In preparation for our June 21st Spotlight call at 4pm ET, we explore gender differences in risk propensity and tolerance. Risk-taking is an inherent part of everyday life, but how men and women approach risk, consider risk, and ultimately decide whether to take a risk, differs greatly. Knowing clients’ risk attitudes is a necessary part of an FP’s role, and a deep understanding of a client’s risk tolerance can set an FP apart. A key variable in risk attitudes is gender, and even just awareness of key differences between men and women can lead to more meaningful conversations and optimal financial plans.
First, a qualification for the ensuing information that will be reported: we are not highlighting differences between men and women to declare one gender greater than the other or to suggest biological differences are the underlying cause, as the reported findings are due to psychological processes. It is also important to keep in mind that the conclusions below are the result of aggregate analyses—no single person will necessarily show all the described characteristics or behaviors. However, on average, the highlighted differences between men and women can be expected.
When it comes to risk-taking in the financial realm, there are two main behaviors of interest—whether someone takes a risk at all and what risk they choose to take. For both we see significant differences between men and women.
In its most general definition, risk involves the probability of a loss (negative outcome). When considering risk in this broad sense, everyone takes hundreds of risks a day (e.g., driving, eating, riding a bicycle, swimming, and crossing the street). For most of our daily activities, the likelihood of harm is so low that we don’t consider the behavior a risk at all.1 However, when risk is recognized, most individuals will avoid that risk (they are risk averse).
Risk attitude is how an individual feels about risk. Technically, it’s defined by how much a person must be “compensated” (i.e., the upside) to accept the risk of the downside. Individuals can either be risk averse (avoidant of risk and willing to give up expected value to avoid uncertainty), risk-neutral (neutral towards risk and choosing the option that provides the greatest expected value), or risk-seeking (enjoys taking risks and would prefer an option that entailed uncertainty even if the expected value is lower). We predominantly see the first and rarely see the third type. As an FP, you would likely prefer your clients to be risk-neutral—making choices solely on expected value maximization.
Risk attitude can also depend on the context and the individual—including whether the person is male or female. Given the ubiquitous presence of risk in everyone’s life, and its especial importance in financial planning, any insights into why someone may or may not take a risk are of incredible value. In the ensuing discussion, we identify and dissect one such valuable variable—gender—one of the more robust areas of gender differences in financial decision-making.
Given the ubiquitous presence of risk in everyone’s life, and its especial importance in financial planning, any insights into why someone may or may not take a risk are of incredible value.
When it comes to risk-taking in the financial realm, there are two main behaviors of interest—whether someone takes a risk at all (i.e., invests or not) and what risk they choose to take (i.e., equities, money market. etc.). For both, we see significant differences between men and women. Overall, women are much less likely to take any risk (they are more risk averse). The reduced propensity to take risks has been attributed to women predicting a greater likelihood of negative outcomes, a lower likelihood of enjoyment, and a greater level of severity in the potential negative outcomes as a result of taking the risk.2 In contrast, men are more likely to believe they will obtain greater benefits from engaging in risky activities and find the activity enjoyable. They also tend to take more risks voluntarily3 and show an increased optimism bias (they tend to overweight favorable information and underweight unfavorable information when estimating the likelihood of a positive outcome).4
Women are less likely to take any financial risk compared to men. This is due in part to women being overly pessimistic about the potential outcomes from taking the risk and men being overly optimistic.
For financial risks specifically, the Survey of Consumer Finances found that 60% of women (vs. 40% of men) said they would not take any financial risk at all. Further, risk tolerance in investing is driven by distinct variables for men and women—men tend to be influenced by experience, how much they enjoy analytical cognitive efforts, intuition, age, and timing of the decision; women are more likely to be influenced by the emotional response they expect to have to losses, and how much they trust in strangers.5
Now, assuming that an individual is taking financial risks, what risks do they take? Men and women decide to invest in very different things and can incur very different downstream consequences as a result. Women are less likely to participate in the stock market or possess a high share of stocks in their portfolios—in fact, women are 5% less likely than men to invest in a stock fund and 3.4% more likely to invest in a money market fund.6 This means women, in general, earn significantly lower returns than men and this disparity only increases the longer the assets are held.7 However, women are better at hedging longevity risk—women are 4 percentage points more likely to choose annuitization than men8 —which is good because they also tend to live longer.9
When it comes to risk tolerance and decisions entailing uncertainty, both men and women suffer from detrimental blind spots. As an FP, you can improve outcomes and provide significant and meaningful support for both genders in different ways.
