Why Do Women Invest Differently than Men?

Abstract

Several recent studies have found that women invest their pensions more conservatively than men (Bajtelsmit and VanDerhei, 1996; Hinz, McCarthy, and Turner, 1996) and that women are more risk averse (Jianakoplos and Bernasek, 1996). Although these findings have serious implications for the well-being of women in retirement, the reasons for observed gender differences are less well- defined. This paper surveys the existing literature regarding gender differences in investment and considers the policy implications of these differences. The authors provide a summary and organization of the explanations for gender differences that have been offered in a variety of fields, including economics, sociology, education and gender studies.

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Vickie Bajtelsmit, Assistant Professor, Department of Finance and Real Estate, Colorado State University, Fort Collins, CO 80523. Phone: (970) 491-0610.
1
Fax: (970) 491-7665. E-mail: vbajtelsmit@vines.colostate.edu
Alexandra Bernasek, Assistant Professor, Department of Economics, Colorado State University, Fort Collins, CO 80523. Phone: (970) 491-6856. E-mail:
2
abernasek@vines.colostate.edu
©1996, Association for Financial Counseling and Planning Education 1
Why Do Women Invest Differently Than Men?
Vickie L. Bajtelsmit,Colorado State University
1
Alexandra Bernasek, Colorado State University
2
Several recent studies have found that women invest their pensions more conservatively than men
(Bajtelsmit and VanDerhei, 1996; Hinz, McCarthy, and Turner, 1996) and that women are more risk
averse (Jianakoplos and Bernasek, 1996). Although these findings have serious implications for the
well-being of women in retirement, the reasons for observed gender differences are less well-defined.
This paper surveys the existing literature regarding gender differences in investment and considers the
policy implications of these differences. The authors provide a summary and organization of the
explanations for gender differences that have been offered in a variety of fields, including economics,
sociology, education and gender studies.
KEY WORDS: gender differences, individual investors, investment, pensions, risk aversion
Introduction
An increasing number of financial studies conclude that
women invest their asset portfolios more conservatively
than their male counterparts , a finding that is generally
a
consistent with the “common wisdom” of financial services
providers. Although there is a large body of literature on
other types of gend er differences in pensions , examination
b
of differences in investment behavior is a relatively new
avenue for research. The existence of gender differences
raises important questions for public policy, particularly in
light of the recent trend toward self-directed pension
accounts and the proposals for partial privatization of
Social Security. Although there are obvious implications
for the overall financial well-being of women in retirement,
interventions can be more effectively designed with better
understanding of the underlying causes of observed
investment patterns.
All other things equal, a conservative investment strategy
results in less retirement income on average than a more
aggressive strategy. Consumption in retirement is likely to
be even lower when, in reality, all things are not equal
between women and men. Women s greater longevity
implies that, even with the same investment strategy and
pension accumulation, retirement wealth must support a
longer period of retirement. Women have lower lifetime
earnings, lower earnings growth, lower wealth, and lower
pension coverage and participation rates. Although
statistics show much i mprovement in these areas in the last
several decades (Congressional Budget Office, 1993), the
continued high poverty rate among older women is of great
concern to policy-makers (House Select Committee on
Aging, 1992).
The existence of gender differences in investing and risk-
taking is fairly well establ ished by recent studies. However,
assuming that this is a cause for c oncern, appropriate policy
interventions can be more effectively designed with better
understanding of the fundamental causes for differences.
Identifying the causes is a more difficult task since it is
generally only possible to observe the outcomes of
decisions as opposed to the decision-making processes
themselves. This issue is important not only to private and
social pension policy mak ers, but also to plan sponsors and
professionals who provide investment information to
clients.
This article surveys what is known and what is still
unknown regarding gender differences in investing. The
following section critically summarizes the existing
empirical work on gender differences in risk-taking
behavior, including a comparison of datasets studied,
methodologies employed, and conclusions made. The
implications of these conclusions for individuals and
society at large are explored i n the third section. The major
contribution of this article is a summary and organization of
the alternative explanations for gender differences that have
been offered in a variety of fields, including economics,

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Financial Counseling and Planning, Volume 7, 1996
2©1996, Association for Financial Counseling and Planning Education
education, sociology, and gender studies. Empirical and
theoretical support is provided for the hypothesis that
observed investment and risk-taking differences are
ultimately the result of discrimination and/or differences in
individual preferences. The final section provides a
summary and recommendations for further research.
