The Times They are a Changin’: How Women and Millennials are Leading the Impact Investing Movement
By Randy Kaufman, with research assistance from Dustin Lowman
“Come gather ‘round people wherever you roam
And admit that the waters around you have grown
And accept it that soon you’ll be drenched to the bone.
If your time to you is worth savin’
Then you better start swimmin’ or you’ll sink like a stone.
For the times they are a-changin’”
Many of us believe in impact investing, yet we all have different journeys that opened our mind to it.
My path was long and winding, and heavily influenced by my friends and colleagues. In 2007, a dear and brilliant friend gave me a book called Fooled by Randomness. It showed me how humans are programmed to read patterns and purposes into events that really, at their core, are meaningless.
My love of learning led me to other books on the topic, and subsequently to a lifetime passion for trying to understand why we live with so much that makes so little sense in a modern world.
In 2008, another friend changed my life again. He invited me to a philanthropy conference, where I first heard the term “impact philanthropy”: philanthropy that prioritizes social impact over tax benefits, ego aggrandizement, and other personal interests. That day, I sat riveted to Angelica Berrie speaking about the impact she was making, and heard that Bear Sterns was about to go bankrupt. Yet, my mind was fixated on this new (to me at least) approach to philanthropy. The journey culminated in 2009 when a young woman client asked me about impact investing. Embarrassed to admit I did not know anything about it, I did some research.
With a shoutout to Charlie Munger, I asked my favorite questions: Why? Why not? Since then, I have become an ardent supporter of the field. I have come to believe that there is nothing less rational than caring about certain causes, granting money to alleviate them, and then investing in a way that is diametrically opposed to your cause. Picture, for example, a foundation set up to cure cancer, and a portfolio that includes tobacco stocks. You get the idea.
Over the past decade, the field of impact investing has grown and changed in innumerable ways. I believe the day will come when impact investing is considered mainstream, when we will recognize that all investments have an impact, and when the debate will end as to whether you can align your portfolio with your values and still earn market-based financial returns. Interestingly, this movement is being led by two groups—women and millennials. This article explores this, investigating why it’s the case, and suggesting ways for advisors to heed the call.
Just Like a Woman
Women are the current driving force behind impact investing. 51% of the personal wealth—around $22 trillion—in the United States lies in the hands of women, and American women now control almost half of the estates valued at $5 million or more., According to an exploration of this trend by Money Magazine, there are several factors at play here: “Women are acquiring more wealth through inheritances—from both parents and spouses—and via divorce payouts... . But they're also making their own money, as they become entrepreneurs and run their own successful businesses.”
The sheer amount of female-controlled wealth is only a starting point, however, as women face sociocultural barriers to their financial dominance. Studies show that women feel less competent than men in their financial dealings. In fact, they feel anywhere from 20 to 50 percent less confident when applying their financial knowledge despite studies showing comparable financial knowledge between men and women (worldwide, 35% of men and 30% of women are financially literate).
Many women can relate to these statistics. For example, when I was a young lawyer, I once stayed up most of the night researching a section of the tax code. The next day, I sheepishly gave my opinion to my boss, a woman. She smiled, leaned back in her chair—wearing, of course the 1980s uniform of a blue suit, blue pumps and blouse with a large bow at the top (picture Melanie Griffith in “Working Girl”)—and my boss scolded me, asserting that a man would have done half the research and exuded twice the confidence in giving his answer. Her advice to me was to be more like a man in the working world, something I have never forgotten.
In spite of their lack of confidence in investing, women, regardless of age or generation, show overwhelming interest in socially responsible and impact investing when compared to men (70-79% vs. 28-62%—a possible 51% disparity). Particularly among highly affluent women, studies have shown that “helping others” and “environmental responsibility” are paramount to their investment decisions. Wealthy women donate more often to charities and give more money in total than do men. Interestingly, women also tend to be more conservative with their investments and to wait to make larger charitable gifts later in life because they want to first ensure the money they do have is projected to outlast them.
To recap, women control more wealth than men, but are more conservative with it due to their concerns about preservation over their lifetime. Women have, as discussed above, a proven interest in creating a lasting impact on the world. These values, I believe, lead them to impact investing, and make them the perfect group to launch impact investing into the mainstream. However, to become truly mainstream, impact investing first has to be accepted by the majority of financial advisors. Unfortunately, I believe that the traditional advising ecosystem is ineffective for this demographic. Women value deep listening, values-based goal-setting, and a comfortable space for asking questions and gaining answers. Experienced financial advisors can certainly demystify the investing process and help build their female clients’ financial confidence, but only if they create suitable advising styles that consider their clients’ preferences. With impact investing, women are able to create change without the fear of giving too much of their money away. If advisors can create a comfortable environment for women and understand that impact investing is the logical vehicle for many of them, there will be no stopping the movement to impact.
