Beyond the Numbers: Understanding the Societal Impact of Gender Disparities in Financial Literacy

Beyond the Numbers: Understanding the Societal Impact of Gender Disparities in Financial Literacy

Although women have made great progress in the last few decades toward full equality, more needs to be done. The gender pay disparity in Europe is 12.7%. They are more likely to work in fields where wages are low and to encounter discrimination at work. In general, women have lower financial literacy than men. Many people lack basic knowledge of financial principles, with a significant gender gap in financial literacy. Women face unique financial challenges due to longer life expectancies, lower lifetime income, and career interruptions for child-rearing. This lack of financial knowledge puts women at risk of financial insecurity in retirement. Those with higher financial literacy are more likely to make better financial decisions, such as investing in the stock market and saving for retirement. It is important to understand women's level of financial understanding and address any gaps in financial skills.

The Financial Literacy Gender Gap

Financial literacy involves possessing the knowledge and skills to effectively manage personal finances, including budgeting, saving, and investing. Financial literacy involves more than just knowing how to handle a household budget; it also includes managing debt, loans, retirement planning, investing, and understanding complex financial concepts like compound interest. Financial literacy is crucial because it allows individuals to make informed decisions about their money, leading to better financial outcomes in the long run. Being knowledgeable about finance can help people save more, build wealth, and avoid risky financial decisions or falling victim to fraud.

Ultimately, financial literacy opens up opportunities for success and stability in the future. Lack of financial literacy among women can hinder their ability to effectively manage money, utilize financial tools for wealth building, establish an emergency fund, or start a business. This lack of knowledge can prevent financial independence, making it harder for women to handle unforeseen circumstances, feel confident in their financial security, and avoid dependence on others for support.

Globally speaking, financial literacy is generally quite low. Globally, 33% of adults exhibit financial literacy, meaning they can explain at least three of the four concepts. Put another way, 77% of adults worldwide—roughly 3.5 billion people—do not understand basic financial concepts, with the majority of them living in developing nations.

A 2020 study by the OECD found that women generally score lower on financial literacy tests compared to men worldwide. On average, men outperform women by 4 points out of 100, with some countries showing an even larger gender gap. None of the 16 countries studied had women scoring higher than men in financial literacy. A survey on financial literacy in the US and Europe found that women scored lower than men on average in terms of answering personal finance questions correctly. In the US, women answered 45% of questions correctly compared to men's 55%, while in Europe, women averaged 3.7 out of 9 questions correct compared to men's average of 4.5.

According to the Allianz study, the financial literacy levels of individuals are influenced by who is responsible for making household financial decisions. The study indicates that in countries where women are more involved in financial decision-making, their financial literacy tends to be higher. The lack of financial literacy has consequences for saving, budgeting, and investing. N26 discovered that women invest less than men, with many citing a lack of money as a barrier to investing. Education also plays a role, as fewer women feel knowledgeable about investing compared to men.

Let's dive deeper into the various roots of the causes of the disparity of gender pay and literacy.

Education and the availability

The difference in financial literacy between men and women is evident, and it is important to understand the reasons behind this gap to address it effectively. Here are five factors contributing to this disparity. Financial literacy disparities are just one aspect of the larger issue of gender inequality in society. In the past, women faced limited access to financial resources due to discriminatory laws and societal norms that prevented them from opening bank accounts, entering the workforce, and receiving equal education opportunities. The historical exclusion of women from managing money has led to lower financial literacy among women compared to men. This has far-reaching implications for society as a whole. The pace of change in providing financial education to women is slow, with statistics showing that fewer women feel adequately educated to make financial decisions compared to men. Studies also show that parents tend to teach their male children more about money and give them more pocket money than their female children, which can negatively impact women's self-worth and financial skills in the future.

The difference in wealth between men and women is based on gender.

The gender wealth gap is influenced by both financial literacy and wealth distribution, with individuals who are more financially literate typically being wealthier. However, these factors do not exist independently and are interconnected in determining overall wealth disparities. In Europe, women earn almost 13% less than men on average and have a gender wealth gap where they accumulate €100,000 less in wealth over a lifetime compared to men.

Despite living longer, women face financial challenges due to the gender pay gap and leaving the workforce to raise a family, putting them at risk of insufficient savings in retirement. Women, particularly LGBTQ individuals and minority women, are underrepresented in leadership positions in finance, leading to lower levels of financial literacy among women as they have less exposure to financial decision-making.

Not Enough self-assurance

Research consistently demonstrates that women have a lack of confidence in their financial literacy abilities, even if they possess knowledge on the subject. A recent study from the Global Financial Literacy Excellence Center in 2021 revealed that women tend to respond to financial literacy questions with "do not know" more frequently. A study in 2021 by the Global Financial Literacy Excellence Center found that many people struggle with financial literacy not because they lack knowledge, but because they lack confidence in their abilities. This was shown when individuals chose the correct answer after a misleading option was removed. Women are often taught to downplay their knowledge and skills, especially in male-dominated fields like finance. This lack of confidence can impact their financial behaviour and lead to lower income and wealth. Women are less likely than men to advocate for higher salaries or ask for raises.

Traditional gender roles

Traditional gender roles continue to influence financial decision-making in heterosexual relationships, with a majority of married women deferring to their male partners, regardless of their income level. This dynamic can lead to men having greater financial literacy due to their specialization in handling financial matters. Outdated gender norms contribute to a financial literacy issue called the care gap, where working women spend more time on care work responsibilities, leading to the motherhood penalty.

Women who dedicate more time to caregiving responsibilities for children or elderly parents have less time to focus on earning money and educating themselves about financial matters. As a result, they often have lower financial literacy and rely more on their partners for financial security. This ultimately leads to a higher likelihood of women retiring in poverty compared to men.

Conclusion- A guide to assist women in gaining greater financial literacy

There is no simple solution to closing the financial literacy gender gap, but there are various ways that individuals and groups can work towards supporting women in becoming more financially literate. One of the most crucial steps you can take for your financial well-being is to improve your financial literacy and manage your finances effectively. This includes creating a budget, establishing an emergency fund, and saving for retirement. Attend events and seek out resources specifically designed for women to continue educating yourself on financial matters. Having open conversations about money is a crucial step in improving financial literacy. Avoiding discussing finances can lead to negative habits while talking with others can help identify inequalities and empower you to take control of your financial situation by seeking opportunities for advancement, educating yourself on investing, or setting and achieving financial goals. Improving education for women of all ages is key to promoting financial literacy. Parents and teachers should encourage girls' interest in finance to help them develop self-confidence in money management.

-Hridya Sharma