Evidence of Gender Differences in Investing
One of the difficulties encountered in examining gender
differences in investment is the scarcity of gender-specific
and comparable data with the necessary control variables.
The data typically collected by plan sponsors are limited to
plan specific information such as allocation percentages,
account balances, and loans. Although the Pension and
Welfare Benefits Administration of the Department of
Labor collects and disseminates information on pension
plans, these da ta are limited to aggregate plan information,
most notably from the IRS Form 5500 annual report.
Ideally, a study of this issue requires detailed demographic
information for each individual in the sample, information
on non-pension income and wealth, social security
eligibility, and pension asset allocation information.
Furthermore, the optimal data set would be constructed to
be representative of the population so that more general
conclusions can be drawn. To date, there is no publicly
available data set that meets these criteria, although there
have been many private and gov ernment sponsored surveys
aimed at better understanding individual financial and
retirement decision-making . In each case, survey
c
designers had particular research issues in mind or were
influenced by their biases in the questions they asked . In
d
particular, most surveys do not include any information on
who makes fina ncial decisions for the household . Thus, in
e
each study discussed in this section, there are missing
explanatory variables. Since studies using limited sample
populations or small experime nts are not necessarily robust
to the whole population, these are considered separately in
the following discussion. It is interesting to note that this
issue has only come to the attention of researchers in the
last two years, possibly due to concerns related to the
increased number of self-directed pensions.
Studies Using Large Datasets
Thrift Savings Plan A recent study by Hinz, McCarthy,
and Turner (1996) uses 1990 survey data for a subsample
of 498 participants in the Thrift Savings Plan (TSP), the
defined contribution plan for Fede ral Government Workers,
to test for gender effects in allocation. By matching
demographic information from the survey with government
administrative records, the researchers are able to control
for age, income, marital status, length of time in the plan,
and gender. Varia bles that are missing in the TSP data are
information on household wealth (all other investments)
and decision-making. Using logit analysis, they show that
men are significantly more likely to hold risky assets and
that the percentage of pension wealth that is invested in
these asset categories is higher for males.
Surveys of Consumer Finances Where the TSP data has
better pension information and less information on other
wealth, the Survey of Consumer Fina nces (SCF), sponsored
by the Federal Reserve Sys tem, has a wealth of information
about household finances but very limited detail regarding
pension allocation. A benefit of using this survey data,
however, is that the samp ling procedures used in collecting
the data make it possible to weight the data to be
representative of the US population.
Jianakoplos and Bernasek (1996) use the SCF 1989 data
to construct a measure of relative risk aversion under the
theoretical framework developed by Friend and Blume
(1975). The holdings of risky assets as a percentage of total
assets are regressed on the natural log of wealth and other
explanatory variables. The coefficient on the wealth
variable thus provides a measure of relative risk aversion.
Although previous studies had attempted to measure risk
aversion in this way, this study is the first to examine the
significance of gender differences . Examination of the
f
equation for different categories of the sample shows that
single women are relatively more risk averse in their asset
holdings than single men or married couples.
In the Jianakoplos and Bernasek (1996) study, participants
self-reported investment risk tolerance provides evidence
that women also perceive themselves to be less inclined to
risk taking. When asked to choose between four statements
regarding their risk-return tradeoff, 63% of the single
women and 57% of the m arried women report that they are
not willing to accept any financial risk at all (compared to
43% of single men and 41% of marr ied men in the sample).
The SCF survey includes information on each of the
respondents three largest pensions. Although pension
balance informa tion is provided, allocation information for
defined contribution plans is more limited. For each
pension, respondents were asked to indicate whether they
allocated their pension to (1) mostly stocks, (2) mostly
interest bearing investments, or (3) mixed. Bajtelsmit,
Bernasek, and Jianakoplos (1996) extend the Jianakoplos
and Bernasek (1996) re sults by considering the factors that
influence the percentage of household wealth invested in
risky pension assets. For part icipants in the 1989 SCF who
had defined contribution plans and wealth in excess of
$1000, they find that women are relatively more risk averse
than men and that women s percentage wealth allocations
to risky pensions decrease with wealth (increasing relative
risk aversion). The co nclusions of both studies are limited

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by the fact that the survey does not indicate whether the
respondent or their employer had allocation decision-
making authority for their account. Although self-directed
plans are increasingly commo n, there are still many defined
contribution plans for which participants do not make
allocation decisions. Lastly, as in most studies, the
household decision-maker is not identified.
