Would You Use a Women-Centric Financial Service?

The first time I met with a financial advisor, I was five months pregnant and about to take a one-year maternity leave, which was unpaid because I’m self employed. Feeling the pinch, I wanted advice on how I could save for daycare costs, pay my bills, and still put away enough money in RRSPs and TFSAs. Instead of helping me plan for this major life change, the financial advisor offered to sell me life insurance. Fail.

I’ve always felt that the system could do a better job with helping Canadian women map out their financial futures. In my experience, financial advisors and investment professionals don’t discuss issues like dealing with a public pension system that doesn’t recognize caregiving as work, or how to save for retirement while working part-time and looking after a toddler. It’s a man’s financial world.

Until now. Launched in May 2019, Smart Money for Her (SM4H) is an online investment platform “designed by women, for women.” The platform takes a goals-based approach to investing that factors women’s unique circumstances into its underlying calculations, such as longer life expectancy, lifetime career disruptions, and the ongoing gender pay gap. It also provides access to “investments with purpose” (such as socially responsible investments), as well as financial literacy and educational support tailored specifically for women and intended to tackle what SM4H calls “the confidence gap.”

Over the years, a number of women-oriented financial products have cropped up in the United States – the most noted and lasting being Ellevest – but SM4H is the first of its kind in Canada. With its debut, SM4H is raising some important questions about whether financial products for women should be a thing, and if these products are a valid solution to fixing gender inequalities in personal finance.

Mind the Gaps

Research from Statistics Canada suggests that women’s financial literacy falls behind men’s: In the 2014 Canadian Financial Capability Survey, about 15% of women and 22% of men correctly answered five key financial literacy questions related to interest, inflation, and risk diversification. In that same survey, women were less likely than men to consider themselves to be “financially knowledgeable” (31% vs. 43%) and were less likely to state that they “know enough about investments to choose the right ones that are suitable for their circumstances” (48% vs. 63%).

Canadian women lag behind men in building our retirement savings. The reasons are complex, but it’s partly because we live longer (79 years for men vs. 83 years for women), earn less (87 cents to every dollar a man makes), and experience more career disruptions (on average, working 10 years less than men). A recent Broadbent Institute study found 28% of Canadian senior women are living below the poverty line and some experts predict that it’s going to get worse in the future.

“It’s not that there’s some intrinsically big difference between men and women in terms of investing or saving,” says Sarah Kaplan, Director of the Institute for Gender and the Economy and Professor of Strategic Management at Rotman School of Management at the University of Toronto. “It’s much more because of social structures and constraints that lead women to earn less – they are less able to save and therefore less able to accumulate enough to be able to retire safely.”

As a remedy, some researchers advocate for women to save more for retirement than men – 18% vs. 10% to be exact – as a means of making up for this “gender retirement gap.” So, if the financial industry isn’t in tune with women’s unique challenges, then many Canadian women could be short-changed when it’s time to cash in their nest eggs.

If we were to reframe existing financial and investment tools as tools designed by men, for men, then why shouldn’t there be tools designed by women, for women?

Are These Products Really Necessary?

Some doubt that adopting a gender-based approach to investing and finance will be effective.

“I believe investment knowledge is prudent and not gender-specific,” says Isobel Russell, Senior Director of Business Operations at Justwealth. “Both men and women can have financial disadvantages and with increased life expectancy, it is critical that people educate themselves and seek investment advice to better equip themselves to meet their savings and retirement goals.”

Justwealth focuses on meeting the diverse needs and objectives of a broad clientele, offering over 70 portfolio options as well as financial planning support. But others argue against a gender-blind approach.

“Our current system of savings, retirement, and investments, and the way banks treat women who are investors – it’s not a gender-neutral system,” says Kaplan. “It’s a system for men that doesn’t take into account differences in earnings profiles and career interruptions.”

Kaplan points to the so-called “gender-neutral” Canada Pension Plan (CPP) as a key example: If women are taking time out from work to care for parents, children, or just to manage the household, they’re not reaping the full benefits of that retirement plan, even though they’re contributing to the wider economy and society. This definitely rang a bell for me. I lost out on a year of pension contributions because I took a maternity leave, and as a self-employed person, didn’t qualify for maternity benefits under Canada’s Employment Insurance system.

“If you did a gender budget analysis of the Canada Pension Plan, you would discover all the ways it’s incredibly gendered and disadvantages women,” said Kaplan.

Furthermore, Kaplan criticizes how women-oriented financial products are commonly branded and dismissed as a “specialty” product, whereas “the other stuff is for all people.” She says that this type of thinking is flawed.

“Men and women have been socialized to talk about and engage with money differently,” said Kaplan. “An app like Ellevest has really approached the investor in a completely different way. And why not? Women are 50% of the world, so it’s not a niche product. If we were to reframe existing financial and investment tools as tools designed by men, for men, then why shouldn’t there be tools designed by women, for women?”

Other policy experts caution against trying to fix gender-based financial disparities from within the private sector, suggesting that gendered financial apps are a Band-Aid solution that fail to address larger structural inequities. According to Katherine Scott, Senior Economist at the Canadian Centre for Policy Alternatives, the focus should instead be on correcting gender inequalities embedded in Canada’s public programs.

