MARK RIEPE: Growing up, Monique Currie loved playing basketball, and she was good at it.
In college, she played for Duke University and was one of the school’s best players of all time, ranking in the top 10 in several categories. She went on to play in the WNBA, which is a pretty amazing accomplishment. The NCAA estimates that the probability of a female college basketball player making it to a professional women’s team is 0.8%.1
And Monique wasn’t one of those players who just made it int the league for a season or two and then was cut. She played for 12 years and even was selected to play in an All-Star Game.
By any measure, Monique was a successful basketball player. But her story isn’t that of a person whose rise was propelled by an endless reservoir of self-confidence. She once gave an interview in which she made a telling comparison between most women players and their male counterparts in the NBA. She said, “All the way down to the last player on the bench, who doesn’t get to play a single minute, I feel like his confidence is just as big as the superstar of the team. For women, it’s not like that.”2
Now, it wouldn’t surprise me if the average NBA player suffers from some overconfidence, and we’ve done many episodes that allude to the problems that overconfidence can inflict when making financial decisions. In today’s episode we’re going to look at the opposite end of the spectrum and examine underconfidence and the impact that it can have on financial decisions.
I’m Mark Riepe, and this is Financial Decoder, an original podcast from Charles Schwab. It’s a show about financial decisions and the cognitive and emotional biases that can cloud our judgment.
This episode was inspired by an interesting academic study by Annamaria Lusardi and three co-authors that was released earlier in 2021.3 The study started from the observation that women, on average, score lower on financial literacy tests than the average man. But here’s the interesting twist: In many cases, that lower score is caused by women answering “don’t know” to some of the questions. What the researchers did was to create two versions of a standard financial literacy test. The first version allowed “don’t know” as a response to each question, and the second version, where “don’t know” wasn’t a choice. Both versions were given to men and women, and in the first version, men scored better.
But in the second version, where “don’t know” wasn’t a choice, that gap between men and women shrank substantially. In other words, women seemed to know more than they think they do when it comes to important aspects of financial literacy, but a lack of confidence causes them to think that they don’t know the answers.
Now, this isn’t to say that underconfidence only affects women and girls. I’m pretty sure we all know that underconfidence can show up in all genders. But the point of today’s episode is to explore underconfidence in our financial lives and suggest how to overcome it. And, hopefully, our suggestions will benefit anyone suffering from underconfidence, no matter what your gender.
Joining me now is Laura McDowell. She’s a CERTIFIED FINANCIAL PLANNER™, a Certified Investment Management Analyst® (CIMA), and an Accredited Investment Fiduciary® (AIF).
Laura McDowell, thanks for being here today.
LAURA MCDOWELL: Thanks for having me, Mark. This is a topic I’m really passionate about, so I’m thrilled to be having this conversation with you today.
MARK: Well, it’s a really important topic. You know, the theme of this episode is underconfidence, and that can be damaging if it’s in an area that’s important. And women and investing, that’s certainly an example of where … I think it’s actually pretty important because women control a lot of wealth, isn’t that right?
LAURA: Yeah. I mean, currently, women control approximately 51% of personal wealth in the U.S. and make 80% of consumer spending decisions. And even though the pandemic has, unfortunately, disproportionately affected working women, we are still about 47% of the current workforce, and 44% of us say we are the primary breadwinners in our household.
Now, by 2030, American women are expected to be in the sole control of $30 trillion in investible assets. And when we look at it from a populous standpoint, women are 51% of the U.S. population. And if we isolate individuals over 16 years of age, that number actually increases to women making up 58% of the potential workforce.
Another interesting figure that I’ve been really intrigued by, Mark, is that given current projections, 45% of prime-age working women, which is mid-twenties to mid-forties, will be single by 2030, which would be the largest share in U.S. history.
So women have not only become the majority, but we are controlling an increasing share of the nation’s investible assets. It really is a true demographic imperative for more women to feel empowered, to get involved in, and to take charge of their financial health and well-being. So I’m on a mission to make sure that happens.
