, compared to 17 per cent of men, while among the top 10 DIY investment platforms the ratio of male to female customers is around 7:3. Other research by YouGov found that 55% of UK women have never invested, compared to 37% of men.

When you put these findings alongside the Barclays-UCL study, you see a possible explanation for the women outperforming the men at investing. In general, more men seem drawn to investing – perhaps seeing it as something they ‘ought to be into’, like football. Conversely, women may not feel the same peer-pressure to invest – so the minority who do invest are more likely to have a natural flair for it. The men using the Barclays Smart Investor platform may therefore represent a broader spectrum of talents – a ‘Sunday League’ team – versus the women on the platform who are more akin to semi-pro players.

Anna Sofat of financial advice firm Addidi Wealth has seen differences in the way men and women approach investing. She says, ‘One of the key differences I see is the end goal, that is, what the money should be used to achieve. The responses from women tend to lean towards financial security and providing for their families.’ Men’s investment goals are generally less focused, and more about simply achieving the highest returns. This strategy can end up exposing the investor to more risk than they can tolerate.

In its 2017 study, Kantar predicted that by 2020 over half of all investable assets would be held by women – a forecast also made by the Centre for Economics and Business Research. So far this prediction hasn’t come to pass, but the trend is very much there.

The biggest decision that people are neglecting

The five toughest decisions, according to the Barclays-UCL study, are:

Buying a home is seen as the biggest decision by some margin, being the single largest purchase most people will ever make (and one of the two biggest financial decisions of a lifetime). Buying a home is also a rare event, usually carried out only once a decade or even less frequently. People therefore get far less practice at it, compared to something like meeting partners, so face the double stress of confronting their most costly purchase based on little or no previous experience.

However, it’s telling that one particularly big decision is missing from the list. This is likely due to the average age of those surveyed, but there is no mention of pensions. Pensions require many significant choices to be made, such as whether to set them up, which provider to use, which funds to select, and how much to contribute – all before reaching the biggest decision of all, which is how to access the money in the pension pot. Much evidence points to people ignoring such issues until late in the day – with women ironically being among the worst offenders.

Due to factors such as wage inequality and career breaks, the average women’s pension pot is likely to be 11 per cent smaller by retirement age than the average man’s. Recent research by Unbiased also shows that women lag behind men in pension saving. Furthermore, women seem less inclined to recognise pensions as valuable assets. Unbiased has found that, in divorce cases, women are more likely to prioritise property, savings and pets, and then furniture and cars. Pensions, at least the second most valuable asset in a typical marriage, failed to make their top six. Men, by contrast, tend to make pensions a priority in divorce settlements.

Corresponding research by Scottish Widows has shown that around 70% of couple fail to take pensions into account altogether when getting divorced. Again, this is more likely to favour the men, who usually have the larger (or only) pensions.

As Robert Smith says, ‘It comes as no surprise that financial, and particularly investment, decisions rank so highly as some of life’s tougher choices.’ And while women may excel at some types of decision and men do better at others, it’s clear that neither finds the process easy and both can easily make big mistakes. The best way to tackle big financial decision with confidence is with the help of an unbiased expert, such as an independent financial adviser.

Find out more about when you’re most likely to need advice.