Private Plans Bajtelsmit and VanDerhei (1996) find
significant gender differences in investment of pension
assets based on plan allocation data provided by a large
plan sponsor. Their data set consists of 1993 plan-level
data on 20,000 management-level employees for a single
US firm. The pension plan participants are required to
self-allocate their pension contribution and are given five
investment alternatives: employer stock, a diversified
equity portfolio, a gover nment bond portfolio, a guaranteed
interest fund (GIC), and a social choice equity fund. They
find that women are significantly more likely to allocate to
the fixed income alt ernatives and significantly less likely to
invest in employer stock (arguably the riskiest alternative
due to its impact on diversification). Although the study
controls for age, income, race, and job tenure, the lack of
information on other household income, wealth,
dependents, and household decision-making limits the
inferences that can be drawn from these results.
Health and Retirement Survey A relatively new survey
designed to examine issues related to health and retirement
of older individuals, the Health and Retirement Survey
(HRS) includes information related to risk-taking and
pensions. The 9,495 participan ts ages 51-61 were asked to
make risky choices in both personal and financial contexts
and also provided pension information similar to that
collected for the SCF. Based on responses to the risk
questions, Barsky, Juster, Kimba ll, and Shapiro (1995) find
that men are more risk tolerant. Thus far, there are no
studies using this data to examine gender differences in
pension risk-taking. Furthermore, s ince the survey is aimed
at older individuals, any statistical analysis of this issue
would have limited applicability to the general population.
Other Studies of Risk Differences by Gender
Experimental Evidence Researchers have also attempted
to investigate risk-taking behavior by designing
experiments that require partici pants to make risky choices.
Although several such studies have been conducted , few
g
have examined gender differences in results. Brinig
(1994) and Jianakoplos and Bernasek (1996) conducted
hi
experiments that did not involve any risk of loss. Brinig
found limited evidence of gender differences but did not
test for significanc e. The Jianakoplos and Bernasek (1996)
experiment did not result in a s tatistically significant gender
difference.
It is clearly difficult to design experiments that mimic real-
life decision-making, particularly with respect to the
possibility of loss. Furthermore, experimental studies
generally suffer from a small sample bias. The common
practice of using college students as subjects cannot be
considered a random sampling procedure. Thus, it is
difficult to draw more than very limited conclusions from
these studies. However, experiments reported in the
insurance literature might provide guidance for future work
in this area, since individual response to risk of loss is the
primary motivation for insurance experiments.
Smaller Surveys Several less comprehensive surveys h ave
found patterns related to gender and risk taking that are
consistent with those reported above. For example,
Zinkhan and Karande (1991) found that female MBA
students, both American and Spanish, were significantly
less likely to take business ri sks than males. The instrument
used for measurement of risk-taking behavior was the
Kogan and Wallach (1964) Choice Dilemmas
Questionnaire and the sample included 212 students from
the University of Houston and the Madrid School of
Business. This study is particularly interesting in that it
demonstrates that gender differences persist cross-
culturally.
Brokerage firms are often interested in the investment
behavior of their clients. A questionnaire sent to clients of
a large brokerage firm found that gender was the third most
important determinant of investor style (after age and
income), with women being more conservative. (Lewellen,
Lease, and Schlarbaum, 1977). A more recent survey by
John Hancock was intended to investigate the awareness
and knowledge of plan participants with regard to their
401(k) plan. Although not the focus of the survey, they
found there were some gender differences in responses
(Yakoboski and Silverman, 1994). Despite being more
likely to have reported that they read educational materials
that lead them to believe they were investing too
conservatively, women were less likely to have altered their
investments accordingly. Similarly, a psychological study
on the character of gender differences in money handling
found that males and females had different styles. Men
were more inclined to feel competent in financial matters
and to be willing to take risks to amass wealth (Prince,
1993).
