Younger Generations’ Investing

Behaviors in Mutual Funds:

Does Gender Matter?
ALEX WANG
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R
A LEX WANG esearch reveals that fewer people first objective of this study looks at younger
is an associate professor in have been investing for wealth generations’ behaviors toward investing. Spe-
the Department of Com-
management and an increased cifically, this study examines four aspects of
munication Sciences at the
University of Connecticut- percentage of people have virtu- younger generations’ investing behaviors
Stamford in Stamford, CT. ally no investments and saving for retirement in mutual funds: frequency of informa-
alex.wang@uconn.edu (Helman et al. [2010]; Sutton [2010]). People tion search, frequency of investing, years of
may attribute the decline in their wealth to investing, and performance of investments
job losses, housing bubble burst, and stock in mutual funds.
market meltdown, but research suggests that Investigations of younger generations’
the economy may not be entirely to blame investing behaviors in mutual funds also require
(Shim et al. [2009]). Good behaviors begin data analyses that can account for individual dif-
early, and investing for wealth management ferences and social context (Perry and Morris
is a behavior that everyone needs. The earlier [2005]; Shim et al. [2009]; Sundén and Surette
people start to invest their money, the easier it [1998]). This study suggests two main avenues,
is to reach their financial goals. An individual personal and social influences, through which
who starts investing when young is more younger generations acquire their familiarity
likely to develop investing habits and is more with investing in mutual funds. Personal influ-
likely to invest consistently (Hilgert, Hogarth, ences mostly include demographics (Norvilitis
and Beverly [2003]; Joo and Grable [2005]). et al. [2006]; Wang [2009]; Yilmazer and
However, many people, especially younger Lyons [2010]). Thus, the second objective of
generations, may not have a good sense of this study is to test the effects of gender, age,
making investments (Lyons et al. [2006]). and income on younger generations’ investing
The importance of investing for younger behaviors in mutual funds. In contrast, social
generations is especially timely given the cur- inf luences include factors that develop from
rent economic condition, as younger genera- financial socialization (Moschis [1987]; Shim
tions will be caught between a baby boomer et al. [2009]). Thus, the third objective of
rock and a fiscal hard place. With an ongoing this study is to examine younger generations’
push to partially privatize Social Security experiences and knowledge that may explain
and turn over pension plans to the Federal the differences in their investing behaviors in
government, younger generations may face mutual funds. Based on the results, this study
a challenging and uncertain financial future. hopes to help wealth advisors understand
Because understanding younger generations’ how to work better with young generations
investing behaviors is an important task, the in managing their wealth.

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 LITERATURE REVIEW financial education and financial behaviors of first-year
college students. Kotlikoff and Bernheim [2001] found
Americans’ attitudes and behaviors toward wealth that individuals with less education were found to have
management have clearly tracked the economy the last lower financial literacy scores.
couple of years (Helman et al. [2009]). In January 2010, In the same line of reasoning, the financial literacy
the Employee Benefit Research Institute (EBRI) sur- literature has suggested that financial knowledge could
veyed 1,153 people, age 25 and older, about their attitudes inf luence financial behavior (Robb and Sharpe [2009]).
and behaviors toward investing and saving for retirement Perry and Morris [2005] tested the relationship between
(Helman et al. [2010]). In terms of attitude, just 24% of financial knowledge and responsible financial behaviors
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the respondents were very confident in investing their

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and concluded that financial knowledge had the greatest

