When I was a teenager, among a group of my friends, the girls had a phrase they used often: “typically boyish and socially unacceptable – the two are synonymous.” Sadly, it was often true. Sadder still, it is often true with respect to married couples and their finances, particularly as they age.
It should come as no surprise to advisors who work directly with individual clients, but women generally take many fewer financial risks than men, at all ages and within all ethnicities. They are simply much more risk-averse. Thus investment portfolios of women tend to be much more conservative in general and much more conservative with respect to their retirement funds. However, couples take on much more risk (at a level close to that of single males) than single women in similar circumstances would be comfortable with alone.
Such risky behavior can be explained in that husbands disproportionately make household financial decisions. Fully 55 percent of husbands say they make the financial decisions and 45 percent say that such decisions are made jointly with their wives while only 4 percent of wives say that they make the money choices, according to one representative study. This disparity is particularly pronounced among the older generation and among the more affluent.
To make matters worse, this disparity increases when stress is involved. Men under stress are more likely to engage in risky behavior while women under stress tend to moderate their behavior.
Women are far more likely to protect themselves with the purchase of long-term care insurance and income annuities (which provide guaranteed income for life). Yet despite their obvious value, these products are by no means hot commodities and it isn’t hard to comprehend why. Nearly every experienced financial advisor can recount multiple instances of nervous and worried wives going along with their husbands’ aggressive and often overly aggressive investment plans despite serious misgivings (one such story is offered by Wharton Prof. David Babbel here).
Financial insecurity is a particular problem among the elderly and especially among senior women. Nearly 22 percent of older women and 15 percent of older men live in poverty. While it is possible that excessive investment caution is a cause of this poverty among senior women, an insufficient exercise of care – likely by male decision-makers – is more likely a far bigger contributor to the problem. That’s because there is good evidence that, partly due to lower activity and thus lower costs, women investors achieve better returns than men overall and especially during crisis and because women are far more likely to insure against the risks they face. Risk aversion allows an investor to keep a level head and make good decisions.
On account of demographics, male financial control and this gender disparity in risk tolerance has a disproportionate and unfortunate impact upon women. The average husband is 2.3 years older than his wife. Moreover, a female born today can expect to live about five years longer than a male born today while women at retirement age can expect to live about three years longer than men of the same age. Thus roughly half of all women aged 65 and above are widows and widows outnumber widowers roughly five-to-one.
What that means is that, because of the risk disparity, male financial control and demographic realities, widows are frequently left in far riskier circumstances than they are comfortable with and are far too often left to bear the unfortunate costs of their late husbands’ imprudent mistakes. These costs include poverty, becoming a burden to children and facing the bitterness that often emanates from those they are forced to rely upon.
A long-time financial advisor I know recounts meeting with a couple about retirement planning and encountering (typical) resistance to obtaining guaranteed income and long-term care insurance from the husband. The advisor looked him straight in the eyes and asked a question he often asks in such situations: “Why do you hate your wife?” That may seem like a shocking and perhaps offensive question, but it ought to be asked with regularity. Husbands who love their wives should take much greater care to consider their wives’ feelings and likely future circumstances and, as a consequence, take on far less risk in retirement planning. Doing so is the socially and personally responsible thing to do.