Implications of Gender Differences in Investing
The results reported in the previous section provide strong
evidence that women allocate their portfolios differently
than men and may differ in their attitudes toward risk-
taking. Regardless of why this is so, there are some clear
implications for the future, particularly with respect to the
financial well-being of older women. Increased popularity

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of self-directed pension accounts and proposals for social
security privatization sh ould be carefully examined in light
of the differential impact that these changes may have on
the social well-being of women versus men. This section
discusses these implications as well as the implications
related to the increasing presence of women in corporate
management positions.
Private Pensions: Increased Participant Investment
Responsibility
The trends in private pension provisions show that an
j
increasing proportion of pension plans are of the defined
contribution type. This type of plan, as compared to a
defined benefit plan, shifts investment risk from plan
sponsors to plan participants. Although pension coverage
for women has increased substantially in the last two
decades, women are still more likely to work at places of
employment that do not sponsor pensions, and when
offered, they are less likely to participate.
As more plans require participants to make their own
allocation decisions , differences in risk-taking behavior
k
will imply larger differences in retirement income. If
women are more likely to allocat e their portfolio to low risk
investments, their pensio n accumulations will be lower and
they will have lower wealt h at retirement. Due to generally
greater longevity, this lower wealth level will have to
support a longer retirement period, widening the income
disparity between retired men and women. Alternatively,
lower wealth may require that women will need to extend
their working years beyond the normal age of retirement .
l
If gender differences in risk-taking and perceptions of risk-
taking exist, there are also implications for participant
education. Most plans provide similar types of materials
and information to participants, including historical
performance, projections of future performance, and
projections of replacement ratios for particular investment
strategies. Larger pension plans are now beginning to offer
education on general investment principles and financial
planning for retirement. The fact that women are making
more conservative choices may be relevant to plan
sponsors and providers in their design of educational
materials.
Social Security Reform Proposals
Although the financial position of women over age 65 has
improved over the last few decades, this trend may be due
for a reversal. Gains have been largely due to generous
reforms of Social Security for certain cohorts of retirees.
However, recent reforms will substantially reduce the
replacement ratios that can be expected by future
generations . Individuals will therefore be required to
m
shoulder a greater share of the burden for their retirement
through own-savings and private pensions. To the extent
that women have tended to rely on Social Security for the
majority of their retirement income in the past, these
changes will have a great er impact on women than on men,
who have higher savings and higher pension coverage on
average.
Recent Social Security reform proposals that have gained
popular support would allow indi viduals to partially opt out
of Social Security in favor of private investment of a
portion of their payroll tax ( Wall Street Journal , February
20, 1996). As in the case of private pensions, more
conservative investment of this portion will result in lower
accumulations. If wealth accumulation in the individual
account is not sufficient to offset the reduction in benefit
formula, the end result will not be superior to the existing
formula.
Alternatively, if women choose not to opt out, they may
retire with benefits that are lower than those of individuals
who have taken advantage of the investment option.
Furthermore, if those who choose to opt out are higher
income and male, the Social Security trust fund may find
itself in worse condition than without privatizing since the
redistributive nature of the syste m requires the participation
of higher income individuals and those with shorter lives.
Risk-Taking Behavior and Corporate America
As more women enter the workforce, there are increasing
numbers of women in positions of authority in
corporations . While it may be the case that the women
n
who breach the “glass cei ling” are atypical women, there is
still the possibility that women in positions of authority may
perceive risks and deal with risk differently than men. It has
been suggested that gender differences in decision-making
and management style may be factors that have inhibited
female movement up the “corporate ladder.” Differences
in risk aversion could cause women to experience greater
difficulty in industries that reward risk-taking or measure
performance against benchmarks.
Another possible implication for business is that an
increased number of wom en in management could result in
reduced business risk-taking. The implications of this
projection are not clear although it is an issue of sufficient
importance to merit further study.
Explanations for Gender Differences in Investing
Researchers in many diverse fields have attempted to
provide explanations for observed gender differences. It
is difficult to definitively answer this question since
researchers can only observe the outcomes of decisions
rather than the decision-making processes themselves.
Gender differences in investing and risk-taking can be

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©1996, Association for Financial Counseling and Planning Education 5
attributed to many pos sible causes but, ultimately, it can be
shown that all the explanations have their root in
discrimination and/or differences in individual preferences.
