Video Transcript
Christine Benz: Hi, I’m Christine Benz for Morningtar.com. Do female 401(k) participants tend to behave differently than their male counterparts? I recently sat down with Jean Young at Vanguard to discuss that issue.
Jean, thank you so much for being here.
Jean Young: It’s my pleasure.
Benz: You periodically or annually take a look at 401(k) participant behavior, and you recently did some research where you looked specifically at gender differences, in terms of company retirement plan participation and choices and so forth. So, let’s talk about some of those findings. One of them is that women had a greater tendency to proactively enroll in their 401(k) plans. Let’s talk about the general finding there and also if you have any ideas about why that might be.
Young: Well, it’s interesting to me that this is coming out as new work because this is data that we’ve been publishing on how America saves for over a decade and this trend has held pretty constant.
Benz: So, you found this trend over a multiyear period?
Young: Yes. So, everybody wants us to publish on gender, and I’m pulling my hair out [because] we publish on gender every year. So, we pulled it all together is what we did. But consistently, when you look at the overall statistic, likelihood to participate is pretty close between men and women; but when you drill down and you look at it by income bands, at all income bands women are about 10% more likely to participate.
And then once they’re in the plan, if you look at the savings rates by income bands as well, their savings rates tend to be higher. Across all income bands, they’re 6% to 12% higher than the savings rates we see for men.
Benz: Another finding from the study was that women 401(k) and company retirement plan participants were more likely to outsource their advice. So, they were more likely to buy some sort of a target-date fund or a managed account, some sort of managed product versus picking their own investments. Let’s talk about the research there.
Young: What we have seen consistently in the research is that women are much more likely to adopt what we will characterize as a professionally managed allocation. So, instead of trying to figure out the portfolio construction on their own, they are more likely to turn that task back over to the investment professional. And what we know is that the participants who use professionally managed allocations have better outcomes. They have better portfolio construction, and you see it in their returns.
Benz: So, this is certainly a positive trend for women. Do you have any sense of why that might be?
Young: Well, academic research tells us that in the United States and globally that, generally, women have lower financial literacy than men. Another thing about women versus men in that work is that women are more likely to say “I don’t know” when asked a question.
So, it is possible, or probable even, that women understand that they don’t know how to do this; therefore, when presented with the option to use an investment professional, they’re more likely to take advantage of it.
Benz: So, those are a couple of positive trends. But one thing that you identified when looking at participant balances is that, for women, they are generally--whether you’re looking at medians or averages--lower than their male counterparts’ [balances]. Let’s talk about the research there, and also what you think are the big reasons behind that gap in savings.
Young: There is a gap. If we look at medians or if we look at average account balances, men have account balances that are about 50% higher. But when you drill into it, what you also find in this participant population is that men also have wages that are about 40% higher on average. And if you look at account balances across the income bands--in other words, if you somewhat control for wages--
Benz: So, you’re looking at people who earn similar amounts and comparing men to women on those grounds.
Young: And when we do that, we see that account balances converge. So, wages are certainly a big driver of how much you are accumulating in the plans. Your deferral rate for men might be a little bit lower than women, but it is coming off of a higher wage base. So, they tend to accumulate more money.
Benz: Obviously, you’re looking at a really broad swathe of participants--a lot of people doing very different things. But when you look at these findings, do you have any good guidance that you would impart both to men and women who are attempting to make better decisions about their 401(k) plans? Are there any takeaways that they should take from this research?
Young: These are averages, these are medians. And if you look at women or if you look at men, there’s a huge variety of behaviors. Some men are doing better, some women are doing better. But at the end of the day, whether you’re a man or a woman, in terms of your retirement security, many of these participants would benefit from stronger savings rates--and that’s probably the most critical thing they can do to improve their retirement security. [They would also benefit from] higher adoption of professionally managed allocations. Investment professionals spend their day--their full time--looking at this, and they do a better job than most participants do on their own.
Benz: Thank you so much for being here. We really appreciate your findings and you sharing this research with us, Jean.
Young: Well, thanks for talking with me today.
*Image of “taxes“ via Shutterstock
