Studies have shown that arguments over money rank highly as one of the top reasons for divorce, second only to affairs and infidelity.
New research by online trading brokerage firm Global Prime suggests that those arguments over money may be rooted in gender. The study found that men and women may be driven by different psychological motivations when it comes to making investment and trading decisions.
According to the research, women (12 per cent) are twice as likely as men (7 per cent) to prioritise the ethical impact of their investments as their number one financial consideration. They cited concerns over the deteriorating natural environment as their driving motivator. In our portfolio we don’t invest in gambling companies mainly because of Libby’s objections to their impact on families.
‘Ethical investing’ (preferring to invest in companies that prioritise transparent business practices and are socially conscious of their wider global impact) is strongly on the agenda since Gen Z’s and Millennials kick-started the shift towards more ethically-conscious financial decisions.
“It’s interesting to see the different priorities and internal motivations that people take into consideration when making significant financial decisions,” Global Prime co-founder and co-director Jeremy Kinstlinger says. “In our line of work, we see this play out on a day-to-day basis.”
Sources of ‘trusted advice’
The research also reveals that women are 20 per cent more likely than men to trust the advice of family or friends when it comes to making investment decisions. This indicates that familial approval is a high priority for women and they are more likely to use friends and family as a sounding board for financial advice.
On the other hand, the research indicates that men (particularly in the younger age demographic), are four times more likely than women to follow the advice of the latest “finfluencer” on TikTok, citing “whatever’s trending on social media” as a priority when making investment or trading decisions.
No wonder arguments over money are so common between couples.
The research showed that risk was the overall top priority for both men and women when it came to making investment or trading decisions. One in four of both men (25 per cent) and women (27 per cent) chose it as their most significant consideration.
Not-so rational investing
Global Prime co-director Elan Bension says: “We strongly encourage anyone interested in trading or investing to study the psychology behind it first, and make sure that they are fully in control of their impulses. Learning to manage your emotions will help you ride out the day-to-day highs and lows, as well as adequately handle risk.”
People like to think they aren’t emotional investors, but leaving all of your emotions at the door is almost impossible. Male or female, some of the psychological biases involved in many investing decisions include:
Loss aversion
Our tendency to feel the losses more than the gains when it comes to investing. The result is that we prefer to avoid losses more than we want to obtain gains.
Overconfidence
Overconfidence is remarkably prevalent in the investing space. Analysis by Dresdner Kleinwort Wasserstein found that 74 per cent of fund managers rated their abilities as ‘above average’; the remaining 24 per cent thought they were ‘average’. Which aside from being statistically impossible, is also quite worrying when these are the guys looking after your investments.
Herd mentality
Investors tend to follow and copy what other investors are doing. Rather than relying on their own information to support their investment decisions. Herd mentality can create asset bubbles and market volatility.
Mental accounting
This is the set of cognitive operations people use to keep track of their financial activities. They mentally segment their money into separate accounts for different goals, when in fact the funds derive from the same source. Having the separate accounts means you classify money based on subjective criteria, which can lead to irrational spending and investment decision making.
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