retirement savings (down from 45% in 1998). Another effect on eliciting responsible financial behaviors. Hilgert
54% of the respondents were somewhat confident that et al. [2003] also found that those who scored highest
their savings were wisely invested. In terms of behaviors, on questions relating to personal finances were most
the percentage of the respondents who had virtually no likely to exhibit good investing and saving behaviors.
money in investments and savings increased over the Conversely, Norvilitis et al. [2006] found that lack of
past year. While 54% of the respondents reported that financial knowledge was directly related to debt. Based
the total value of their household’s savings and invest- on these results, this study hypothesized that:
ments, excluding the value of their primary home and
any defined benefit plans, was less than $25,000, 27% of H1: Knowledge about investing in mutual
them reported they had less than $1,000 in investments funds would inf luence investing behaviors
and savings (up from 20% in 2009). Other respondents in mutual funds.
reported totals of $25,000–$49,999 (12%), $50,000–
$99,999 (11%), $100,000–$249,999 (11%), and $250,000 The literature on financial literacy has also sug-
or more (11 %). More surprisingly, the percentage of gested that financial experience could positively inf lu-
the respondents who had invested and saved for retire- ence financial behavior (Lyons et al. [2006]). Chen and
ment fell to 69%, from 75% in 2009, suggesting that the Volpe [1998] found that amount of financial experi-
percentage of Americans with virtually no investments ence was an important factor in determining financial
and savings for retirement grew for the third straight behavior. Hilgert et al. [2003] found that personal expe-
year (Sutton [2010]). riences about financial matters from different sources
were highly correlated with positive improvements in
Social Influences on Financial Behaviors financial behaviors. Research has suggested a financial
socialization model that links financial socialization
Research examining the behavioral effects of edu- to financial experience, which in turn predicts their
cation has supported the notion that financial education financial attitudes and behaviors (Moschis [1987]). Shim
could improve financial behavior (Bernheim, Garrett, et al. [2009] and Webley and Nyhus [2006] tested the
and Maki [2001]). Participation in a financial education financial socialization model and found that respon-
course was found to increase contributions to retire- dents’ financial experiences with their parents were
ment saving plans (Bayer, Bernheim, and Scholz [1996]; predictive of various aspects of their financial behav-
Bernheim, Skinner, and Weinberg [2001]). Research iors. This is because parents teach their children how to
also found a positive relationship between financial manage financial resources not only by direct instruc-
education and retirement saving behavior, as the avail- tions (Moschis [1987]) but also by behavior modeling
ability of financial education stimulated retirement sav- (Hayhoe et al. [2000]; Joo, Grable, and Bagwell [2003]).
ings among individuals in the lowest half of the savings Studies also examined the process of financial social-
distribution (Bernheim and Garrett [2003]). Joo and ization that focused on the roles of work experience
Grable [2005] found that respondents who had partici- in financial behaviors and found that work experi-
pated in a financial education program were most likely ence predicted financial behaviors (Shim et al. [2009];
to have a retirement saving program in place. Shim et al. Zimmer-Gembeck and Mortimer [2006]). Based on
[2009] found a positive relationship between high school these results, this study hypothesized that:

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 H2: Experience with investing in mutual their spending, have less overall debt, and save regularly
funds would inf luence investing behaviors (Hayhoe et al., 2000; Henry et al., 2001). Conversely,
in mutual funds. female students were found to be risky in how they used
credit cards (Lyons, 2004). Yilmazer and Lyons [2010]
Personal Influences and Financial Behaviors found that early familial socialization contributed to the
gender differences in young people’s financial behaviors,
Research has suggested that total savings and as credit card debt for males alone was related to the level
investments should increase with higher levels of income. of maternal inf luence. Examining younger investors’
People who had done a retirement savings needs cal- risk-taking behaviors based on gender, Wang [2009]
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culation had higher levels of savings and investments, found that male investors exhibited more risk-taking
compared with those who had not done a retirement behaviors in investing than female investors. Sundén
savings needs calculation (Sutton [2010]). In addition, and Surette [1998] found that gender was significantly
those who had saved for retirement were also more related to allocation of assets in pension plans, as women
likely than those who had not saved to have substantial were less likely than men were to invest their defined
levels of savings and investments. In fact, a recent study contribution plans mostly in stocks.
found that 69% of the respondents who had not saved Barber and Odean [2001] examined the gender
for retirement had assets total less than $1,000 (Helman effect on investment behaviors and biases and found that
et al. [2009]). According to Borden et al. [2008], people men traded 45% more than women did. Specifically,
from higher income families had lower credit card debt. single men on average traded 67% more than single
Based on these results, this study hypothesized that: women. In terms of investment biases, they found that
men were more subject to the overconfidence bias in
H3: Higher levels of income would positively trading behaviors than women. Pompian and Longo
inf luence investing behaviors in mutual [2004] created “gender-based risk tolerance scales” to
funds. examine genders’ susceptibility to the overconfidence
and optimism biases. They administered to 100 investors
Whether age is related to financial behaviors has a questionnaire designed to uncover investment biases.
shown mixed results in the financial literature ( Yilmazer Their results indicated that men and women were dif-
and Lyons [2010]). One recent study revealed that age ferentially susceptible to numerous investment biases,
was positively related to debt (Norvilitis et al. [2006]). suggesting why investors were vulnerable to the same
However, that study noted this was probably due to investment biases over time. Specifically, women were
older respondents having had more time to accumu- found to tolerate significantly less risk than their gender
late debt, compared to their younger counterparts counterparts did.
( Norvilitis et al. [2006]). Henry et al. [2001] found that Rosplock [2006] conducted a study to determine
respondents between 36 and 40 years of age were more the knowledge, involvement, awareness, decision-
likely to follow a budget most of the time, compared making, attitudes, and wealth transfer intentions of 115
to their younger counterparts. Due to limited research women in their 50s with a household net worth of $10
and inconclusive results, this study asks the following to $25 million. Obtained through an online survey,
research question: telephone interviews, and an online focus group, the
findings revealed that women perceived that they had
Research Question 1: Are there age effects on investing the greatest knowledge of estate planning and the least
behaviors in mutual funds? knowledge of insurance planning. They also identi-
Research has also shown inconclusive findings fied investment management, estate planning, and
regarding the correlation between gender and financial financial planning as the three most important areas of
behavior. Markovich and DeVaney [1997] and Volpe wealth management. However, the results also showed
et al. [1996] found gender differences in financial that women faced a number of obstacles from a lack of
knowledge, as males were more knowledgeable about interest to low confidence and comfort in relying on
personal finances and investment options than females. their significant other or advisor that inhibited them
Female students were found to be more likely to plan from being more knowledgeable and involved with