MARK: Laura, you’ve been in the industry a long time. Do you see significant instances of women being, you know, let’s say, less confident than they really should be?
LAURA: It pains me to say it, Mark, but despite the financial power women have as a group, women still have some catching up to do in some key financial areas. And one is definitely financial confidence.
Now, in general, women are 25% less confident than men when it comes to their financial picture and understanding. And that is when the same investment acumen was displayed between both men and women.
Additionally, women tend to feel less confident about having enough money to live comfortably in retirement and tend to feel overwhelmed by all the ways to invest their money. Equally as concerning is that fewer women report having an emergency fund and rebalancing their portfolio, which are both key components of a sound financial plan.
And, furthermore, women tend to have significantly lower investment account balances than men, even though we tend to demonstrate really strong saving habits.
Now, this trend we are seeing in the data of a lack of confidence and comfortability when it comes to investing, Mark, it really breaks my heart. And I want to make sure we help to change this narrative that so many women have when it comes to investing in their overall financial well-being.
Now, I do want to emphasize that although we’re talking today about women as a cohort, I do want to make clear that women are by no means a monolithic group. We all navigate this world very differently from one another. So while it’s important to explore and understand the unique set of circumstances and experiences that many women face, and the trends that we’ve seen within the data, by no means should we forget that it all comes down to the individual. When all is said and done, the focus should be on the whole person, and not just based on one’s gender.
MARK: Yeah, I think that’s absolutely right. You know, we’re all different, but … you know, but there are tendencies that we do see. And when it comes to this issue of underconfidence, be it in women or men, for that matter, what’s the source of that underconfidence? Is it just this … a manifestation of the imposter syndrome, where for whatever reason, people believe that they … either in their personal lives or their professional lives, they feel that they don’t really belong, that they’re not good enough, or is something else behind it?
LAURA: So, oftentimes, women do deflect their success and attribute it to luck or fate, instead of the hard work, or intellectual capability, or dedication, or even perseverance that it really takes to get where they are. Many women downplay success when others may overstate theirs. And this has been well documented on a large scale across industries and professions.
Now, I can tell you personally, that some of the most successful women I know that suffer from imposter syndrome are also some of the hardest working people I know, as the need to prove we belong where we are really is a big motivator.
Now, imposter syndrome seems to have an outsize effect on women. And this ties into the confidence gap that we’ve seen in investing, too. This, unfortunately, can compound because when we would deflect our successes in our personal or professional life, we aren’t nurturing the type of confidence that is often necessary to take action in other aspects of our life. And when it comes to investing, this insecurity can become paralyzing and debilitating, often leading to an action which is the ultimate setback, because time in the market when it comes to investing is one of our greatest assets.
MARK: So, Laura, tell me a little bit more about … in your experience, what are some of the different behaviors that you observe on the part of women?
LAURA: Women, actually, have a number of tendencies that work in our favor when it comes to investing. In fact, research has found women’s returns tend to be nearly 2% higher than men’s, on average. Women tend to think about investing as a life skill instead of as a competition. For many women, investing simply isn’t about the pursuit of wealth; it’s about finding wealth-life balance. This means that women tend to invest with their values and are more likely to invest for the long-term and limit their trading. Women also invest based on facts, not gut feelings, and tend to diversify, instead of concentrating on a few favorite stocks. These attributes that many women naturally display are some of the most important fundamentals of investing.
MARK: Yeah, I think that’s important, that it’s one thing to be sort of underconfident, but when you’re underconfident and you really shouldn’t be because you’ve got those good instincts, then that’s a problem that just needs to be addressed.
Let’s talk a little bit about some specific age groups. And do you see any evidence of this, you know, sort of this big category of people … have you seen any evidence of kind of different behaviors or different tendencies by different age groups?
LAURA: You know, Mark, generationally, women do tend to have very different goals and attitudes when it comes to managing their money. Almost 80% of millennial women say they expect to make an impact on the world with their wealth. Millennial women also tend to feel a greater responsibility in aligning their spending with causes that are important to them. What I think is most interesting is that 70% of millennial women say they take the lead on all financial decisions, compared to 40% of baby boomer women. When we put this in perspective, it makes sense that younger women tend to be less constrained by traditional gender stereotypes.
