Financial literacy is the amount of knowledge a person holds about fiscal matters, and it makes it possible for them to make better, more secure decisions in the long term. A question often asked by the Stanford Center on Longevity encompasses whether different demographic variations, such as gender, affect one’s financial literacy. In relation to gender, how financially literate are women compared to men? According to data released by the Sightlines Project, women are significantly less financially literate compared to men, and they lack confidence in their ability to make fiscal decisions.¹ But why does confidence matter? In the most recent Sightlines report, we see confidence is correlated with financial literacy not just for women, but for men as well.² However, women are far less confident, and it could be a factor behind their literacy not being as high as male participants.

Why is there this lack of confidence in women? Sightlines data suggests that this difference consistently starts early in life, and that these feelings continue throughout the lifespan, especially in situations involving mathematical skills.³ By lacking confidence in this area, the related fields of financial decisions and literacy are impacted, stunting growth of knowledge and certainty in their decision making.

Can this confidence be learned by taking greater initiative with financial decisions? Is it because women do not take these responsibilities that they are lacking in literacy and confidence? Studies have shown that men are the ones who handle major financial decisions such as investments, whereas women conduct financial matters of the home such as monthly bills.⁴ This could certainly add to why women are lacking confidence; they do not participate consistently in financial decisions that they believe require higher literacy, and are therefore less sure of their ability to do so. However, according to Sightlines, only married women who made long-term financial decisions and prepared taxes saw a minimal increase in financial literacy.⁵ This could indicate married women do not see routine household decisions as knowledge-based. In looking at daily, minor financial issues, women’s confidence levels were not shown to be lower than men’s, suggesting that it really depends on the financial decision being major and long-term, or minor and short-term.

In order to create a comprehensive measure of financial confidence, the Milestones Project defines women’s amounts of confidence not only from self-reported levels, but also as answers of “Don’t Know”on a financial literacy quiz. Women answered with “Don’t Know” almost twice as often as men (19.4 percent vs. 10 percent, respectively).⁶ According to this reported data, we can see that even though women may be literate in financial matters, their lack of confidence limits their ability to act on their knowledge and creates a consistent pattern of doubt regardless. They will answer with “Don’t Know” instead of taking a risk, even if they could be correct.

Data from “On the Gender Gap in Financial Knowledge: Decomposing the Effects of Don’t Know and Incorrect Responses” show that higher education is associated with higher financial literacy⁷, though our findings suggest that for women, there is still the obstacle of their lack of confidence. Another concern is that levels of fiscal competency can differ greatly. Some women may or may not have the objective financial knowledge needed even if they do have the confidence. Some women may answer with “Don’t Know” because they really do not know, and they are confident enough to admit to it. On the other hand, women may answer the same way because they truly are not confident in having the correct answer. Further analysis is required to uncover these nuances, which we hope to conduct in the future.

One potential intervention for increasing financial literacy is educational programs, which in turn might increase confidence. But are they effective? We have seen that confidence is a major part of how financial literacy is gained and acted upon. It could be that financial education programs and other knowledge-based interventions may not be effective without gaining confidence first and foremost. Many questions have been posed on how financial confidence can be improved; however, more data and research clearly needs to be done in order to have an idea on how to do so.

After outlining the issue of financial literacy above, a question of great interest to me is whether or not the level of education completed is related to financial literacy, financial decisions, and financial confidence levels in women versus men. According to “What Explains the Gender Gap in Financial Literacy? The Role of Household Decision Making,” women who are college educated are more financial literate than women who have only graduated from high school. However, when viewing the amount of financial decisions made:

“Women who completed high school or less on average handle 1.86 financial activities, compared to 1.36 for men of similar education. This pattern is reversed for higher education categories; women who completed at least some college graduation are responsible for fewer activities on average than similarly educated men.”⁸

Looking at this and the Sightlines findings, could it possibly mean that women who are more highly educated have to determine more short-term decisions, and fewer long-term ones? Do they have advisors, or are there other relationships outside of marriage where the other individual takes care of their decisions? In relation, do college graduates have less confidence compared to high-school graduates? More confidence relates to more financial literacy, but does confidence also have a correlation with the relationship between number of financial decisions and education levels for women? Research has not found an answer for this; more studies need to be done to determine why women do not make as many financial decisions, and whether or not they are long-term and short-term.

Though Sightlines focuses on the American population, this lack of financial literacy and confidence among women is a global issue. Many articles from various countries, such as Germany⁹ and Brazil¹⁰, show that women are lacking financial literacy and financial confidence. Can this be considered a financial epidemic? Women need to have this confidence and knowledge because they are important for their futures. Research from Sightlines indicates that women live longer than men, and as such, they need to be prepared for their longer lives.¹¹ Without financial literacy and confidence, they are not preparing their future selves for retirement.

To conclude, women do have the opportunity to be as financially confident as their male counterparts, but they need readily available and effective resources. Though more research is needed, the new findings from Sightlines can guide effective strategies to help women be more proactive and confident in their fiscal decision-making.

Royalle is a student studying Interdisciplinary Studies/Sociology with an internship at the Stanford Center on Longevity. After completing her undergraduate degree, she hopes to attend law school. Outside of school, she loves spending time with her family and her pets.

Sources:

1. Stanford Center on Longevity (2018). Sightlines Special Report: Seeing Our Way to Financial Security in the Age of Increased Longevity. Retrieved from https://longevity.stanford.edu/sightlines-financial-security-special-report-mobile/.
2. Ibid.
3. Ibid.
4. Ibid.
5. Ibid.
6. Ibid.
7. Chen, Z., & Garand, J. C. (2018). On the Gender Gap in Financial Knowledge: Decomposing the Effects of Don’t Know and Incorrect Responses. Social Science Quarterly, 99(5), 1551-1571. doi:10.1111/ssqu.12520
8. Fonseca, R., Mullen, K. J., Zamarro, G., & Zissimopoulos, J. (2012). What Explains the Gender Gap in Financial Literacy? The Role of Household Decision Making. The Journal of consumer affairs, 46(1), 90-106.
9. Bannier, C. E., & Schwarz, M. (2018). Gender and Education Related Effects of Financial Literacy and Confidence on Financial Wealth. Journal of Economic Psychology, 67, 66-86.
10. Potrich, A. C., Vieira, K. M., & Kirch, G. (2018). How Well do Women do When it Comes to Financial Literacy? Proposition of an Indicator and Analysis of Gender differences. Journal of Behavioral and Experimental Finance,17, 28-41.
11. Stanford Center on Longevity (2018). Sightlines Special Report: Seeing Our Way to Financial Security in the Age of Increased Longevity. Retrieved from https://longevity.stanford.edu/sightlines-financial-security-special-report-mobile/.