Forever Young
Women may be the current heralds bringing impact investing mainstream, but millennials will be the group that solidifies the cultural shift. At 72.1 million, millennials represent the U.S.’s largest living adult generation. They are often stereotyped as selfish, hyper-materialistic, lazy and overly ambitious. However, as my Twitter followers know, not my millennials! Millennials are actually the most fiscally conservative generation since the Great Depression. They are extremely risk-averse and far more cautious than their boomer parents when investing in the stock market (only one in three millennials invests stocks).
Moreover, half of millennials believe investing is too risky altogether, and only 28% see investing as the key to success. Consumer research indicates millennials are uncomfortable taking on debt and they hold more cash than any other generation.
This all seems a little old-fashioned for the “YOLO” generation, but the millennial’s worldview was formed by the back-to-back fallout of the bursting of the late ’90s tech bubble and The Great Recession.
Those events were compounded by growing up in a post-9/11 world. Considering the world in which they grew up, their aversion to risk makes sense.
As I am wont to do, I will now address the elephant in the room: If millennials are so averse to investing, how will they create a cultural shift towards impact investing? To understand this, let’s explore what makes millennials tick. Despite the stereotypes, they would rather spend money on experiences instead of things. And while in general they avoid going into debt, some do take on selective debt for higher education or memorable trips, activities, etc. In addition, millennials are motivated by an intense desire to make the world a better place. They are incredibly committed to solving issues around climate change, world hunger, and social injustice, and because of that, they are much more interested in socially responsible investing than any other age group.
Their beliefs go beyond just themselves—millennials believe that improving society should be the number one priority of business and that it is the duty of corporations to make socially and environmentally responsible choices. For the millennials who do invest, 76% of them consider the social, political, or environmental impact of a company before investing. When I ask my millennial clients why they are so ardent about impact investing, they look at me like I’m crazy. “Who wouldn’t?” they say. “It’s the right thing to do.”
This is important for a multitude of reasons. First, millennials’ strongly held views about impact investing are already having significant influence on their parents and their advisors. Further, $68 trillion is set to be inherited by millennials over the next 25 years—the oft-analyzed Great Wealth Transfer. This will be the largest intergenerational transfer of wealth the world has ever seen. Millennials are the largest cohort and will have incredible power with the aforementioned wealth transfer. Millennials are the future of investing, impact or otherwise, and they need advisors as much as any other group.
For advisors to truly help millennials, they must understand that they are deeply different from their boomer parents. Too often, advisors only focus on the boomer parents. So, unsurprisingly, 66% of children fire their parent’s financial advisors after an inheritance.
My advice to the advisors out there: When millennials are urging their parents and advisors to consider impact, stop talking and listen.
It is important for advisors to remember that traditional advising will be less interesting to millennials as the cultural shift takes place and impact becomes an important consideration for everyone. Advisors who are slow to adapt will not survive this change. This cultural shift is reminiscent of the internet revolution, a connection that is well explained by Rod Schwartz, the CEO of ClearlySo.
“The ‘Internet Sector’ in the late 1990’s… was viewed by many as a niche sector disconnected from traditional industries. This technology has become utterly integral to every corner of every sector, fast-tracked human development and changed the way we communicate, live, problem solve and conduct business. Impact is similarly becoming an integral consideration to every facet of our personal and professional lives.”
So, let’s take the lessons learned from the internet revolution and use them so as to not be left behind in the “impact revolution.”
Shelter from the Storm
I hope you leave this article feeling the same sense of optimism I feel. While the current political environment might be turbulent to say the least, it is helping to fuel a movement that will create a shift to impact and hopefully change mainstream investing forever. Advisors must be prepared. Traditional investing will not work for women and it will not work for millennials. It is therefore crucial we create an ecosystem that listens, that keeps these groups’ desire for making the world a better place in mind. Impact investing will seize a momentum of its own, especially as publicly traded corporations recognize the increasing investing power of millennials and women. I truly believe that women and millennial impact investors will set a new standard that will create a win-win for all concerned.
If anything in this article sparked your interest, please don’t hesitate to reach out!
Click here to download a printable PDF of this article.
Sources
DeMasters, • Karen. “Women Hold Majority Of Personal Wealth, But Still Minorities In Advisory Field.” Accessed July 8, 2020. https://www.fa-mag.com/news/women-need-to-lead-in-finances--consultant-says-54850.html.
Group, The Quantum. “Financial Facts for Women’s History Month.” The Quantum Group (blog), March 13, 2017. https://thequantum.com/financial-facts-for-womens-history-month/.
Money. “Women’s Wealth Growing Faster Than Men’s.” Accessed July 8, 2020. https://money.com/womens-wealth-share-increase/.
Christopher Einolf, "Gender Differences in the Correlates of Volunteering and Charitable Giving," Nonprofit and Voluntary Sector Quarterly 40, no. 6 (2011): 1,092–1,112.