When I think about my experience versus my mom, I grew up with completely different social norms and laws than my mom did. I purchased my first home when I was 29, completely on my own, and before I was even married. Then I think about my mom when she was that age. My mom needed my grandfather or my father to co-sign in order for her to get a credit card, because as a woman, she wasn’t even able to apply for credit on her own until 1974. She had to rely on a man. She had no choice. So, of course, her generational experience and my unique generational experience form a completely different lens in how we move through the world and the role we take in our financial life.
What I’ve noticed, though, is that women’s financial empowerment is gaining momentum across generations. And I think a lot of that has to do with generations of women really growing from the lived experiences of one another and embracing the changes we’ve seen in social norms.
MARK: Laura, let’s talk a little bit about people who … I mean, this topic, obviously, you know, this is my career, this is your career. We’re both really interested in this material, in our financial lives, in our investing lives. But what about those people who, you know, it’s just not that important to them either because it’s … they aren’t that interested in the topic, or maybe they, you know, frankly, they just don’t have time. What do you say to them?
LAURA: Mark, one’s financial health is as important as your physical and mental health. Think about it. I mean, your financial health has far reaching implications. Financial freedom is about being able to have choice in life, right? I mean, the choice to change your job without fear of financial insecurity. The choice to start a business you’ve always been wanting to start. The choice to be able to help a child with college so they wouldn’t have the student debt that you maybe had. I literally could go on forever. We all want the freedom of choice, which means we should all be focused on our financial health.
I, for one, insist that women be involved in their finances because, frankly, it’s very likely at some point in your life that those women will have to take part in most, if not all, of those decisions. Every one of my family and friends have heard me say this. Let me lay this out for you as it relates to baby boomers, for instance.
Baby boomers today control roughly 70% of the investible assets of American households, with two-thirds of those assets in joint households with a male-female partnership. Since research has shown that women outlive men by an average of five years and tend to marry men who are roughly two years older than they are, generally, joint household assets are largely passed to the surviving spouse. So as baby boomer men age and pass away, more women than ever will be in the sole control of arguably one of the largest wealth transfers in our lifetime. And that’s a financial power shift we haven’t seen before, and one that baby boomer women especially need to be prepared for.
Women often feel the need to be experts at something before we dive in. But with investing and financial planning, it’s about participation. It’s about being involved. Just like you go to see a doctor for your yearly checkup, you can find a financial advisor that you trust to help you with your yearly financial check, to make sure you are on the right track.
MARK: So, let’s say, you’ve decided to make that plunge, make that leap. You know you need help, and you’re going to get the help through an advisor. How do you make sure that when you’re sitting down with an advisor, you’re making sure that your needs, your goals, your preferences are being reflected in the advice that you’re getting back from the advisor, and you aren’t taking too much of a backseat in letting the advisor dictate what’s happening?
LAURA: Honestly, Mark, I talk to my financial advisor like I would a friend, because it’s important they know as much as possible about what’s going on in your life that may affect your financial circumstance. If you don’t feel comfortable talking to your financial advisor in that way, that might just mean you might need to find an advisor that you feel more of a connection with, and that’s OK. Keep the conversation going.
I always think it’s really important to proactively express what your expectations are of your advisor and to ask what their expectations are of you prior to a meeting. That way, you can feel prepared for the conversation and feel more confident. I also always encourage my friends to go through an exercise of their own, as well, prior to meeting with the financial advisor, because it’s important that you can get your thoughts in order. This could mean an exploration of your goals and dreams, thinking about the values that you live by, and how you want to make sure those values are reflected in your financial life, as well as identifying the relationships in your life that might affect any of your financial decisions.
Get those down on paper and bring that with you. Remember, nothing is insignificant. Even if you think it’s unattainable, write it down because you never know. Prioritizing your desires and wants and needs is critical to explore for yourself, or in a setting that feels most comfortable to you, first and foremost.