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 managing their wealth. While 69% of them were in differently than men did. Their approaches to wealth
control and involved with managing their wealth, 62% were dictated from within. They also demonstrated their
of them felt competent to do so. ability to look beyond the present and to see a broader
Rosplock [2008, 2010] used a triangulation of the picture in managing their wealth.
mixed methodology to examine the gender differences These literature reviews conclude that an individ-
in preferences, attitudes, behaviors, and practices on their ual’s financial behaviors are likely to be a function of
wealth management. In this study, 218 men and women a number of different determinants (Filbeck, Hatfield,
who were in their 40s to 50s with an average house- and Horvath [2005]; Lyons et al. [2007]). Since research
hold net worth of 12.3 million took an online survey about gender effects on investing behaviors in mutual
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addressing their interest, knowledge, attitudes, and funds is limited and gender effects on financial behaviors
involvement with their families’ wealth management. are still inconclusive, gender may be an important factor
Among 218 participants, 8 men and 12 women were inf luencing younger generations’ investing behaviors in
interviewed. Two focus groups were also held, with 6 mutual funds. Edmiston and Gillett-Fisher [2006] have
women in one focus group and 11 men in another focus suggested that even though research has shed light on a
group. The results of various studies revealed interesting number of inf luential factors, it is important to continue
insights about the alignment between men and women to examine individuals’ financial behaviors among men
as it related to their wealth. and women. Thus, this study asks the following research
Men and women shared similar values and attitudes question:
toward wealth as both sexes felt strongly about values
and principles in managing and allocating their wealth Research Question 2: Are there gender effects on
(Rosplock [2008]). Men and women also had similar investing behaviors in mutual funds?
criteria in choosing a wealth advisor. The top character-
istics sought in a wealth advisor were investment exper- METHOD
tise, trustworthiness, and financial expertise. However,
men were more confident in their technical knowledge An online survey was used to collect the data.
and more involved with decision making in managing The online survey was anonymous and self-admin-
their wealth. Specifically, men had higher perceived istered with respondents recording an identifier code
knowledge of financial planning, investment manage- in place of their names to ensure confidentiality and
ment, succession planning, tax implications of wealth, promote confidence in providing sensitive information
and insurance planning. Among the participants, 80% accurately. No personal information was sufficient to
of men versus 53% of women were actively involved in identify any respondents. According to Galante [1998],
managing their wealth. Men also perceived themselves investors in their late 20s to mid 40s composed the bulk
as having more control in managing their wealth than of those making online trades. Moreover, a new boom
their gender counterparts (Rosplock [2008]). in online investing took place among those 25 years old
Wilmington Trust, Campden Research, and Rela- and younger. Thus, this study recruited online investors
tive Solutions [2009] examined how educated and wealthy between 18–45 years of age as study’s respondents. This
women viewed the role wealth played in their lives. Their approach focused the research on capturing representa-
survey study interviewed 40 women, ages 40 to 65, each tive younger investors.
with a minimum net worth of $25 million. The results Recruiting advertisements were posted on several
revealed that no matter how their wealth was acquired, tri-state listservs, finance-related blogs, and websites
by inheritance (47.5%), marriage (27.5%), or created on that targeted online investors. Online investors inter-
their own (25%), the sense of responsibility regarding ested in participating in the study clicked on the survey
managing their wealth for themselves and future genera- link that directed them to complete the survey. Even
tions was perceived as very important. Among the 40 though the survey sample was not randomly selected,
respondents, 67% exhibited high levels of involvement the advertisements used to recruit the sample covered
with their money, whereas 87% of them were full and a wide range of groups whose members specialized in
equal partners in making financial decisions. According finance and online investing. A total of 483 participants
to the survey results, women viewed financial matters

