The last 50 years have seen enormous societal shifts in the role women play in their own personal finances. From getting married later in life to securing more senior and higher paying positions to inheriting significant amounts of money, more women are finding themselves as the financial decision-maker than ever before.
As millennial and Gen Z (collectively “next gen”) women find themselves accruing greater wealth, many advisors are seeing a shift in how these women view philanthropy and investing.
Next Gen Women and Philanthropy
Younger women are taking initiative to leverage their wealth in line with their values in ways women in previous generations have not. Based on the world events these generations have witnessed, as they reach an age and position in life that allows them to prioritize charitable giving, next gen women tend to be extremely altruistic, although in a different way than previous generations.
While earlier generations often focus their charitable giving on causes that are important to them personally, such as cancer research in honor of a friend or family member who suffered from the disease or supporting an alma matter, next gen women tend to focus their giving more on an organization’s ability to have an impact on a particular cause. This has led to a shift from the more health and education-based donations of previous generations to more social and economic justice-based causes. For next gen donors, this often includes giving to not only 501(c)(3) organizations, but also for-profit organizations and political groups active in their areas of interest. They are less driven by the tax treatment of their donations and more likely to track organizations of interest to see if there are measurable outcomes tied to their giving.
Another significant shift with next gen women is a desire to establish their own identity when it comes to charitable giving, as opposed to honoring their family’s charitable traditions. A 2022 study found that 88% of women prioritize creating their own legacy. The same study noted that next gen philanthropists are more than twice as likely to give via structured vehicles than those in previous generations (for example, 51% of those aged 21 to 42 expressed an interest in using a charitable trust, while only 15% of those aged 43 and older were similarly interested). Donor-advised funds were also twice as popular among next gens as opposed to those 43 and older.
Impact and Alternative Investing
Many next gen investors see impact investing, also referred to as ESG or sustainable investing, as an extension of their philanthropic endeavors. They believe they have an opportunity to address a plethora of societal problems and issues through impact investing. From 2018 to 2022, the number of next gen investors who identify as owning ESG investments nearly doubled, increasing to 73% from 37%. There is no uniform set of criteria that ESG managers use in determining their portfolios, but factors generally include looking at a company’s carbon footprint, its commitment to achieving and advocating for diversity and equality (across racial, gender and LGBTQ+ lines, for example), and whether a company’s board/management are drivers of positive change.
One of the arguments that has plagued ESG investing since its advent in the mid-2000s is that it cannot consistently achieve the same investment returns as a non-ESG weighted portfolio. However, more than three-quarters of next gen ESG investors noted that the financial returns they received from their ESG portfolios met or exceeded their personal expectations.
In addition to ESG investing, next gens have shown a desire to incorporate alternative investments outside of the standard stocks and bonds in most portfolios; in other cases, next gen clients may be more open to emerging and international markets than their older counterparts. This broader mindset may also lend itself to new and different asset classes such as cryptocurrencies, NFTs, direct investments, etc.
What this Means for Advisors
As an advisor, understanding your clients’ specific needs, goals and objectives is paramount for building and maintaining lasting client relationships. The changing dynamics in next gen women’s wealth and charitable giving has the potential to transform traditional practices within the industry.
Women are increasingly taking the lead in financial decisions and demonstrating their purchasing power. The next gens have shown themselves to be less focused on tax implications and traditional investment returns, and more focused on making an impact both via their gifting and their investing. Interestingly, even as next gen clients have grown up in a world where more transactions are and/or can be done online, they place a higher importance on having local advisors who use in-person communication than any previous generation.
This shift in wealth dynamics requires a personalized approach and tailored solutions from advisors. Advisors who demonstrate an understanding of these changing priorities to their next gen clients will be well positioned to help these clients navigate through their future investment needs.
Gina M. Nelson is Senior Vice President and Head of Fiduciary Services at Chilton Trust
