Gender and Financial Literacy


The Global Financial Literacy Excellence Center at George Washington University recently published a study “How financially literate are women? An overview and new insights“.

With an increased need for individuals to be more personally responsible for their own financial security, particularly in terms of retirement planning, the need for financial literacy has been growing. Despite this need, there is a high degree of financial illiteracy around the world, and it is much higher in women than men.

In addition, the consequences of financial illiteracy are more severe among women because of typically lower lifetime wages combined with longer life expectancies. This combination creates greater financial insecurity for women, and thus a stronger need to be financially literate.

The authors of the study looked at the financial literacy gender gap across three countries, the United Staes, Germany, and the Netherlands.

To evaluate financial literacy, respondents were asked three simple questions covering fundamental concepts of economics and finance, expressed in everyday terms, that require simple interest rate calculations and an understanding of the workings of inflation and risk diversification. These questions were the same across the three countries. The exact wording of the questions is as follows (answers at the end of post):

  1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?
    More than $102; Exactly $102; Less than $102; Do not know; Refuse to answer.
  2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, how much would you be able to buy with the money in this account?
    More than today; Exactly the same; Less than today; Do not know; Refuse to answer.
  3. Please tell me whether this statement is true or false. “Buying a single company’s stock usually provides a safer return than a stock mutual fund.”
    True; False; Do not know; Refuse to answer

I found the results mind boggling.

In the U.S., only one-third were able to correctly answer all three questions. When broken down by gender, only 38% of men correctly answered all three questions, while only 22% of women did so.

While the overall financial literacy in Germany and the Netherlands was slightly higher than in the U.S., the same type of gender difference existed.

The researchers also investigated financial literacy across different age groups. Women, especially older women, may be less financially literate than men because of traditional societal roles.

The results indicated that in general the age pattern of responses to the financial literacy questions for both men and women is in line with other studies that have argued that financial expertise shows a reverse U-shaped pattern over age (increasing rates of literacy followed by decreasing rates of literacy from younger age to middle age to older). In the United States, the Netherlands, and Germany, financial literacy is rather low among the young, but is lower among young women than young men. Thus, gender differences in financial literacy are present from the start of the life cycle in all three countries.


Another interesting finding is the confidence that the survey respondents had in their answers. While many American respondents fared rather poorly on the three financial literacy questions, results  indicate that a high proportion of American respondents gave themselves high self-assessment scores, with men giving themselves higher self-assessments (the old “often wrong but never in doubt” phenomenon).

This lack of financial literacy is important because it leads to poorer financial decision making, which could have significant lifestyle consequences.

The good news is that research has shown that financial education programs seem to be particularly successful for women. And based on the gender differences found in this research, an effective way forward for financial education programs may be to target women and men separately and to offer programs that recognize the differences between women and men in terms of both financial knowledge and financial behavior.

I would also like to close with some good news. I gave this quiz to my students today, and it seemed as if everyone knew the answers to all 3 questions. Granted, we had just talked about some of the concepts addressed by the questions, so it may have been an unfair sample.

I think next semester, I may ask my students these questions at the start of the semester, and then again at the end. I’ll just cross my fingers that the results aren’t worse at the end of the semester, otherwise I’ll have to question my teaching ability…

1: more than $102
2: less than today
3: false

How’d you do?

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