Tackling gender differences in financial literacy
Today’s post is contributed by Chiara Monticone and Flore-Anne Messy of the OECD’s Financial Affairs Division
International Women’s Day traditionally attracts media attention to differences between men and women, such as the number of women on company boards, income gaps, and so on. However, awareness of gender differences in financial literacy and of their potential implications has remained quite low even though policy makers now recognise financial literacy as an essential life-skill, and financial education has become an important policy priority as a complement to financial consumer protection, inclusion and prudential regulation. The G20 Mexican Presidency for example has called on the OECD to develop High Level Principles on National Strategy for Financial Education that are expected to be approved by G20 leaders in June 2012.
A new working paper from the OECD’s Financial Affairs Division, Empowering Women through Financial Awareness and Education, reveals that women perform worse than men on tests of financial knowledge on average. For instance, in the US, while 60-70% of men can correctly answer questions about calculating interest or about inflation and risk diversification, only 50-60% of women can do so.
Moreover, women tend to be less confident about their financial skills than men in several domains. For instance, a study conducted in Australia reveals that women are generally as confident as men in their ability with everyday money management, including budgeting, saving, dealing with credit and managing debt, but that they are less confident than men when it comes to more complex issues like investing, understanding financial language and planning for retirement.
Evidence on vulnerable sub-populations suggests that women at either end of the age spectrum, low-income women, and widows may be more vulnerable to the negative consequences of low levels of financial literacy than other women, or men in the same subgroups.
This is worrying because lower levels of financial literacy can reduce women’s active participation within the economy, as well as effective personal and household financial management. Greater financial literacy could enable women to be better equipped to access and choose appropriate financial services , as well as to develop and manage entrepreneurial activities. Moreover, as women tend both to live longer and earn less than men, they are more likely to face poverty or financial hardship later in life.
All this is amplified by the fact that public policies in many countries have shifted a range of financial risks and related decisions to individual consumers. In addition, women’s lower financial literacy can reduce their economic power within the household, and the transmission of knowledge to the next generation.
A survey of authorities in developed and emerging economies reveals that some of them – including Australia, India, Lebanon, New Zealand, Poland, Turkey, the UK and the US – acknowledge the need to address the financial literacy of women and girls, and have implemented financial education programmes targeting them.
However, there is scope for improvement. Gender differences in financial literacy and behaviour should be explored further, to gain a deeper understanding of the specific aspects of financial literacy that might negatively affect the financial wellbeing of women, and design better targeted policy interventions. For instance, more needs to be learnt about why women’s levels of financial literacy are lower than men’s.
The OECD International Network on Financial Education (INFE) is working to address these issues by collecting and analysing internationally comparable data using the OECD/INFE Financial Literacy Core Questionnaire for adults and the 2012 PISA Financial Literacy international option for 15 year olds; identifying and comparing effective financial education programmes; and developing high-level policy analysis.