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We wanted to show how events and issues in women’s lives can affect their finances. So we compared the wealth of an illustrative man and woman (Joe and Jane) during their lifetimes. Here’s what we discovered…

Research has examined the differences between women and men when investing. However, research has tended to look separately at other factors, such as pay differences between the genders and lifespans. Only by seeing the big picture can we answer questions like, how much of a gap do gender differences create in women’s finances? And can women narrow this gap managing their investments wisely?

For the answers, we modeled the financial outcomes of Joe and Jane based on five of the main factors affecting how they create wealth:

• pay gap
• career break
• flexible employment
• life expectancy
• risk tolerance

In our model, Jane and Joe are 25, single, have recently started work, and want to:

• preserve and grow their inheritance of one million US dollars for the next generation
• buy a house at the age of 35 by taking out a mortgage
• enjoy a decent standard of living later in life

To model the effect of gender differences, we assumed that Jane:

• has a starting salary 10% lower than Joe’s, due to the persistent salary gap between genders
• receives a total gross salary less than Joe’s over her lifetime because she takes a career break of one year and works part-time later on
• invests more conservatively than Joe
• lives longer than Joe

We also assumed that Jane’s expenses will grow less than Joe’s – and that both their real estate and pensions are the same.

The gender wealth gap that can persist towards the end of your life - how can Jane avoid this situation?

Because Jane has less money to start with and accumulates less wealth over her lifetime, she would benefit from investing her funds strategically – and focusing on achieving her lifelong goals.

How might a moderate investment risk strategy help?

Jane could benefit from establishing a level of risk she’s comfortable with that puts her in reach of her goals. She could then set up an investment portfolio for life, and invest in a disciplined way for the long term.

What does this all mean for Jane?

To achieve her goals, it pays for Jane to:

• understand the factors that can harm how she builds her wealth, and how those factors might play out over her life. Paying attention to the impact of flexible working and baby breaks is important
• understand risk and how taking calculated risks with money can help it grow
• become more financially confident, so she can ask the right questions and feel sure she’s choosing the right investment strategy
• understand how to separate her financial and personal goals when managing her wealth