These factors may influence risk aversion directly or
through outcomes such as gender differences in wealth,
income and employment. Figure 1 illustrates these effects
in the form of a flow-chart. The discussion below will
proceed according to the organization of Figure 1 by first
discussing the way in which wealth, income and
employment differences influence risk-taking and then
examining how these outcomes are the result of
discrimination and/or individual choice.
Outcomes
Gender Differences in Wealth Despite a narrowing of the
gender wealth gap over time, women still have lower levels
of wealth on average than men (U.S. Bureau of the Census,
1993). Expected utility theory establishes that in an
absolute sense (amount of money invested in risky assets)
risk aversion decreases with wealth (Huang and
Litzenberger, 1988). Because women have less wealth, it
follows that they will be expected to exhibit greater
absolute risk aversion than men. The implication is that
women, on average, will hold a smaller dollar value of
risky assets in their investment portfolios than men.
Jianakoplos and Be rnasek (1996) also find that women are
relatively more risk averse than men i.e. they will hold a
smaller proportion of their portfolio in risky assets.
Gender Differences in Income Despite a narrowing of the
gender earnings gap, women continue to earn less on
average than men. In 1993, the gender earnings ratio was
0.72 (U.S. Bureau of the Census, 1993). For individuals
over age 55, the difference is much greater. In 1991, the
ratio of female to male income for those age 55 to 64 was
an astounding 0.39 and for those age 65 and over was
somewhat better at 0.57 (Bureau of the Census, 1992).
Lower levels of income for women mean fewer resources
available for savings and investment.
Although there is evidence that the gender pension gap is
closing more rapidly than the earn ings gap (Korczyk, 1992)
lower levels of income for women have implications for
defined contribution and ben efit pensions based on income.
The main implic ation is that they will provide women with
lower overall benefits in retirement. It is also less likely
that individuals earning lower incomes will be covered by
pensions. Only 13% of workers earning $10,000 or less
are eligible for participation in pension plans as compared
to 41% with earnings between $10,000 and $20,000, and
80% for those with earnings over $50,000 per year
(Korczyk, 1992).
The trend toward defined contribution plans has worked to
the advantage of women in many ways , but it is also
o
possible that the greater fl exibility in these plans may result
in the use of plan assets for non-pension purposes. Lump-
sum pre-retiremen t distributions are increasingly common,
with 10.8 million persons receiving distributions in 1990
alone, totaling $126 billion. A study using the May 1988
Current Population Survey found that women were 40%
more likely to receive a payment than men, but the
percentage of both sexes that saved the entire distribution
was nearly the same (Fernandez, 1992). Only half of the
recipients rolled over their entire distribution into another
form of savings or retirement plan (Yakoboski and
Silverman, 1994). To the extent that women have lower
income and lower wealth, it is possible that they will be
more likely to access these lum p sum distributions for other
needs such as college tuition or housing. Lower income
may also mean that women will be less able to take
advantage of employer matches.
It should also be noted, however, that having income does
not necessarily tran slate into controlling income. Although
they do not find significant gender differences between
male and female prima ry family financial managers in their
sample of households, Hayhoe and Wi lhelm (1996) provide
a discussion of this issue and recommend further research.
Zelizer (1989) finds that husbands generally control
income, except at the very lowest income levels (where
control means allocating shortages and dealing with
creditors). Ferree (1990) contends that there is a need for
further research on the issue of household decision-making
and that the available survey data in the United States is
flawed in that they continue to treat households as a single
decision-making unit.
Figure 1
Causal Relationships for Gender and Risk-Taking.

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Gender Differences
in Investing and
Risk-Taking
Gender
Differences
in Wealth
Gender
Differences
in Income
Gender
Differences
in Employment
Discrimination
* labor and credit
* investment advice
* information
Choice
* human capital
* dependent
care information
Socialization Biology
Financial Counseling and Planning, Volume 7, 1996
6©1996, Association for Financial Counseling and Planning Education
Gender Differences in Employment Despite inroads by
women into traditionally male occupations, the labor
market continues to be segregated occupationally by gender
with women concentrated in low paying occupations and at
lower levels within occupations (Reskin and Hartmann,
1986; Reskin, 1988). Witkowski and Leicht (1995)
include an excellent review of this literature in their study
of how gender roles in the family influence labor force
activity by gend er and occupational segregation by gender.