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 completed the survey, and their responses were used for considered simultaneously. The bivariate correlations
data analysis. tests were first conducted to test the relations among the
This study measured four dependent variables that dependent variables. The results revealed that frequency
ref lected younger generations’ investing behaviors in of information search (M = 4.16, SD = 2.02), frequency
mutual funds. They included frequency of information of investing (M = 3.14, SD = 1.97), years of investing
search, frequency of investing, years of investing, and (M = 3.08, SD = 3.66), and performance of investments
performance of investments. Frequency of information were all correlated with each other (p < 0.001), which
search was measured by asking the respondents how confirmed the need for using MANCOVA as the sta-
often they search information about investing in mutual tistical procedure.
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funds in general. Frequency of investing was measured MANCOVA was run on frequency of information
by asking the respondents how often they invest in search, frequency of investing, years of investing, and
mutual funds in general. A seven-point scale was used performance of investments as the dependent variables,
for these two questions, where 1 indicated “not often whereas gender was used as the fixed factor. Age, income,
at all” and 7 indicated “very often.” Years of investing education, experience, and knowledge were used as the
were measured by asking the respondents how many covariates. The multivariate tests in Exhibit 1 reveal that
years they had been investing in mutual funds. Finally, age, income, experience, and knowledge contributed to
performance of investments was measured by asking the the model significantly. Education did not contribute to
respondents to evaluate the performance of the mutual the model significantly.
funds they currently own in general. A seven-point scale The tests of between-subject effects based on
was used for this question, where one indicated “perform the individual univariate were reported in Exhibit 2.
poorly” and seven indicated “perform very well.” Respondents’ higher levels of knowledge positively
This study asked several demographics questions enhanced their frequency of information search, fre-
including age (M = 30, SD = 6.91) and education levels. quency of investing, years of investing, and performance
Of the respondents, 82% had at least a college degree. of investments in mutual funds. Similarly, respondents’
Respondents’ income levels were also asked, and 50% higher income levels positively enhanced their frequency
of them made less than $75,000 a year and 50% made at of information search, frequency of investing, years of
least $75,000 a year. Experience with investing in mutual investing, and performance of investments in mutual
funds (M = 4.45, SD = 1.89) was measured by asking the funds. Thus, Hypotheses 1 and 3 were supported.
respondents how experienced they are with purchasing According to the results in Exhibit 2, the more
shares in mutual funds. This question was measured on experiences the respondents had, the more the respon-
a seven-point scale where 1 indicated “not experienced dents searched information about mutual funds and
at all” and 7 indicated “very experienced.” To measure invested in mutual funds. With more experience, the
respondents’ knowledge regarding investing in mutual respondents also perceived better performance from
funds, 37 questions were used: 10 multiple-choice ques- their investments in mutual funds. However, experience
tions and 27 true/false questions (Wang [2009, 2010]). did not inf luence how long the respondents invested in
Each correct answer was worthy of one point, and the
mean of knowledge score was 23.63 (SD = 4.05). Finally, EXHIBIT 1
there were 290 male respondents (60%) and 193 female
Multivariate Tests
respondents (40%) in this study.

