Are women inherently more risk-averse than men?
Moneylife Digital Team 08 March 2013

That is the conventional wisdom and could be wrong. Financial literacy, or the lack of it, is one of the reasons why women tend to be more risk-averse than men, according to new research which debunks the biological theory. If the right financial education was imparted to more women at school and college levels, the differences in gender gap in risk-tolerance disappears. This is why Moneylife Foundation is holding a seminar on financial literacy for women on the International Women’s Day (supported by DSP BlackRock's Winvestor Initiative) in Mumbai today

A new breed of research studies has revealed that women may not be as risk-averse as once thought and take more or less the same risk as men, if both are financially literate. The reason and preconceived notion that women are more risk-averse than men lie in one thing—financial literacy. For a variety of reasons, women tend to be less financially literate than men. That is reason they may be inclines to take lesser risks (which can sometimes be a good thing or a harmful thing, depending on the circumstances). If women are exposed to correct financial ideas as educated as their male counterparts, the differences in risk-taking narrows down or disappears.

A paper by Juan-Camilo Cárdenas, Anna Dreber, Emma von Essen and Eva Ranehilld titled, “Gender differences in competitiveness and risk taking: Comparing children in Colombia and Sweden” stated: “We find that boys and girls are equally competitive in all tasks and all measures in Colombia. Unlike the consistent results in Colombia, the results in Sweden are mixed, with some indication of girls being more competitive than boys in some tasks in terms of performance change, whereas boys are more likely to choose to compete in general.” In other words, there was nearly no difference in risk-taking between the genders.

The current notion is that women are risk-averse which pundits and scientists attribute to biology. One seminal research paper, “Boys Will Be Boys: Gender, Overconfidence, And Common Stock Investment” by Brad Barber and Terrance Odean, that appeared in the Quarterly Journal of Economics, states that men are more overconfident than women, trade more than women and this results in lower returns. Barber and Odean found that men traded the stocks in their accounts 45% more than women did. This excessive portfolio turnover reduced their net returns by 2.65 percentage points, compared to the 1.72 percentage points women dinged their accounts by trading. Single men were even worse offenders, trading 67% more than single women. This indicated that biological differences were important in understanding women’s attitude to risk.

Similarly, a Vanguard study involving 2.7 million personal investors concluded that during the recent financial crisis, men were more likely than women to sell shares of stocks at all-time lows, leading to bigger losses among male traders. It also meant fewer gains when some of the stock values began to rise again. These two studies show that women are more conservative than men. But it doesn’t state the reason why they are conservative. But it now appears that there is nothing biological about it. Women devote a lot of time to childcare and housework and are not exposed to the right financial concepts. It was found out that once women were financially literate, they took more or less the same risk as men, and were more confident of taking such risks.

However, we are witnessing a shift in this, as more and more women take charge of investment decision making, with more confidence than ever. This is because of financial literacy and not because of biology. Indeed, the finance field in India is full of very successful women.

ICICI Bank, India's second largest bank after State Bank of India, is headed by a woman, Chanda Kochhar. ICICI nurtured a number of women namely: Chanda Kochhar, Shikha Sharma, Renuka Ramnath—who have today reached the top. One of most prominent among them is Kochhar, who joined the bank as a management trainee in 1984 and rose through the ranks to become the managing director and chief executive officer. Of the overall 40,000 employees at ICICI, over a quarter are women.

Shikha Sharma went on to become the managing director and CEO at Axis Bank, one of India’s largest private banks. HDFC, India's largest housing finance group, has Renu Sud Karnad as its managing director; Kalpana Morparia heads the Indian arm of global financial leviathan JPMorgan Chase & Co; Meera Sanyal is the country executive for Royal Bank of Scotland and; Manisha Girotra was the managing director of Union Bank of Switzerland's India operations.

At the end of the day, it is financial knowledge that counts. If the right financial education was imparted to more women at school and college levels, the differences in gender gap in risk-tolerance disappears. This is why Moneylife Foundation is holding a seminar on financial literacy for women on the International Women’s Day (supported by DSP BlackRock's Winvestor Initiative)  in Mumbai today.

P M Ravindran
10 years ago
First of all, a confession- I invested almost 20% of my terminal benefits on retirement in stocks and within one year closed the business after downloading all my stocks at a loss of 20%! My wife continues to trade in stocks and almost all the terms I hear her use is Greek and Latin to me!

But forget stocks, I have been unable to comprehend this much talked about discrimination against women. There are differences between men and women as much as there are between men and men and women and women. But yes, men in general tend to be physically a wee bit stronger than women. But then, understanding that nature has its own checks and balances, I have also been wondering how nature would have compensated women for this. Any guess, anybody?
10 years ago
Being Risk averse is one thing, but most women manage their household budgets(Money) better than any man could or would.
This has been going on from ages as finally the man gave the money to his wife for running the day to day expenses, even though they were financially semi-literate. As the article goes on to say they now take the same risks as men when they are financially literate, will that help them in managing the family's monthly Budget?
10 years ago
Women take & manage the biggest risk of all . . . leaving the doting father’s house for an impossible to predict future.
Sucheta Dalal
Replied to Nilesh KAMERKAR comment 10 years ago
What an extraordinarily perceptive comment. I agree entirely and i have thought about it a million times.

I wonder if middle class women or rich women even think about it. They go by the risk assessment done by their parents - in an arranged marriage. Or dont give it a thought in a love marriage.

For the poor - it is a real tragedy. They dont know it most of the time, but marriage usually means endless drudgery, responsibility, beatings and worse.

There was so much you said in that one sentence!
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