The knowledge gap
Financial illiteracy is a global crisis, but research consistently shows that its consequences fall disproportionately and more severely on women. Whilst it’s found that households with both men and women struggle with basic matters of finance, within this crisis lies a more significantly overlooked failure: women on average know significantly less about finance than men, and the systems built to help have barely noticed.
This crisis is not about intelligence or aptitude but is about accessibility, structure and a society that has long assumed that financial management was someone else’s responsibility. Understanding the gender gap in financial knowledge requires us to distinguish between two separate issues, what women know and what women have access to.
The problem
The data is consistent and international. Across multiple countries women score lower than men on financial knowledge tests. Additionally research suggests that women are also more likely to underestimate their financial knowledge. A study by Robert Goldsmith examined whether formal financial education could increase financial literacy and close the gender gap between college students. The study had a sample size of 122 students across two groups: personal finance class (treatment) and a marketing class (control) (Goldsmith, 2006). The study found that men scored significantly higher than women on both subjective (self assessed) and real (tested) investment knowledge. Men averaged 55% whilst women averaged 40% on the real knowledge test, neither indicating adequate financial literacy, however the gap is still significant (Goldsmith, 2006).
The divergence is not uniform across all areas of personal finance. Women tend to perform comparably to men on day to day financial tasks, however, the gaps emerge most drastically in long term planning, investment selection and staying informed in financial developments. The human stakes are not abstract. Women head 26% of American households, rising to 39% where dependent children are present (Woodyard & Robb, 2012). When the person responsible for a household’s financial survival has less access to financial knowledge and less confidence in applying it, the consequences compound.
The Root Cause
Sociologist Herbert Blumer’s framework of symbolic interactionism offers an insight into the knowledge gap. Societies have long assigned roles through shared meaning, and for generations the meaning attached to financial management has been male (Woodyard & Robb, 2012). For many generations men have been viewed as the providers and allocators. Women have been positioned implicitly and explicitly as financial passengers.
Further evidence of the knowledge gap is found in Japan. Account usage between men and women is roughly equal, yet when obtaining loans the female to male ratio drops to 60% (Morsy, 2020). The knowledge gap alone cannot explain this. Something in the structure of lending, its assumptions and its appetite for certain kinds of borrowers, produces unequal outcomes even when women show up prepared.
How financial institutions are designed determines who they serve. State owned banks, which are less commercially motivated to expand their customer base are associated with larger gender gaps, particularly in lending. By contrast foreign banks and robust credit registries are linked to women’s access because they increase competition and reduce information asymmetry that disadvantage first time borrowers (Morsy, 2020). The lesson is not that markets alone will solve this, but that financial systems have embedded assumptions that can either widen or narrow the gap depending on how they are designed.
Solutions
By breaking down social barriers and encouraging women to engage with financial literature, the knowledge gap can be made smaller. A study into formal financial education, highlights that this specific and intentional education works for both men and women. In a controlled study tracking students through a personal finance course, real investment knowledge is increased by 90% for men and 83% for women (Goldsmith, 2006). Moreover, the gender gap in self assessed financial knowledge almost disappeared by the end of the course. A control group that took a marketing class however showed no comparable improvement, this ruling out that improvement was observed simply due to maturation or passive environmental exposure.
Thus, these findings highlight that education is the true equaliser. However, there is a problem of scale and political will. Out of 27 countries surveyed by the OECD, only eight considered women’s financial literacy an important political issue (Hung et al., 2012). Only four of these countries had programmes designed specifically for women (Hung et al., 2012). Additionally, almost no evaluation of these programs has been conducted. The evidence base for what works exists, the institutional commitment to applying it does not.
Conclusion: speaking the language of economics.
The long term costs of inaction specifically affect, elderly women, divorcees suddenly responsible for their own finances and low income women heading households without the knowledge to navigate systems like credit, insurance or retirement planning (Woodyard & Robb, 2012). These are not dramatic cases, these are foreseeable outcomes of a predictable failure.
Addressing the knowledge gap requires action on multiple fronts. Targeted financial education programs designed specifically for women and their life circumstance must be a priority. Financial institutions need structural reform creating greater competition, better credit information systems and reduced dominance of state owned banks in markets where they consistently under-serve women (Hung et al., 2012). Additionally, the societal role of changing the assumption that finance is an inherently male dominated field and skill must be at the core of this reform.
Speaking the language of economics, and having an appropriate level of financial literacy should not be a privilege distributed by gender, yet closing this gap demands more than research and good intentions. It demands action, action that is long overdue.
References
Goldsmith, R.E. and Goldsmith, E.B. (2006) ‘The effects of investment education on gender differences in financial knowledge’, Journal of Personal Finance, 5(2), pp. 55–69.
Hung, A., Yoong, J. and Brown, E. (2012) Empowering women through financial awareness and education. OECD Working Papers on Finance, Insurance and Private Pensions, No. 14. Paris: OECD Publishing. https://doi.org/10.1787/5k9d5v6kh56g-en
Morsy, H. (2020) ‘Access to finance – Mind the gender gap’, The Quarterly Review of Economics and Finance, 78, pp. 12–21. https://doi.org/10.1016/j.qref.2020.02.005
Woodyard, A. and Robb, C. (2012) ‘Financial knowledge and the gender gap’, Journal of Financial Therapy, 3(1), article 1. https://doi.org/10.4148/jft.v3i1.1453