Now, when you make investing more meaningful to you by making it about your aspirations in life, your confidence will grow, you’ll want to be involved. So pour yourself a glass of wine, or make a cup of tea, and sit with your own thoughts of what you want for your life, because investing is one way to help you achieve those aspirations, and it will give you the confidence you need to communicate exactly what you want.
MARK: Yeah, at the end of the day it’s your money, and advisors aren’t mind readers. And so you got to have the … you’ve got to get prepared for those conversations to make sure that your needs, wants, and wishes are known. And that’s, ultimately, going to be the way that you’re going to get better advice from your advisor.
Laura, one common scenario we see all the time at Schwab is the recently widowed woman. She could be really any age, but she’s someone who really hasn’t been engaged in the family finances to maybe the same degree that her husband was. And, suddenly, she’s got all these complex tasks that, really, she has to take care of—they’re her responsibility. So for women who find themselves in that role, how can they be more confident when getting up to speed and starting to make those decisions?
LAURA: So to be honest, Mark, one of my personal goals, and I know a goal of ours at Schwab, is to see fewer of these scenarios by making sure women are prepared. And the way we do that is by encouraging, empowering, and, when needed, insisting that women be engaged in every step of the process. You know, the way to make sure of that is to insist both spouses should be involved, that both are active participants in meetings, and that both voices are heard and respected. That goes for men and women equally, as every individual circumstance is different.
I think, oftentimes, we think investing conversations always seem to be about this stock versus that stock, and what the market did today. But the best investing conversations are about funding goals, and living your values, and making progress towards your dreams for yourself and your loved ones. I don’t know a single person, regardless of gender, who wouldn’t want to participate in that conversation.
But if you find yourself in that situation, right—you are a widow, and you haven’t been involved in the past—I find that at my most vulnerable, I like to have someone with me. So lean on your network like you do in any other situation. When you meet with your advisor, or if you’re engaging with an advisor for the first time after the passing of your spouse, bring a friend to help you digest everything. Someone who knows you well, or someone that maybe has gone through it themselves. It’s important to remember you don’t need to be an expert day one—it’s impossible. But think about your immediate needs, because that’s most important to focus on in that moment.
Now, my biggest piece of advice, Mark, is don’t be afraid to ask questions. Don’t feel pressured to make a decision when you’re not ready to make it. Ask as many questions you need, until you feel comfortable and confident in your decision. Don’t let anyone make you feel as if your question isn’t important, because when it comes to your financial well-being, if you ask it, it’s important, period, end of story.
MARK: Great advice. Laura, one more question here. What about some other family scenarios where … I don’t know, the woman might be the head of the household, or making joint decisions with their partner. Are there ways for women to kind of build that financial knowledge and to feel … in order to feel more confident about making those kinds of decisions later?
LAURA: Regardless of the family situation, which, yes, Mark, it is incredibly important for investors and advisors alike to really understand a person’s household situation and life stage needs when thinking about financial planning and investing. With that said, the way to build financial knowledge to feel more confident in your decisions is to be informed in a way that is meaningful to you. We juggle a lot day in and day out, so we need to be really efficient with our time. That means finding trusted sources of information in a way that is exciting and inspiring for you. Think about your learning style and find trusted professionals that can deliver that information to you about financial topics in the way that’s most comfortable. I, for one, am not a reading-writing learner, so I can personally vouch that oftentimes, not being that type of learner has made it unnecessarily difficult in this industry, given so much of what we consume in financial services has historically been through the written word. However, talking it out with a financial advisor, sharing personal stories and experiences around financial topics with a group of my friends, listening to financial wellness podcasts, or finding imagery or visuals that depict a financial concept I want to better understand are all ways that fit my unique needs, right, that fit the way I learn and I consume information.
So it’s so important for people to be aware of what best suits them, and not try to fit into someone else’s narrative, because a person’s money values can drastically vary from individual to individual.
