Sunday, December 27, 2015

What’s Behind the Financial Literacy Gender Gap?

This is a slightly modified version of the blog I wrote for the Wall Street Journal, which is posted here:

If asked three simple questions designed to measure financial literacy, more than half of Americans will answer incorrectly. But there is another disturbing finding in the data from the U.S. National Financial Capability Study: Women know even less than men.
This gender gap is not limited to the United States. Women in countries as different as Germany, Australia, Canada, Italy, Sweden, Switzerland, New Zealand, Japan and the Netherlands all display lower levels of financial literacy than men. As additional countries are added to the financial literacy comparison, this evidence grows even more persistent.
This disparity is important because women tend to live longer than men. Moreover, women have less attachment to the labor market, with interrupted careers because of childbearing, and potentially fewer financial resources over the life cycle. Thus, women’s financial acumen is particularly important for their well-being before and after retirement.
Together with our international collaborators, we set out to study this gender difference in a paper that covers data from the most comparable countries: the United States, Germany and the Netherlands. Even accounting for different workforce participation, educational levels and parenting responsibilities, the gender gap cannot be fully explained. For example, although younger generations of women are more likely to be in labor market, to have college degrees and to move away from traditional societal roles, young women in all three countries were less financially literate than young men.
One might argue that there is specialization within a household, and women have delegated the acquisition of financial knowledge and financial decision-making to their partners. However, even in households where women are the financial decision-makers, they know less than men. And women do not know less because they opt to rely on financial advisers who supplement their lack of knowledge. Indeed, they are lesslikely than their male counterparts to consult advisers or online resources for information.
In looking at the channels through which financial literacy may be acquired, we examined data from what was East Germany vs. that from West Germany, since residents of these two regions were exposed to different financial markets and institutions. Although 25 years have passed since unification, we find large differences in financial literacy between the East and the West. This supports evidence that learning can take a long time. But it also tells us something more: There is a gender difference among respondents in West Germany but no knowledge gap between men and women living in East Germany, even after accounting for many demographic and economic characteristics. In other words, as financial institutions and markets develop, there is no guarantee that women will acquire financial literacy in the same way that men do.
One takeaway from this study is that learning from experience or from participating in financial markets is not enough. Women are still left behind. Perhaps women simply have less opportunity to learn. One simple way to equip everyone with basic financial skills—and close the gender gap—is to start at the beginning, adding financial literacy in school.