Magenheim (1993) reviews several studies that imply that
occupational segregation by gender has pension effects.
Female-dominated jobs are also job s that are the least likely
to have employer-sponsored pension plans. Occupational
segregation is thus an explanation not only for lower
average female earnings but also for lower coverage rates
which imply greater relianc e on own-savings for retirement
income. Similarly, women s greater likelihood of being
employed in part-time and temporary occupations (Blank,
1990; Blau & Ferber, 1987) provides an explanation for
their lower average earnings and fewer pension benefits.
Workers in part-time and temporary jobs who desire health
insurance, disability insurance or life insurance coverage
must pay for it out of disposable income, thereby further
reducing resources available for savings and investment.
Since women are also more likely than men to change jobs
(Light & Ureta, 1990), they face greater job switching
penalties inherent in defined benefit annuity formulas . In
p
addition, as Ferguson and Blackwell (1995) point out, a
less obvious penalty is due to vesting rules. Despite the
shortening of averag e vesting requirements in recent years,
more women than men leave their places of employment
prior to vesting in their pensions.
Causes of Wealth, Income and Employment Differences
Discrimination Gender discrimination in labor markets
has been shown to play a role in labor market outcomes for
women and can explain their lower wages (Neumark and
McLennan, 1995). Women c ontinue to face discrimination
in credit markets both for personal and business loans
(Wray, 1995). The popular press has reported on the
“glass ceiling” facing women in corporate American and
the “brick wall” facing women seeking business loans
(Newsweek, August 24, 1992). A bipartisan federal
commission studying discrimination in the workplace
(commonly referred to as the “glass ceiling commission”)
recently released its report which concludes that the glass
ceiling exists and it is “the u nseen, yet unbreachable barrier
that keeps minorities and women from rising to the upper
rungs of the corporate ladder regardless of their
qualifications and achievements” ( New York Times ,
November 23, 1995). A recent Virginia Slims Opinion
Poll of women s issues shows that more women in 1995
believed that discrimination in the workplace impedes
movement into executive positions than did in 1970
(Townsend, 1996). The feedback hypothesis posits that
women who experience labor market discrimination
respond with job switching, career interruption and less
investment in human capital, resulting in lower wage
growth.
Anecdotally it has been reported that women receive more
conservative investment advice than men, either because
they are believed to be more risk averse or because the
investment adviser believes they "should" be. In the first
case this is an example of statistical discrimination where
advice is being offered on the basis of a perception of
average willingness of women to take risks rather than on
the individual's willin gness to take risks. Although it is not
clear that women are consistently being advised into
“widows and orphans” investments, a recent Money
q
magazine survey of how brokers treat their customers found
that brokers treat male clients better than female clients,
spending more time with them and offering them a wider
variety of higher return (and presumably higher risk)
investments (Wang, 1994).
Anecdotally, it has been re ported that managers suffer from
some of the same (mis)perceptions as investment advisers.
They may attempt to "protect" women by not promoting
them into positions that are regarded as more risky, such as

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jobs that are paid on commission ( Wall Street Journal,
May 17, 1994). A 1995 Catalyst survey of female
executives indicates that more than half of the women
surveyed attribute male stereotyping as a significant factor
preventing advanc ement of women to corporate leadership
(Townsend, 1996). This has the potential to restrict
advancement opportunities, and, to the extent that
experience with risk improves one s understanding, it may
perpetuate risk averse behavior by women.
The impact of information on investment decision-making
has two separate dimensions to it. Women may differ in
access to information and they may also differ in their
ability or inclinat ion to use available information. Handley
(1994) reports that women experience exclusion from
informal networks and, as a consequence, lack of prompt
access to valuable information in the organization. It is
interesting to note that in the female executive survey
discussed above nearly half of the women executives, but
only 15% of the male executives, reported exclusion from
these networks to be facto rs preventing the advancement of
women. Most men (82%) cited lack of experience as an
important factor.
Choices The choice-based explanation for gender
differences in investing and ri sk-taking derives from human
capital theory in economics. Human capital theory
(Becker, 1975) states that women rationally choose to
invest in less human capital (education, skills, on-the-job
training) than men, which in turn affects their employment
opportunities, thei r incomes and their ability to accumulate
wealth. Women make diffe rent choices than men primarily
due to their greater family responsibilities. The gender
division of labor wi thin the family, which results in women
taking primary res ponsibility for household work and child
care, is seen alternatively as the result of inherent biological
differences or as the result of socialization.
