Why More Women in Finance Means Increased Financial Stability

by Sherry Hao, Controller, U.S. Money Reserve

Diversity in finance is crucial to the long-term stability of business and our economy.

While strides have been made over the last few years, there is still a glaring diversity problem in the financial business. A lack of diverse genders, races, religions, and backgrounds poses a problem for all businesses, but it poses a particularly dire issue in the financial space. Without true diversity, the financial sector will fail to innovate, thrive, and grow. While I realize that this statement sounds incredibly drastic, the lack of diversity in the financial sector continues to be an ongoing issue — especially when it comes to including women in the space.

First, allow me to give you some context: A recent study by Catalyst shows that women make up nearly half of the financial services industry. That’s good news on one level. However, the same study reveals that less than 13 percent of women in finance are in leadership roles like CFO. One particularly alarming portion of the study also shows that women are less likely to get promoted in the financial industry.

While that study is a bit dated at this point (from June 2020), a recent study from Oliver Wyman shows that in 2020, the financial industry made strides toward diversifying its employees. However, there are still considerable strides to be made. According to that study, women make up 20% of executive committees and 23% of boards. While that’s a step in the right direction, we have much more to do.

But why is having more women in finance such a vital aspect of success? Read on to find out numerous reasons.

Why More Women in Finance Matters

It likely seems a bit ridiculous to have to continue having this kind of conversation in the modern era, but the truth is that without continuing to discuss gender (and other) workplace equality, it falls by the wayside. While many of the studies that I cite below were done pre-pandemic, it’s essential to acknowledge that these studies contain factual data that should serve as a starting point for the continued inclusion of women in finance. In addition to this, it’s also important to consider how the pandemic has impacted the workforce as a whole and women in particular.

In the last two years, women have been hit the hardest by the global COVID-19 pandemic. Between 5.4 and 11 million women have lost their jobs over the last year, thanks to the pandemic. That’s worse than the job losses during the Great Recession back in 2007 and 2008, when 2.5 million women and 5.5 million men lost their jobs. What’s worse is that according to a study released in September 2020 by McKinsey, these job losses may not be temporary. The consulting firm found that nearly one in four women is considering downshifting their jobs or stepping entirely out of the workforce as a result of the pandemic, whether it’s to take care of an ill family member or be taken care of.

Women have increasingly left the job space because of pressure from home during the pandemic. Women may be the breadwinner or one of a pair of earners in a household, but they also took on the additional full-time responsibilities of managing their kids’ education and activities during the pandemic. With the advent of virtual schooling and classes and the closures of daycares, after-school programs, and kids’ sports, many parents have struggled to balance the pull of work and home. Still, the brunt of the responsibility for keeping the family on task, fed, clothed, and showing up for class has fallen to women.

More Women in Finance Yields More Financial Stability

According to a 2018 story by the World Economic Forum, including women throughout the financial system — on both the customer side (depositors and borrowers) and the firm side (at higher levels of leadership within a financial firm) — makes the banking industry as a whole more stable. Interestingly, banks with more women on their boards tend to have greater resistance to stress, higher capital buffers, and a lower proportion of nonperforming loans, according to the study.

Essentially, this study shows that back in pre-pandemic times, increasing female representation in the financial sector yielded more stability for a bank, which can mean better returns for both investors and employees. More stability in banks means that the global monetary system remains stable, which in turn, offers the perfect foundation for growth.

Of course, it’s important to acknowledge how the last two years of pandemic life have impacted the work landscape, from the perspectives of both women’s employment and women’s participation in finances. If the women who have opted out of the workspace during the pandemic continue to stay out of the workforce when things recover — and out of the financial space in particular — the stability of banks and financial systems is at risk.

More Women in Finance Means Better Financial Decisions and Investments

As multiple studies have shown, women make slightly better investors than men do. This is attributed to the fact that women tend to make less emotional moves than men do. They choose different and generally less risky investments than men do, trade less frequently than men do, and are generally less susceptible to overconfidence.

A 2018 study done by Warwick Business School in England shows that women investors outperform men by 1.8 percent. The study looked at 2,800 investors in the FTSE 100 and found that while men got returns of around 0.14 percent better than the FTSE, female investors got returns of 1.9 percent over the FTSE. The study shows that it is really more about what women invest in rather than how frequently they trade (women in the study traded an average of 9 times per year, while men studied traded an average of 13 times per year).

A more recent study released in October 2021 by Fidelity looked at the breakdown of its female customers and their returns. The study found that female customers earned, on average, 0.4 percentage points more annually than their male counterparts. While that doesn’t seem significant, it can add up to tens of thousands of dollars or more over time.

According to the cheekily headlined write-up about the report over at The New York Times, “Female Fidelity customers bought and sold half as much as male customers. Vanguard saw similar patterns over the same decade-long period when examining workplace retirement accounts that it manages; at least 50 percent more men traded in them than women did every year during that time.” Since men were trading more frequently, they winnowed down their returns. Women, who tended to stay longer in investments and make more calculated and less frequent moves, performed better.

More Women in Finance Means Better Risk Management

Since women tend to trade less frequently because of the numerous reasons listed above, it naturally follows that if there is more stability at a financial firm as a result of having more women in that particular workforce, risk management will improve. Women tend to make less risky moves, no matter whether we’re facing a pandemic or not, and as The New York Times points out in the story above, women are less susceptible to overconfidence.

A study by Mercer, a workforce management group, shows that by including more women in finance, banks take less risk — which they surmise could yield better financial outcomes.

A series of studies reported on by the British newspaper The Guardian shows that, in general, women make better financial decisions based on risk than men do. According to neuro-economics, women are less likely to jump into a bubble or jump out of a falling market.

While it only utilized a very small sample size, one particular study by John Coates at Cambridge University shows that stock bubbles (and their resulting crashes) are largely a young male phenomenon, thanks in large part to the role of testosterone and cortisol overload among traders.

All of this shows that including more women in finance means better risk management. Whether you’re hiring a woman as a CEO or bringing a woman on board to manage your P&L, it pays to have women at the table in order to better manage risk.

More Women in Finance Brings More Diversity

Bringing more diverse voices to any table will inevitably bring new approaches and new thought leadership to a business. It is no different in financial services, and it’s one more reason that female representation in finance is so crucial.

Diverse companies are more creative, according to CNBC. Additionally, a study by the Peterson Institute for International Economics shows that having women in the c-suite increases net profit margins by as much as one percent. Diversity of ideas and voices is crucial for business success.

Bringing more women into the financial boardroom also raises engagement across a firm. A recent Korn Ferry report shows that having women in the executive suites in financial firms boosts employee engagement more than having all-male boards.

Essentially, the more women you have at the table, the better off your company could be when coming up with the next new product, innovation, or growth opportunity. Diversity of gender, sex, sexual orientation, race, and background allows companies to adapt to changing landscapes more quickly and find creative solutions to issues that arise in the ever-changing business world.

The Bottom Line on Why More Women in Finance Means Increased Financial Stability for Business and the World

While it should go without saying that business leaders should strive for increased inclusion and diversity in their workforce across all sectors, it’s particularly true in the financial sector. The impetus for inclusion and diversity, especially when it comes to including women in the space, is particularly acute since the risks are so high.

It can’t be understated just how vital it is to include women in finance. By including women in the financial sector and ensuring that their voices and opinions are heard when it comes to financial moves and business, we can ensure that not only will our businesses survive this strange new world, but also that the global economy will continue to remain strong and grow well into the future.

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