For female clients, or clients who are more risk averse, it is helpful to move them towards risk-neutrality. Given that women are more reactive to anticipatory emotions regarding loss, it can be helpful to focus these clients on the potential losses of not investing more optimally. An especially impactful way to moderate overreactions to losses is to show clients distributions of outcomes over time for a given fund or portfolio. For any asset with a long-term positive expected value, this distribution will help reduce fears of loss and calibrate probability estimates. To determine whether someone is reactive to losses you can have them take our Loss Aversion PulseCheckTM, and our Financial VirtuesTM survey also indicates whether a client is prone to loss aversion.
For male clients, or clients who may be overly optimistic in their risk-related judgments, it is also important to move them towards risk-neutrality, but doing so requires different actions on the FP’s part. The problem here is more about overconfidence, confirmation bias, and illusions of control than about overreactions to negative potential outcomes. In this case, it is important to temper these issues via objective feedback and scenario thinking. For example, you can simulate different portfolio configurations for them, ask them how they would feel if what they predict doesn’t come to fruition, and even have them construct a pro-con list, as this has shown to be successful in debiasing risk perceptions. You can easily determine whether a client is suffering from overconfidence, confirmation bias, and illusions of control via our Financial VirtuesTM survey and our Confirmation Bias and Gambler’s Fallacy Pulse ChecksTM.
As with the last post, the focus of this post is on the differences between men and women, but the results need not be confined to gender. Both genders can suffer from the blind spots and biases discussed above. Therefore, while client gender can give you things to watch for, the general findings are more important (e.g., is a client risk averse or risk-seeking? Is a client overly optimistic or overly pessimistic?). It’s important to understand how gender can affect financial decision-making and behavior, especially when it comes to risk tolerance—having a deep understanding of a client’s feelings and expectations about risk-taking can increase client loyalty and retention, maximize efficiency, and lead to even better client connections.
 According to the National Safety Council, in 2021 the lifetime chances of dying were: 1.1% in a motor vehicle crash, 0.04% from choking, 0.03% from cycling, 0.1% from drowning, and 0.2% from a “pedestrian incident.” See: National Safety Council Injury Facts: https://injuryfacts.nsc.org/all-injuries/preventable-death-overview/odds-of-dying/.
 Harris et al., 2006. In fact, women are more likely to hold global judgments of negativism (believe negative outcomes are more probable than positive outcomes more generally).
 As a result, men: are more often the victims of accidents than women (CDC, 2004; Waldron et al., 2005); are three times as likely as women to be involved in fatal car crashes (USDOT, 2004), perhaps because they are less likely to wear a seatbelt when driving (Waldron et al., 2005); run yellow lights more often than women (Konecni et al., 1976); are 80% more likely to be involved in an accident as a pedestrian (Waldron et al., 2005); and are more likely to die from drowning or accidental poisoning (Waldron et al., 2005).
 Karmarkar, 2023.
 Blaher- Gołębiewska et al., 2019. “Trust in strangers” refers to how much a person believes people, in general, are honest, trustworthy, and benevolent. Interestingly, men trust more than women, but women are more trustworthy than men (Buchan et al., 2008).
 Dwyer et al., 2002.
 Jianakoplos & Bernasek (1998) documented gender differences in wealth accumulation and further found that wealth accumulation affects marriage status and fertility differently for each gender.
 Benartzi et al., 2011.
 According to the CDC (2021), the average life expectancy is 73 years for men and 79 years for women. If a man lives to the age of 65, they are expected to live to 82; if a woman lives to the age of 65, they are expected to live to 85.