RESULTS

Edmiston and Gillett-Fisher [2006] suggested that

research on financial behavior should control the relevant
factors in order to isolate the effects of any one variable of
interest. Thus, this study used MANCOVA as the statis-
tical procedure to analyze the data. An advantage of this
procedure was that the sets of dependent variables were

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18

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EXHIBIT 2
Tests of Between-Subject Effects

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SPRING 2011

1/18/11 12:07:33 PM
 mutual funds. Based on these results, Hypothesis 2 was mutual funds longer than female investors (M = 2.56,
partially supported. SD = 3.66). Finally, male investors’ investments in
Based on the results in Exhibit 2, the older the mutual funds (M = 4.2, SD = 1.91) were perceived to
respondents were, the more and longer they invested perform better than female investors’ investments in
in mutual funds. However, age did not inf luence how mutual funds (M = 3.02, SD = 1.86).
frequently the respondents searched information about
mutual funds and how well their investments in mutual DISCUSSION
funds performed.
Gender had a significant effect on the dependent Consistent with previous research’s propositions,
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variables based on the results in Exhibit 1. In other knowledge and experience in investing in mutual funds
words, the mean vectors were not equal and the set of and income levels broadly predict different aspects of
means between male and female investors was different younger generations’ investing behaviors in mutual funds.
(Exhibit 3). The results in Exhibit 2 revealed that male The results also suggest that social and personal influences
investors (M = 4.75, SD = 1.87) conducted informa- both play important roles in predicting younger genera-
tion searches about mutual funds more frequently than tions’ investing behaviors in mutual funds. Even though
female investors (M = 3.28, SD = 1.91). Male investors the inconclusive results of age effects on financial behav-
(M = 3.39, SD = 2.01) invested in mutual funds more iors are evident in this study, this study explicates the
frequently than female investors (M = 2.77, SD = 1.85). gender effects on younger generations’ investing behav-
Male investors (M = 3.42, SD = 3.62) had invested in iors in mutual funds. The findings presented here are

EXHIBIT 3
Comparison of Gender Effects on Investing Behaviors in Mutual Funds

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 noteworthy in light of understanding gender differences in Hilgert et al. [2003] suggest that financial knowl-
younger generations’ investing behaviors in mutual funds. edge in a specific area is positively correlated with finan-
In essence, this study points out challenges for younger cial practices in that area and is greatly inf luenced by an
women’s wealth management, as they tend to exhibit fewer individual’s experience and involvement with personal
investing behaviors in mutual funds than their counter- financial matters such as wealth management. Knowl-
parts do. On a related note, these gender differences have edge and experience with investing in mutual funds
significant implications for financial educators, as women can inf luence younger generations’ investing behaviors
tend to accumulate less wealth than men do over time in mutual funds. An important implication here is that
(Säve-Söderbergh [2003]). In view of current economic financial knowledge and experiences in specific areas
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conditions, women are facing financial challenges due to need to be improved for younger women’s involve-
behavioral factors in wealth management. ment with financial educations so that their financial
The results presented here on gender differences in practices can be enhanced to help them manage their
younger generations’ investing behaviors in mutual funds wealth. This is to say financial knowledge and experi-
also provide comparisons to studies that have examined ences about managing financial planning, investment
gender differences in wealth management among older management, succession planning, tax implications of
generations (Barber and Odean [2001]; Rosplock [2006, wealth and insurance planning are important areas that
2008, 2010]). The first common thread between men can help younger women enhance their wealth man-
and women from younger and older generations is that agement and financial future based on this study and
men tend to be more confident in their technical knowl- previous research.
edge in managing their wealth. For older generations,
men tend to have higher perceived knowledge on finan- Implications for Practitioners
cial planning and investment management. The results
of this study also demonstrate a similar trend in younger This study points out several important implica-
generations as male investors tend to conduct informa- tions for wealth advisors based on the results of this study
tion searches about mutual funds more frequently than and previous research findings. First, wealth advisors are
female investors do to obtain knowledge on investing urged to consider client gender in assessing risk toler-
in mutual funds. ance prior to recommending an investment strategy. In
The second common thread is that men are more helping clients manage their wealth, wealth advisors usu-
actively involved in managing their wealth. For older ally administer a risk tolerance questionnaire, discuss the
generations, men trade more than women do. Men are client’s financial goals, and then help clients develop their
more involved with wealth management and perceive investment strategies and make investment decisions.
themselves as having more control in managing their This process may work well for investors if wealth advi-
wealth than their gender counterparts. Similar results sors can integrate gender differences into guiding inves-
are evident for younger generations as male investors tors to make decisions that serve their best interests.
invest in mutual funds more frequently and for longer Serving the best interests of clients may be the
than female investors do. It seems that men tend to be recommendation of an investment strategy that suits
more involved with wealth management and demon- the clients’ natural psychological and behavioral prefer-
strate stronger control in managing their wealth. ences. However, a female client’s investment plan may
The final common thread is that men are more be a slightly underperforming long-term investment
subject to the overconfidence bias in wealth manage- program to which the client can comfortably adhere
ment. For older generations, men tend to be overconfi- since women tend to be less confident about and less
dent in trading, whereas women tend to tolerate less risk. involved in their investments and wealth management.
This tendency is also evident in younger generations Conversely, a male client’s investment plan may be one
since male investors tend to perceive their investments as that goes with his psychological and behavioral tenden-
performing better than investments by female investors. cies, and the client may be overconfident and accepting
This may explain why women are still facing a number more risks than he should since men tend to demonstrate
of obstacles from less involvement to low confidence in more knowledge and involvement in investing and man-
managing their wealth. aging their wealth.

