Financial education can make a huge difference in everyone’s lives. Numerous studies show financial literacy can help people manage their money more effectively and thereby help them maintain an improved standard of living. The FINRA Investor Education Foundation and the National Endowment for Financial Education recently scrutinized more than 76 research experiments on the benefits of financial education. As the two organizations concluded in a report published this year, there was compelling evidence to support the fact that learning more about finances positively influences behavior.[i] It can help people save more, use budgets, manage credit better, and make appropriate use of insurance.
The gender disparity
With the importance of financial literacy established, it is disappointing that a gender gap in the awareness of financial concepts persists. A survey conducted this year found a gap of 10 percent, as men correctly answered 55 percent of the questions posed to them about personal finances, while women’s average correct score was only 45 percent.[ii]
The reasons for the disparity have been widely debated, but there’s no consensus. Confidence has been cited as a primary cause. This to me seems plausible given that women on average do seem to doubt their understanding of financial concepts much more readily than men do.[iii] That lack of confidence seems to stem from longstanding assumptions and stereotypes about the genders. Women may have unconsciously internalized a bias that they’re not as capable with endeavors, like managing money, that require math skills. This year’s UNESCO Global Education Monitoring Report confounds that assumption. The report showed that while boys have outscored girls in math skills in their early years, girls eventually made up the difference and equaled the boys. In some countries, by the eighth grade, girls have even outscored the boys.[iv]
Addressing the problem
Overcoming the gender gap requires an approach that is not embedded in out-of-date and inaccurate biases against women. At the Financial Fitness Group, we’re looking to improve financial literacy by operating with the following key principles.
- Recognize that a lack of confidence, not a lesser ability to understand financial concepts, has been the root of the issue. We focus on helping women boost their confidence, so they are comfortable with the financial concepts and risk-taking that managing money successfully requires. We look for creative ways to do this. One effort we applaud is PokerPower, which Jenny Just, the founder of the fintech firm PEAK6, established to get 1 million women playing poker. A particular form of poker—Texas Hold ’em—was selected because the skills required to win at that game are the same ones that are necessary for people to succeed in their careers and financially. As the organization explains, playing the game teaches people how to take calculated risks, to have enough confidence to make bold decisions, and to have the emotional control, discipline, and patience to gradually identify the patterns that can lead to winning.
- Understand that women are not more risk averse, but rather more risk aware. Much has been written suggesting that men have a greater tolerance for risk. Risk-taking can be necessary to succeed with investments like stocks that may deliver rewards over the long term but are volatile over the short term. We believe a nuance has been missed in these conclusions about men’s and women’s behavior. We don’t think there is an inherent gender-based difference in risk tolerance, but rather a circumstance-based reality that leads women to be more aware of risk. Women must be more cautious with their money because of the financial challenges they face, as noted below.
- Acknowledge the societal factors that create greater financial challenges for women. The gender pay gap means that women over the course of their careers will earn less than men do. Women’s careers also often don’t follow the straight upward trajectory that men’s careers can because, in a society that doesn’t always provide adequate coverage for parental leaves, having children can bring more stops and starts to women’s careers. Earning less means women have to be more protective of the money they accumulate over their lifetimes, knowing they don’t have the same advantages that men do to make up for any mistakes or excessive risks.
- Don’t suggest that saving more requires personal deprivation. We’ve found that 90% of the articles coaching people on how to manage their finances talk about saving more by cutting out trivial expenses, like a $4 cup of coffee or a work lunch at a deli when you didn’t have time or the desire to brown bag it. Becoming financially savvy is about more than depriving yourself the simple pleasures that make life enjoyable. As Sallie Krawcheck, the co-founder and CEO of Ellevest, a financial company built by women, noted in a recent interview, this type of financial education implies, “If I just wouldn’t drink the latte, I will be able to retire.”
- Capitalize on women’s eagerness to learn. Women want to learn more about finances. In 12 years of offering our Financial Fitness Platform, we found that women were 45% more likely to engage with the resources we provided.
Women are clearly taking initiative on their own to bridge the gender-based financial literacy gap, but they need the support of financial education resources that recognize the unique challenges they face in the effort to improve their financial standing.
[i] Source: “Financial Education Matters: Testing the Effectiveness of Financial Education Across 76 Randomized Experiments,” FINRA Investor Education Foundation and National Endowment for Financial Education, March 2022
[ii] Source “Gender gaps in retirement readiness and financial know-how persist, despite strides made by women in the last 50 years,” CNBC.com, 6/27/22, citing the Teachers Insurance and Annuity Association of America and George Washington University’s annual personal finance survey of 3,582 U.S. adults conducted in January 2022.
[iii] Source: “What behind the male-female literacy gap? These academics say they’ve found an answer,” MarketWatch, 5/5/21