Despite increases in women s investments in human
capital, they still invest less on average than do men
(Sandell and Shapiro, 1980), and they invest differently --
much less than men in m ath and science related areas. The
implications of this are that women choose low-paying
occupations that require less human capital, and in turn
choose to earn lower incomes (Light and Ureta, 1995;
Vella, 1994). Eccles (1994) provides an excellent review
of the literature on gender differences in math and science
achievement in her study of how gender role socialization
explains women s educational and occupational choices.
In their study of two issues related to educational
opportunities for girls and boys, Ramos and Lambating
(1996) conclude that tests such as the SAT which have
penalties for wrong answers are biased in favor of greater
risk takers. Since their review of the literature indicates that
boys are more inclined to be risk takers, they argue that
tests in which risk plays a role d iscriminate against females.
Poor test results negatively affect girls confidence, their
opportunities and desire to attend college, and their choices
of subjects to study, particularly math and science fields.
Ramos and Lambating (1996) suggest that discrimination
can produce feedb ack effects which in turn affect women s
choices. Another study which examines these feedback
effects directly in relation to the labor market is Neumark
and McLennan (1995).
Women s responsibility for dependent care has tended to
make their work life shorter and characterized by more
interruptions on average than men s. Women are more
likely to take time out of the workforce for family
responsibilities (child bearing , child care, elder care) which
makes it difficult for them to take advantage of long term
investment growth in re tirement savings. Women continue
to be the primary caretakers in families, responsible for
care of children and the elderly. In the Working Care
Givers Report (1989) commissioned by the American
Association of Retired Persons (AARP), it was estimated
that three out of every four employed persons who provide
care for the elderly are women. This can affect the time
women have available for jobs a nd it can often mean higher
current expenditures and less money available for
investment.
A recent article in the New York Times reported on the
increase in investment clubs for women ( New York Times ,
October 15, 1995). Women are becoming more aware of
the need to learn more ab out money. It may be that women
on average have had less inclination to collect and process
financial information and that this has affected their
willingness to undertake more risky investments. If they
have had less exposure to the information and less
experience with processing it, then they may have less
confidence and less of a desire to become knowledgeable
about financial mat ters. With private pensions women and
men are required by law to receive the same information
but there is evidence to suggest that even then women are
more conservative in their investment allocations, holding
much higher proportions of their portfolios in fixed assets
than men (National Underwriter , May 6, 1996).
Biological Determinism Versus Socialization
The continuing debate over biology versus socialization as
the basis for women s choices has a long history (Huber,
1993). The biological argument maintains that because of
women s greater biologi cal responsibility for reproduction,
evolution has led women to be less willing to take risks
than men. LaBorde Witt (1994) explores the gendered
division of labor in care-giving and presents an extensive

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Financial Counseling and Planning, Volume 7, 1996
8©1996, Association for Financial Counseling and Planning Education
review of the lit erature on the biology/socialization debate.
Feminist scholarship has emphasized the importance of
gender as a social construct and has been influential in
making the argument that gender differences are more
important than biological differences when it comes to
understanding differences in the behavior of women and
men (Nelson, 1996). The work of Gilligan (1982) and
Chodorow (1978) examining the formation of gender
identity early in life has been particularly influential in
subsequent feminist scholarship. Since most researchers
agree that socialization plays at least some role in
influencing women s choices, it is not necessary to belabor
the relative influence of biology. From a policy
perspective, interventions focused on changing
socialization p rocesses can still positively impact the well-
being of women by influencing their decision-making.
Conclusions and Implications for Future Research
Investigation of gender differences in investing is a new
area of research in finance and economics. Because the
research is at such an early st age, much remains to be done.
Studies to date have not produced a clear understanding of
the causes of observed gender dif ferences and it is therefore
too early to identify appropriate policy interventions.
Nevertheless, popular beliefs regarding the causes of
gender differences h ave motivated policy-makers to create
programs designed to improve economic outcomes for
women.
If interventions are based on misconceptions regarding the
cause of the risk-taking differences, then programs may be
ineffective in achieving desired outcomes and may
inefficiently allocate limited public resources. A priority for
future research will be to more thoroughly investigate the
causes of gender differ ences to better inform policy makers
and investment professionals.
