Do women save less or just differently?
AS I WRITE, WOMEN & MONEY, BY SUZE ORMAN, is at the top of the
nonfiction bestseller list, and its general premise that women are less financially
savvy or responsible than men is widely taken for granted. “Women don’t
understand money,” Orman said in a New York Times Magazine Q & A. “I
want to change women from savers to investors.”
Drawing attention to the need for women—like men—to take responsibility for their financial futures is certainly a good thing. This magazine, for one, addresses this concern. And Suze Orman can hardly be blamed for sensationalizing her message to sell books and make money. But the picture is more nuanced than most of us realize—and looking at it in more detail can help women recognize what they may be doing right, not wrong, with their investments.
Perhaps adhering to our national trait of optimism, the 2007 Retirement
Confidence Survey shows that Americans in general underestimate
their needs when it comes to retirement savings. Neither men nor
women have particularly high savings rates, but women who are in
the full-time workforce are slightly more likely than men to participate
in a retirement plan—56.4%, as opposed to 53.7% of men, according
to a 2006 study by the Employee Benefit Research Institute that
was based on 2005 numbers. (Women overall have somewhat lower rates
of retirement savings, including those who are not in the full-time
workforce.) And when you look beyond stocks and bonds, the picture
for women looks better still.
The explanation, however, may be that women save differently from—as
opposed to less than—men. The root of the difference is that
women seem to prefer real estate to stocks and bonds. Single women
now not only outpace single men as home buyers, but are also the
fastest growing segment of the market. (Single women bought 21%
of homes purchased in 2003, single men just 10%. 56% of women,
compared to 47% of men, own their homes. And these single women
are not just divorced or single mothers—75% of women buying
houses in 2003 didn’t have any children, and the houses women
buy are only a little less expensive than those bought by men— $139,500,
as opposed to $142,500 in 2003.)
Investing in real estate rather than the stock market is a choice that may be more congenial to many women, given the nesting instinct, but it also has proven a wise move in the top American markets, where real estate has appreciated more rapidly than equities. And on a more anecdotal basis, it seems many men are inclined to believe —against the statistical evidence—that they can “beat the market” in stock picking. Women, with less at stake ego-wise, may be more apt to agree with finance theorists who have shown that this is not possible without assuming greater risk.
On the other hand, women may feel that they can add more value by buying and renovating a house than the average man, and they may be right, given that women seem to have a better sense for what makes for an attractive home. Plus, you get to live in a house while you wait for it to appreciate—and you can’t live in a stock portfolio. While it is true that it should be economically neutral to invest in stocks or CDs and use the interest to pay rent, or to invest in a house, the US tax system’s mortgage interest deduction rewards buying, not renting.
Suze Orman herself has only $1 million of her $25 million net worth in the stock market, as opposed to what she estimates as $7 million in real estate. The bulk of her assets are in zero-coupon Triple A-rated municipal bonds, which many financial advisors would say is an overly conservative asset allocation. Her reasoning sounds suspiciously like the “saver” mentality she decries: “I take a little lower interest rate to make sure my bonds are 100 percent safe and sound.”
If it turns out upon closer inspection that women are not irrational in how they save, what about spending? There’s a lot of hand-wringing about women “shopaholics” with problems managing credit card debt. Here again, men and women make different choices. A woman may buy clothes she doesn’t need or even wear for awhile. Seems irrational. A man, however, is more likely to spend compulsively on what used to be called vice: drinking, taking drugs, and, of course, paying for the evanescent pleasures of prostitutes and strip clubs. About the only addiction where women approach men is gambling: More than half of online gamblers are now women. In terms of future value, however, a pair of shoes you don’t really need at the moment makes more sense. At least they will be around in a few years. (They may even go up in value, in these days of escalating vintage clothing prices.)
No, women are not financially disabled, or inclined to foolish decisions. All of us, men and women, are apt to make emotional rather than rational decisions about our money, and men and women differ in the ways they indulge or fall captive to their irrational tendencies. To make better decisions, self-awareness is key. And women are certainly apt to have more of that than men.
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