MARK: Let’s switch gears here a little bit and talk about risk. You know, as you know, investing is about finding that right balance between risk and return. How should women think about investing when it comes to making that decision?
LAURA: You know, Mark, before I was a part of this industry, I thought investing was actually a form of gambling, and that it was only for the wealthy. And I couldn’t have been more wrong. I’m not a gambler. It literally makes me sick to my stomach the thought of losing money. Investing isn’t about gambling; it’s calculated risk-taking, which women do every single day. I’ve scaled the Sydney Bridge, I’ve gone shark diving in South Africa, and I never miss an opportunity to zip line above a tree line, all while being petrified of heights and sharks. But I’m willing to take risks. I just might need more information in order to take a calculated risk.
So I ask a lot of questions. I ask about the risk of injuries in those situations, just like I look at the historical returns of a well-diversified equity or balanced portfolio over various time periods. That helps me feel confident in my calculation of risk because I do my homework.
Oftentimes, there is this assumption that women don’t like risk, but more accurately, it’s that most women tend to be very calculated risk-takers. The beauty of investing is that there are several ways to minimize risk that don’t involve an over-allocation to cash or bonds, especially if your time horizon doesn’t warrant it, or sitting on the sidelines altogether and not investing at all. Diversification across asset classes—that’s one way to minimize risk. Having a disciplined rebalancing approach is another. Controlling costs is a third. And the mantra of “time in the market versus timing the market” is the fourth. So there are many ways to minimize risk.
Women tend to be more risk-aware, meaning we tend to need more information to make an informed decision and to feel comfortable about taking that risk. Whereas, men tend to be more tolerant of taking risks without that context. So we need to make sure we fully educate ourselves and find advisors and communities where we feel supported to have those conversations about investing. If we aren’t getting the information we need to feel comfortable, we need to proactively seek it out, because taking too little investing risk by over-allocating to cash or bonds, especially when there is a long-time horizon, is risky in itself.
MARK: Yeah, let’s talk about that long-time horizon. What should we be telling women in their 20s, in their 30s, on how to think about that? Given that they’re investing for longevity, their longevity is going to be, well, longer.
LAURA: Absolutely, Mark. So, for all you ladies and gents listening, if you do not have a financial plan, which involves creating a budget, understanding how much is coming in and out of your accounts monthly, and then setting goals for yourself, and a clear roadmap on how to achieve those goals, as soon as you are done listening to this podcast, I want that to be the first thing you do, literally. And feel free to make it a group affair. You know, have some friends over and do it together. You would be surprised what you’ll learn about yourself and your money by doing that. I’m also a big believer that every person should have a high-yield savings account, a brokerage account, and some form of a retirement account, like a Roth IRA, a traditional IRA, or some form of employee-sponsored retirement plan, like a 401(k). I’m also a big believer that automating your contributions to each of those accounts is key. Automation and having a plan are proven to significantly increase one’s chances of success in reaching your goals and financial objectives.
Now, I always like to emphasize that it is oftentimes not enough just to save. Participating in the growth of the economy and businesses globally is equally important in reaching your goals, and investing is one way to do that. It doesn’t need to be complex. A well-diversified, low-cost, and risk-aligned fund or strategy that is rebalanced at least yearly could do the trick for most of you if you were just starting out.
So do your research, talk to a financial professional you trust, because it never hurts to have a conversation, and get going right away.
MARK: All right, Laura, one final question, and then I’ll let you go. We both know financial literacy starts at home. So what advice do you have for parents who want to get their daughters and even their sons more prepared to start learning about the concepts that you’ve been talking about today?
LAURA: So the big one is talk to your kids about money early and often. Teaching kids money values at a young age will foster confidence and financial empowerment. Thinking back to my own childhood, my family owned a seasonal restaurant when I was young. So my first job was at eight years old. I was a dishwasher. I remember how much that experience changed my understanding of money so quickly, because I realized how hard I had to work for $8 an hour. After dishwashing most of the summer, I learned the true value of money, and what I was willing and not willing to spend it on. I no longer asked my parents for something I wasn’t willing to spend money on, to pay for myself. When it’s our own money, we tend to value it more highly. It’s called the endowment effect. So by earning my own money, it made me think differently about how I spent it. That was so important for me to learn early. That helped me feel empowered and helped me build solid financial habits.
