Women have lower levels of financial understanding

Women often display lower levels of financial understanding than men, facing a greater risk of economic exclusion and poverty

Greg Langley

When quizzed about basic financial concepts such as interest rate, inflation and risk diversification, women often display lower levels of financial understanding than men, as research conducted over the past decade shows.

This gender gap is evident among younger and older women, it shows in responses to basic as well as sophisticated questions and it is persistent around the globe, causing concern about far-reaching implications. Among other consequences, financial illiteracy has the potential to limit women’s participation in the economy. It also reduces their ability to educate children on money matters, according to Women and Financial Education: Evidence, Policy Responses and Guidance, a survey of financial literacy initiatives conducted by the Organisation for Economic Co-operation and Development (OECD).

Yet the reasons for disparate levels of financial literacy between men and women are not clear. Women could be disadvantaged by a lack of financial experience and limited exposure to financial products, says Flore-Anne Messy, executive secretary of the International Network on Financial Education (INFE).

Additionally, women often lack the confidence to use the limited knowledge they have. “What is really clear is that women tend to be less confident when dealing with financial issues, which may explain why they have little experience with financial products, which may in turn explain the lower level of financial knowledge,” says Messy.

Women, however, have one significant advantage over men. Being more in touch with their feelings allows them to rein in excess emotions that threaten to complicate critical financial decisions, writes psychiatrist Richard L. Peterson in his book Inside the Investor’s Brain.

And some areas of finance are easier for women than others, such as short term planning. “Women are probably better at handling short term budgets rather than planning ahead for retirement,” says Messy.

Females are also more risk adverse than their male counterparts, a trait that helps them avoid large-scale mistakes often caused by excessive risk-taking. But on the other hand, women may not save enough for retirement or other future life events as conservative investments are likely to miss out on risk premiums, Messy says.

Most worryingly, women’s lack of financial knowledge could have negative repercussions for the next generation who need all the help possible to grapple with increasingly complex financial products. “Your level of education determines what can be passed on to children. If women are less financially knowledgeable this will have an impact on the habits they transmit to their offspring,” says Messy.

TRAIN THE TRAINER

The OECD is pushing for governments, including regulators and the education system, to be at the forefront of financial education, says Messy. “To change behaviour and attitude, we want financial literacy skills to be developed at a young age, especially – and where possible – in schools.” Just like reading or writing, financial literacy needs to be taught to a high standard and become part of the curriculum. “Yet if included at all, financial education often suffers from a weak position in school curricula,” Messy explains. Likewise, programs developed for adults ought to be improved. “Not all of them are done well, often focusing on transferring knowledge rather than competencies.”

Brazil sets a shining example of how things should be done. As part of a national pilot program, financial literacy exercises have been introduced in 900 primary and secondary schools to provide children with real-life examples they can relate to. Notably, training teachers has been a key focus: “Training the trainer is one of the elements missing in financial education programs,” adds Messy. The positive effects have even spilled over from the children to their parents, with changes witnessed in adult attitude, especially in regards to saving.

Women have lower levels of financial understanding

Women often display lower levels of financial understanding than men, facing a greater risk of economic exclusion and poverty

Greg Langley

Women have lower levels of financial understanding

Women often display lower levels of financial understanding than men, facing a greater risk of economic exclusion and poverty

Greg Langley

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