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 Based on the results of this study, wealth advisors portfolios compared with single and cohabiting men.
should consider incorporating various factors of clients’ Future research should examine possible interaction
profiles into their wealth management. These factors are effects between gender and marital status on different
investors’ attitudes and knowledge about investing and aspects of financial behaviors.
managing wealth and their life-cycle stage. With a cross-
verified assessment of these factors, wealth advisors can CONCLUSION
help investors execute an investment strategy designed
to mitigate behavioral biases. Male clients would be well Younger generations face new and daunting eco-
served by adjusting their investments and wealth man- nomic challenges that stem from a number of sources
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agement to account for being overconfident in investing. including the financial market breakdown, outburst of
Female clients would be well served by various educa- the housing bubble, and the rapidly changing demo-
tion programs on investing and managing wealth to graphics of the nation. Using survey data, this study
account for being less knowledgeable and involved with reveals that gender, income, knowledge, and experi-
their wealth management. ence emerge as important personal and social inf luences
Finally, wealth advisors should decide whether to on younger generations’ investing behaviors in mutual
attempt to change their clients’ behaviors and attitudes funds. This underscores the importance of financial
based on gender differences in applying this research to socialization of younger generations at school and home.
client situations. Research has suggested that wealth advi- In an economic downturn that demands individual
sors should adapt to gender differences at high wealth responsibility and self-sufficiency, wealth management
levels and attempt to modify gender differences at lower is an essential component of a successful adult life. Given
wealth levels (Pompian and Longo [2004]). Since older the importance of financial well-being, understanding
generations usually possess higher wealth levels than these inf luences and contributing factors in investing
younger generations, wealth advisors should adapt to behaviors in mutual funds may pay off significantly for
gender differences for older generations and attempt to younger generations’ financial future.
modify gender differences for younger generations when
it comes to wealth management. By doing so, both male REFERENCES
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Limitations and Future Research Bayer, P.J., B.D. Bernheim, and J.K. Scholz. “The Effects of
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to the understanding of gender differences in investing Bernheim, B.D., D.M. Garrett, and D.M. Maki. “Education
behaviors in mutual funds, several limitations should be and Saving: The Long-Term Effects of High School Financial
noted. First, this study encourages caution when general- Curriculum Mandates.” Journal of Public Economics, Vol. 80,
izing the study’s results beyond younger investors. Albeit No. 3 (2001), pp. 435-465.
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tors, the sample for this study is limited to the regional Bernheim, B.D., J. Skinner, and S. Weinberg. “What
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