Albrecht, Leslie. “Who Donates More Time and Money to Charity — Men or Women? Here’s Your Answer.” MarketWatch. Accessed July 8, 2020. https://www.marketwatch.com/story/wealthy-women-give-away-their-money-and-time-more-than-rich-men-2018-10-24.
NBC News. “Why Women Invest 40 Percent Less than Men (and How We Can Change It).” Accessed July 8, 2020. https://www.nbcnews.com/better/business/why-women-invest-40-percent-less-men-how-we-can-ncna912956.
NW, 1615 L. St, Suite 800Washington, and DC 20036USA202-419-4300 | Main202-857-8562 | Fax202-419-4372 | Media Inquiries. “Millennials Overtake Baby Boomers as America’s Largest Generation.” Pew Research Center (blog). Accessed July 8, 2020. https://www.pewresearch.org/fact-tank/2020/04/28/millennials-overtake-baby-boomers-as-americas-largest-generation/.
Facebook, Twitter, Show more sharing options, Facebook, Twitter, LinkedIn, Email, Copy Link URLCopied!, and Print. “Study: Millennial Generation Most Fiscally Cautious since Depression.” Los Angeles Times, January 28, 2014. https://www.latimes.com/business/la-xpm-2014-jan-28-la-fi-mo-millennial-generation-financially-conservative-depression-20140128-story.html.
Carter, Shawn M. “Too Many Millennials Are Afraid to Invest in the Stock Market—Here’s How You Can Overcome the Fear.” CNBC, October 25, 2017. https://www.cnbc.com/2017/10/24/millennials-are-afraid-to-invest-in-the-stock-market-ally-finds.html.
Gobell, Joetta, and Ph.D. “The Investopedia Affluent Millennial Investing Survey.” Investopedia. Accessed July 8, 2020. https://www.investopedia.com/the-investopedia-affluent-millennials-study-4769751.
https://www.ubs.com/content/dam/WealthManagementAmericas/documents/investor-watch-1Q2014-report.pdf
BlackRock. “Investor Pulse - Money and Happiness.” Accessed July 8, 2020. https://www.blackrock.com/corporate/insights/investor-pulse.
Krishna, Mrinalini. “The Young and the Cautious: Why Millennials Hoard Cash.” Investopedia. Accessed July 8, 2020. https://www.investopedia.com/news/millennials-are-risk-averse-and-hoarding-cash/.
“4 Ways Spending on Experiences Boosts Happiness - Business Insider.” Accessed July 8, 2020. https://www.businessinsider.com/money-advice-spending-tips-experiences-boost-happiness-jean-chatzky-2019-3.
LaMagna, Maria. “Why Middle-Class Millennials Are Taking out Hefty Loans to Travel the World.” MarketWatch. Accessed July 8, 2020. https://www.marketwatch.com/story/young-middle-class-adults-spend-their-money-to-help-them-in-job-interviews-2017-08-23.
Council, Young Entrepreneur. “Council Post: Why Millennials Want More Than Just Work: The Importance Of Your ‘Double Bottom Line.’” Forbes. Accessed July 8, 2020. https://www.forbes.com/sites/theyec/2017/06/09/why-millennials-want-more-than-just-work-the-importance-of-your-double-bottom-line/.
Gomez, Brandon. “How Socially Conscious Young Investors Are Putting Their Money Where Their Ideals Are.” CNBC, February 17, 2019. https://www.cnbc.com/2019/02/13/influx-of-young-investors-can-revitalize-sri.html.
Bose, Satyajit, Guo Dong, and Anne Simpson. The Financial Ecosystem: The Role of Finance in Achieving Sustainability. Springer Nature, 2019.
Observer. “As Millennials Age Into Investors, Socially Conscious Funds Boom,” September 29, 2017. https://observer.com/2017/09/socially-conscious-funds-increase-in-popularity-as-millennials-become-investors/.
Murray, Sarah. “Rich Millennials Push to Put Family Wealth into Impact Investments,” October 17, 2019. https://www.ft.com/content/972adac6-d928-11e9-9c26-419d783e10e8.
Management, David Robinson, founder and CEO of RTS Private Wealth. “Here’s How to Prepare Your Heirs for the $68 Trillion ‘Great Wealth Transfer.’” CNBC, February 25, 2019. https://www.cnbc.com/2019/02/22/how-to-prepare-your-heirs-for-the-68-trillion-great-wealth-transfer.html.
“The Great Wealth Transfer Is Coming, Putting Advisers at Risk - InvestmentNews.” Accessed July 8, 2020. https://www.investmentnews.com/the-great-wealth-transfer-is-coming-putting-advisers-at-risk-63303.
ClearlySo. “The Future of Impact Investing: Rod Schwartz Predicts Rapid Growth for the Sector in 2016,” January 8, 2016. https://www.clearlyso.com/the-future-of-impact-investing-rod-schwartz-predicts-rapid-growth-for-the-sector-in-2016/.