I also remember my mom bringing me to the bank to open a checking account when I was 11 years old. And at that point, I was promoted to serving tables, so I was making a bit more money. That was a big moment in my life, Mark. I mean, to have a bank account with my name on it, a checkbook with my name on it, it was a lot of responsibility, and my mom made sure I was ready for it. But that was so empowering. Those small moments can mean all the difference. Those moments made me more confident.
I know we want to give kids everything we didn’t have, but sometimes that doesn’t always serve them when it comes to building confidence in their own abilities and the financial choices they make. Earning money for themselves and making choices with their own money has invaluable lasting impacts.
Now, for really young kids, I think having a weekly routine involving four jars—one for spending, one for saving, one for investing, and one for giving—is a great start so that they can visually understand how important financial habits are. Reward the saving jar with interest, and the investing jar with a little bit more interest, to demonstrate compounding, and to highlight the difference between saving and investing.
Now, if your family doesn’t have a seasonal restaurant where you can put the kids to work, for teenagers and young adults, sit down with them and help them develop a budget. Talk through setting goals. Because whether they are earning money from household tasks, or they just got a part-time job, clear goal setting has been proven to be effective in sustaining long-term financial health. There are plenty of resources and interactive tools on schwabmoneywise.com that parents can leverage to help facilitate those conversations. I use them all the time. They are great.
And don’t stop there. Help them open an investment account and bring them to meet with a financial professional. I highly encourage families to bring their young adult children to a meeting with their own advisor. It’s a great way to get them engaged.
MARK: Tons of great information, Laura. Thanks for being here.
LAURA: The pleasure was all mine, Mark.
MARK: Laura had great ideas on how to combat underconfidence. And while many of her examples focused on women, underconfidence in financial matters can affect anyone, but there are steps you can take to overcome that feeling of inadequacy.
Here are a few of them. First, you can learn. There are a lot of resources out there—in fact, you might want to check out schwab.com for articles and other tools to help enhance your financial literacy. Second, know your limits. There are some activities or tasks where, if you’re not confident in your ability to perform that activity, you can avoid it and take advantage of professionals. One example of this is tax preparation. It’s important to have some basic knowledge, but we’re all not going to become CPAs. At some point it makes sense to hire a professional or learn to use tax preparation software.
Three, don’t avoid the issue. There are some things in life that are difficult for us, and we’re underconfident, but ultimately the activity is optional, and we don’t have to get skilled in it.
Your financial life is not one of those things where you can just opt out. You need to either get confident by upping your skill level or hire someone who can do it for you. To me it’s like car maintenance. If you’re going to own a car, then it needs to be maintained. You can do it or have someone else can do it, but you can’t simply avoid the issue entirely.
But keep in mind, that you might surprise yourself about what you can learn to do. And you might already know more than you give yourself credit for. Like Monique Currie—who was a terrific basketball player but sometimes experienced underconfidence—when it comes to financial matters, you might already be an all-star.
Thanks for listening. If you’ve enjoyed the show, please leave us a review on Apple Podcasts. And if you know someone who might like the show, please tell them about it and how they can also follow us for free in their favorite podcasting app.
You can also follow me on Twitter @MarkRiepe. M-A-R-K-R-I-E-P-E.
For important disclosures, see the show notes and Schwab.com/FinancialDecoder.
1Women's Basketball: Probability of competing beyond high school | NCAA.org - The Official Site of the NCAA
2The Confidence Gap - The Atlantic
3Fearless Woman: Financial Literacy and Stock Market Participation: Tabea Bucher-Koenen, Rob J. Alessie, Annamaria Lusardi & Maarten van Rooij, NBER Working Paper April 2021, w28723.pdf (nber.org)
