There are no bones about it: Women have been and continue to be under-represented in the financial industry. The reasons behind this are complex and the solution hard to discover, but as a result, there’s a greater need than ever to have more female representation in finance.
First, 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. The same study, however, reveals that less than 13 percent of women in finance make it into 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.
Part of this is because most women choose to leave the business right when their male counterparts are starting to push, according to a study by Harvard Business Review. The study shows that this tendency to leave is partly a result of the work environment and partly because women don’t have high-level female role models at the top of financial firms.
But why, exactly, is getting more female representation in finance so important? Read on to find out the six reasons that increasing female representation in finance is so important for the success of future businesses and the economic stability of the world.
More women in finance = more financial stability
According to a 2018 story by the World Economic Forum, including women throughout the financial system—from 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, increasing female representation in the financial sector yields more stability for a bank, which in turn can mean better returns for both investors and employees.
More women in finance = better risk management
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.
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. Women are less likely to jump into a bubble or jump out of a falling market, according to neuroeconomics.
While it only utilized a very small sample size, one particular study by John Coates out of 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.
More women in finance = better customer and employee connections
A McKinsey study from 2018 shows that including women in finance, both at the entry level and top levels, helps firms build better relationships with their clientele.
The study argues that because more than half of investors are women, having more female representation in financial firms gives a “more well-rounded view” of who the real customers are. In fact, Boston Consulting Group recently reported that by 2020, women are expected to hold more than 32 percent of the global wealth—a total of $72 trillion in private wealth.
In addition to all this, women are master relationship builders, which is an especially valuable skill when it comes to managing teams or customers. A study by Fast Company published in June 2015 shows that as complex requirements for coordination increase, female-led teams offer relational leadership, which fosters bonding and connectivity. That bonding means that a female-led team can face challenges far better.
More women in finance = better 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, and they trade less frequently than men do.
A 2018 study out of 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 a return 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 nine times per year, while men studied traded an average of thirteen times per year).
More women in finance = more socially conscious investing
Socially conscious investing is investing in companies that do good in the world in some measure. Some examples of socially responsible companies would include those that produce green products, those that give back to local communities or charities, and those involved in clean technology or social justice. Socially conscious investing is also called socially responsible investing, or SRI.
This sector of investing is booming, too. Back in May of this year, CNBC reported that socially conscious investing makes up more than $12 trillion of the market today. One in every four assets managed in the U.S. falls under the socially conscious umbrella, and SRI assets are growing 40 percent year-over-year.
In addition, women (and millennials) are more likely to invest in socially responsible products and goods than men are. A 2017 study by U.S. Trust shows that 73 percent of women would rather invest in companies that effect social change than those that do not. The study reported that women tend to see giving and social investing as ways to align their wealth with their values.
More women in finance = more diversity of thought, happier employees
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.
Additionally, bringing more women into the financial boardroom raises engagement across a firm. A recent Korn Ferry report shows that having women in the executive suites in financial firms boosts employee engagement across the firm more so than having all-male boards.
All of these factors add up to show why female representation in finance is so important. By bringing more women into the financial sector at all levels (both in the c-suite and at the entry level), companies can become more diverse, more financially stable, better at risk management, more socially conscious, and ultimately more profitable. Adding women to the mix is vital for the financial success of both the future of business and the global economy.