It’s the financial version of Mars vs. Venus. Men and women have different styles when it comes to money. But which gender’s skills translate into better investment results?
We all know it’s a gross oversimplification. But researchers do say that, in general, men and women display different money behaviors that affect the way they spend, save and invest. Ronald Wilcox, professor of business at the University of Virginia, and fellow at the National Marriage Project, comes to an interesting conclusion in his article “The Smart Money: She Saves, He Spends.”
He finds the traditional division of labor in the household, where men handle investments and women handle the shopping and billpaying, should be turned on its head.
“Even though men typically take the lead when it comes to managing the family investments, they have … psychological characteristics that play havoc with their ability to invest money,” says Wilcox. The problem? Evolutionary instincts lead men to think they know what they are doing when it comes to investing, although they often do not. Those same forces lead women to think they don’t know what they are doing, although they often do.
Here’s why: Men tend to be overconfident investors, who trade and switch investments more actively, are less likely to listen to financial advice, incur higher transaction costs due to frequent trading, and ultimately, do not generate better risk-adjusted results than women. Women are less confident about their financial abilities, switch investments and trade less often, are more likely to listen to financial advice, and as a result, usually generate superior risk adjusted returns.
What’s the fix? Wilcox says men and women should reverse roles. Wives should take the lead when it comes to long-term financial planning and investments, since their skills are better suited to the task.