In this paper, we have delineated the alternative
explanations for gender differences in investment and risk-
taking in an effort to help guide data collection and
identification of relevant variables for empirical research.
Review of the limitations of previous studies suggests that
existing datasets are inadequate for the purposes of
investigating gender differences in investing. Future
academic and professional research will require more
detailed information on household financial decision-
making, particularly with respect to understanding the
decision-making process. In the absence of this
information, outcomes suc h as gender differences in wealth
will not serve as an accurate indicator of risk preferences.
Greater efforts need to be made, particularly in the design
of surveys, to acquire information that allows researchers
to distinguish between the influence of discrimination and
individual choice, as well as the determinants of choice.
Endnotes
a. See Hinz, McCarthy, and Tu rner (1996), Bajtelsmit and VanDerhei
(1996), Bajtelsmit, Bernasek, and Jianakoplos (1996), and
Jianakoplos and Bernasek (1996).
b. Magenheim (1993) reviews the literature on gender patterns
through 1992 and does not include any studies on investing
behavior.
c. For example, large data collection efforts include: the Survey of
Consumer Finances, the Survey of Income and Program
Participation, the Health and Retirement Survey.
d. For example, the Survey of Consumer Finances assumes that the
head of household is the male spouse.
e. A new privately sponsored survey of TIAA-CREF participants
includes decision-making information, although the sample is not
representative of the population and the survey has incomplete
information on the household.
f. Riley and Chow (1992) used the 1984 panel of the Survey of
Income and Program Participation (SIPP) data to construct a
relative risk aversion measure, but reported results do not include
any tests for significance of differences by gender.
g. For example, Gertner (1993) and Metrick (1995) examine risk
taking behavior on game shows. Altaf (1993) experiments to
determine whether risk taking is context dependent and Levy
(1994) examines student choices between risky and risk-free assets.
h. The game involved drawing a winning ball from one of three jars
representing different risk-return payoffs.
i. Using the same game as Altaf (1993), the game paid $25 to the
participant who accumulated the most points. Points were
obtained by choosing to roll a die or toss a coin, each of which
involved certain payoffs in the form of points. The two alternatives
had the same expected value but different variance.
j. A review of recent trends in sponsorship, coverage, plan type and
participant decision-making is provided in Bajtelsmit and
VanDerhei (1996).
k. ERISA section 403(b) exempts plan sponsors from fiduciary
liability for bad investment performance if: 1) the participants are
offered a choice of at least thre e alternative investment options that
differ in risk and return characteristics and 2) the participants are
given information sufficient to make an informed decision.
l. However, this may not be feasible given Fries (1991) evidence
that, although the age-span is lengthening, the age of morbidity is
not significantly different from that of earlier generations.
m. Aaron, Boswell, and Burtless (1989) project that replacement
ratios for 65 year old low income retirees in 2030 will be 51%
compared to 63.8% for retirees in 1985. For those with average
income, the change is projected to be a reduction from 40.9%
replacement to 35.8% in 2030.
n. Although most estimates put women s representation in senior
management at 5% or less, women now hold 10% of the seats on
Boards of Directors in the Fortune 500 (Townsend, 1996)
o. For example, women have generally benefitted from the absence
of the implicit penalty to job switching that is imposed by defined
benefit plan formulas. The lower administrative costs of defined
contribution plans and the lower risk to employers has also made
employers more likely to offer plans where none had been offered
before, resulting in higher pension coverage ratios for women in
the last decade.
p. When workers leave a job with vested DB benefits, the retirement
benefit formula is often based o n years of service and final average
salary. Assuming some level of wage growth over time, a worker
with identical total years of service at several different employers
will have a lower total benefit from the multiple pension plans than
a worker who has had a “career” job at a single employer with a
similar DB formula.
q. The “widows and orphans” terminology originates from the titles

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Why Do Women Invest Differently Than Men?
©1996, Association for Financial Counseling and Planning Education 9
of early insurance funds designed for women. It is commonly used
today to describe investments that are low risk. See, for example, a
recent article in The Economist: “Not for Widows, Orphans--or Hedge
Funds: Mortgage Backed Securities” (July 9, 1994, pp. 81-82).
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