“Those sorts of vehicles [like SM4H], it’s all based on individuals saving for their retirement,” said Scott. “If we’re really going to tackle the disparities that women face, it’s going to be through programs like the Canada Pension Plan, which provides a really strong foundation for people in their retirement years precisely because it is a public program that covers everyone.”

How Can the Financial Industry Better Meet the Needs of Women?

Image source: Shutterstock

There’s no easy fix, but the experts have a few ideas.

Adjust the Algorithms

SM4H’s algorithm automatically adjusts for gender, and it’s further tweaked after its investors speak to their Portfolio Manager. This is a unique feature that no other robo advisor currently has in Canada, and looking at Ellevest’s success, it’s something that Kaplan believes can “really benefit women investors.”

“The algorithms are trained on women’s careers, earning profiles, life cycles, age and demographic information,” said Kaplan. “What we know about algorithms is that the outcomes that they produce are completely shaped by the data they’re trained on. So if you train an algorithm based on data that’s about women’s investing patterns, you’re going to get an algorithm that’s going to be more suited to what we know about women’s earning and retirement patterns.”

Read the Room

Historically, the financial sector has largely catered to a male audience. According to Scott and Kaplan, the financial services markets need to get with the times.

“It’s really important to acknowledge that women are located differently in the labour market. They have different experiences, they tend to be lower income, but these products that are being sold are to the benefit of a select group,” said Scott. “The idea of having tailored financial literacy programming for women is really important.”

SM4H has designed financial literacy resources specifically with women in mind. When it comes to financial planning, most robo advisors are fairly “hands-off,” but SM4H offers one-on-one phone calls with an investment professional.

“What I like about Smart Money for Her is it’s very focused on, ‘Let’s just educate you and then you’re going to be able to do it,’” says Kaplan.

Offer Goal-Based Investing

Like most robo advisors, SM4H prompts investors to answer a series of financial questions to determine what kind of investment portfolio will best suit their situation and risk tolerance. But SM4H also asks investors about their specific goals and priorities – a deviation from many (though not all) of the popular robo advisors in Canada.

“Women typically look at their financial situations in this way, which is why the platform was designed in this manner,” says founder Tuula Jalasjaa . “It’s an intuitive way of investing that starts with the question: what are you saving for?”

The answer could be retirement, a child’s education, travel, saving for a home – anything counts. This goal-based investing has been used by other women-focused financial products, and as Kaplan says, it’s tapping into how women are socialized to think and talk about money.

“If you go to the Ellevest app, the way it talks to the investor is very different,” said Kaplan. “Women on average are socialized to be not as concerned about money, but more concerned about the goals that money can achieve – like taking care of your family. So the way the questions are asked are more oriented to the kinds of ways that women have been socialized to think about money.”

Do a Gender Analysis

“Any bank or investment advisory should do a full gender analysis of everything they do to understand the ways in which they’re actually excluding half the population with the practices that they have,” said Kaplan.

A gender analysis provides information on the different conditions that women and men face, and the different effects that policies and programs may have on them because of their situations. It involves asking tough questions and gathering information to enrich the understanding of the gender roles and relations in a specific context. Such information can inform and improve policies and programs and is crucial to ensuring that the different needs of both women and men are met.

Fix the Public System

A top priority should be restructuring public pensions and income security programs to correct existing gender inequities.

“Women who don’t have the same types of labour market histories [as men] will not have very large CPP benefit cheques,” said Scott. “Because women are more likely to drop out of the labour market for caring responsibilities or they are more likely to have lower incomes generally or be concentrated in lower-paid occupations, the amount of money that they’re saving through a vehicle like CPP is smaller and so their benefit checks are smaller when they reach retirement.”

Scott suggests that the government could redefine eligibility criteria; increase benefit levels; change the treatment of earned income or other seniors’ benefits; and alter the length of residency necessary to access benefits (for new immigrants).

“Our organization has also pushed hard to increase the CPP replacement rate from the current target of 33.5% (being phased in right now from 25% at present) to 50% of earnings,” said Scott. “We have also argued that the change to the ‘drop out’ provisions announced in 2016 (along with the replacement rate increase) will represent a loss for women who will receive lower benefits as a result.”

“The idea is to create a strong public retirement platform – these types of policies are much more advantageous for groups (such as women) that don’t have funds to put into private savings vehicles or are precariously or intermittently employed.”

Likewise, the Guaranteed Income Supplement could do with a makeover, with Scott arguing for improved benefits for low-income seniors who are largely women.

“We’ve seen increases actually in seniors’ poverty rates in recent years, so bringing in new reforms for GIS is really important,” she said. “Some of the proposals have been to increase the amount of benefits that are available through the GIS for seniors, as well as to again look at the eligibility requirements.”

Such a multi-pronged, systemic approach would provide a strong “foundation for tackling poverty and addressing low income in retirement” as opposed to relying on individual action.

“Programs like CPP, Old Age Security, and Guaranteed Income Supplement are critically important for women’s retirement,” said Scott. “In terms of needed reforms for public programs that provide the foundation for economic security in people’s retirement, there is still a critical need to take women’s unique life experiences into consideration.”