The growing clout of women as drivers of the U.S. economy will radically alter the business and investing landscape in years to come
By guest authors Justin Lahart and Lauren Silva Laughlin from Wall Street Journal
Over the past half-century, women have profoundly reshaped the U.S. economy. The changes that are happening now could be just as significant. Investors should take notice.
In 1970, only half of women in the U.S. aged 25 to 54 were in the workforce. Since then that figure has risen to three-quarters. For men it has moved in the opposite direction, slipping from 96% to 89%. Over the same time, more and more young women enrolled in college, leading them to more lucrative jobs. Women working full-time now earn 80 cents on the dollar to men, versus 59 cents in 1970.
That hardly counts as pay parity, and the gap is particularly large in the upper echelons of management. There has been significant progress, though. There were no women chief executives in the Fortune 500 in 1970. Now there are 33 and all of the companies in the S&P 500 now have at least one woman on their board of directors. .
Alongside that progress has come gains in women’s spending power that have radically altered what companies sell and how they sell it. Entire industries, such as child-care services for working parents, have sprung up. Online ordering services, from food to clothing, are wildly successful in selling to working moms. Now big household decisions from cars to home buying to retirement services are being remade as women have a bigger say in families’ financial choices.
Women are on course to take a more commanding role in the years to come. For years now, more women have been attending college than men. There are now as many women with four-year college degrees working as male college graduates and by next year there will likely by more. That should translate into increasingly higher pay as today’s young female college graduates advance to more senior positions. The median working college graduate aged 25 or older earns 81% more than the median worker whose education did not extend beyond high school, according to the Labor Department.
The education gap is showing up in traditional married couples. It is now more common for a woman to be more educated than her husband than vice versa. That might be what is behind another change: As of 2017, 31 % of women earned as much or more than their husbands, according to a Pew Research Centre analysis. That compares to 25 % in 2000 and just 13 % in 1980.
More women taking the earnings pole position within their families could augur a shift in American spending patterns. Single women allocate more of their budget toward health care, groceries, apparel and housing than single men with comparable budgets, Labour Department data show, while men spend more on cars and alcohol, among other items.
Women’s attitudes toward money also differ from men. In a recent survey conducted by Bank of America Merrill Lynch, 41 % of women said they would use extra disposable income to pay down debt versus 36 % of men. Conversely, 14 % of women said they would use the money to buy more things versus 19 % of men. Those discrepancies suggest that stereotypes about women overspending are misleading. Notoriously profligate American households may even save more overall, though higher incomes for women equal more dollars to spend.
Such conservatism extends toward women’s investing behaviour. This may hurt funds offering investment strategies to investors that are riskier or more active and aid funds with passive strategies—a clear industry trend recently.
And it may affect the companies in which they invest, leading companies to put more women into positions of power. That, in turn, could lead to changes in firm behaviour. Recent research suggests that companies with female chief financial officers are less likely to misreport results, and that companies with female directors encourage chief executives to take on fewer risks.
Naturally women make mistakes, too. While they have the opportunity to assume the role as a more active participant in economic decision-making, for example, they haven’t yet closed the gender gap in financial literacy. That leaves women more prone to making poor financial decisions—a serious risk for older women, who often outlive their husbands and spend the later years of retirement as widows.
So there could be pitfalls, too. But women’s growing clout is unquestionable. As they take on an ever larger role in driving the economy, the business and investing landscape will be radically altered. Ignoring the changes that are happening is the equivalent of sticking one’s head in the shifting sand.