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Women Have Lower Financial Literacy Than Men: Why This Happens And Why It Needs To Change

This article is written by a student writer from the Her Campus at St. Andrews chapter.

“Financial literacy” is defined by the OECD International Network on Financial Education as “a combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial wellbeing.” This definition makes it easy to understand that any gender differences in financial literacy could have far-reaching implications. And this isn’t mere speculation. Empirical evidence has shown that women, compared to men, have on average lower financial literacy and are less likely to be confident when answering questions related to financial matters.

There are many explanations for the gender differences in financial literacy, including differences in skills, attitudes, and opportunities. Firstly, there are various unavoidable barriers that women face in regard to gaining financial literacy. Socio-economic factors, like limited access to education, employment and formal financial markets, both limit women’s financial wellbeing as well as their potential to gain and improve upon their financial knowledge, confidence and skills.

Girls’ access to schooling is still a major issue in developing countries, with girls in many regions still receiving less education than boys, or, in cases when they do have access to schooling, being constrained by economic or social barriers. For instance, research undertaken in India found that Punjabi women experience discrimination in their access to colleges and government training programmes. The courses they are offered are aimed toward developing skills to succeed in the “marriage market”, rather than in the labour market.

Though the argument that the difference in financial literacy is caused by external restraints such as schooling seems relatively straightforward, even in countries where schooling is universal, key gender differences persist in terms of financial literacy. Therefore, as an OECD/ INFE paper concludes, accounting for differences in age, marital status, income and education reduces but does not eliminate the gender difference in financial knowledge.

An alternative explanation for the gender difference in financial literacy relates to household gender roles, the argument being that there is a difference in terms of the level of exposure to financial products and the opportunity to learn by doing. Due to certain social or cultural norms, men are often the ones behind the financial decision-making at home, while other norms may implicitly place barriers on women working outside the home, as they are expected to be the primary caregiver.

Women’s own attitude and behaviour towards financial matters can create another barrier to reaching equal financial literacy. As an OECD/ INFE paper points out, “the typical consumer has limited objective as well as perceived subjective understanding of financial issues, and many consumers express lack of ability/motivation to gain and understand financial information and knowledge”. Evidence has also found that girls are reportedly less confident when learning about financial matters, even when they outperform boys. Furthermore, even in more developed countries, negative stereotypes that can inhibit women’s mathematics performance within STEM subjects persist, as women are found to greatly underperform when explicitly told that a maths test is gender biased, but to perform equally well when the test is purported not to yield gender differences. A key issue here is the self-confidence that women feel in managing financial matters, reportedly low on a global level, which makes them less motivated and more insecure in furthering their financial education – only perpetuatating the gender divide in financial literacy.

Furthermore, some counties do have legal and social barriers that limit women’s ability to expand their financial literacy. Surveys and studies have found that female-managed firms are less likely to obtain a bank loan, while female entrepreneurs are charged a higher interest rate on loan approval. Even then, discrimination has been shown in the loan allocation that female entrepreneurs are given. Facing the barriers in place at formal financial institutions, women may instead turn to more informal networks in order to cope, such as relying on building social relationships of mutual support instead of going to a bank, therefore reinforcing reduced female learning about the formal financial marketplace.

Some readers may wonder about the importance of having good financial literacy, especially if women are still managing financially (for instance, through the support of the social networks mentioned above). However, there are many reasons why financial literacy is vital. Firstly, there are purely practical issues that require adequate financial literacy such as debt repayment (e.g., student loans), pensions, mortgages and less obvious issues including divorce. It is essential for women to achieve a good level of financial literacy in these circumstances to be able to make life-altering decisions that are in their best interests.

Furthermore, ensuring that women have an equal level of financial literacy – and the opportunities to obtain this – is also a political issue. As an OECD/ INFE paper states, “the UN has warned of the risk of “losing a generation or more of gains” in gender equality and women’s rights, stalling progress on closing the gender pay gap” if the inequality of financial literacy level is not addressed. Additionally, there are more personal drivers that make good financial literacy important for women, such as providing a level of confidence and independence in managing their own affairs and the key decisions that will impact their lives.

However, despite research showing the importance of women gaining better levels of financial literacy, the policy awareness of this issue is still low. Because key socio-economic factors are a part of the explanation for the gender differences in financial literacy, policy action is vital to provide improved and targeted financial education programmes aimed to better address women’s financial needs.

A vital part of the way forward is bettering financial education for women, which the OECD suggests should include improving the understanding of “financial products, concepts and risks and, through information, instruction and/or objective advice” as well as developing “skills and confidence to become more aware of financial risks and opportunities, to make informed choices”. Though some may argue that the information on such things is already out there for women to access independently, financial education is also about ensuring women understand and can act on this information confidently and adeptly. There are initiatives that have been set up globally, which often come in the form of training courses and seminars. However, more targeted policy action is needed to reach key sub-groups, such as young women, widows, elderly women and low-income and marginalised women who are more at risk.

Nevertheless, there are several things you yourself can do to expand your financial literacy, such as using free resources to improve your understanding of key financial concepts. Some good ones include:

  • The Women’s Institute for Financial Education – a non-profit organisation that provides information on key money matters such as saving and investment, taxes, budgeting and planning, cost of living and many more
  • Investopedia – a website that provides free, informative articles on a wide range of topics, such as navigating the gender gap and setting financial goals, as well as a dictionary of key financial terms
  • The Financial Diet – an online resource that includes other people’s stories, which provide insight into the reality of personal financing

Another way to feel more confident in your own personal finances is taking steps like learning your credit score, setting budgeting goals, opening a savings account and keeping a record of your own personal steps. Overall, by doing at least one of these and reading up a little on financial concepts, you are placing yourself in a position to make decisions that are good for you – and you will feel confident doing so.

Josie Smith

St. Andrews '24

Josie is a fourth year studying philosophy. She is particularly interested in writing about health and well-being topics as well as the unique financial and business issues that women face. Josie feels so excited and grateful to be a part of an editorial that focuses on amplifying and empowering women’s voices.