Lack of confidence is impeding women’s financial literacy, study finds

It is four years since Fearless Girl, a bronze statue commissioned by asset management group State Street Global Advisors, was erected in New York to promote the cause of women in business and finance.

But the defiant youngster created by sculptor Kristen Visbal — standing sure-eyed opposite the New York Stock Exchange — still has a long way to go to accomplish her mission. 

According to Fearless Woman: Financial Literacy and Stock Market Participation, a new academic paper published on Monday to coincide with International Women’s Day, women are still far from fearless when it comes to finance.

A shortfall of confidence accounts for a third of women’s lower levels of financial literacy relative to men, concludes the paper from an international team of researchers from Germany, the Netherlands and the US. Genuine gaps of knowledge account for the rest.

“It’s time to turn Fearless Girl into Fearless Woman — everywhere,” said Annamaria Lusardi, founder of the global financial literacy centre at George Washington University, and one of the authors.

The research, conducted in collaboration with the Dutch central bank, quizzed more than 1,500 men and women with three questions about the basics of interest rates, inflation and investment diversification.

The study confirmed earlier research that men tended to be more financially literate than women — in a multiple choice test with two or three options, 75 per cent of men answered all three questions correctly against 60 per cent of women. 

But the study quantified for the first time that a large chunk of the financial literacy gender gap was down to nervousness: in an earlier version of the test, which gave an additional “don’t know” option, women scored less than half as well, at 29 per cent, due mainly to a large number of “don’t know” answers. Men scored 58 per cent.

“Many women think they don’t know,” said Lusardi. “But when you force them to give an answer, they often actually do know.” Studies in rich and poor countries around the world have shown similar levels of low confidence among women in financial matters. 

The researchers believe the ramifications for gender equality are profound. “Particularly in the context of long-term financial decisions such as investment, retirement savings plans, private saving and wealth accumulation, lower levels of confidence can be detrimental to women,” the research concludes. “And the effect may be exacerbated because women, on average, have a substantially longer life expectancy than men.”

The effect is set to be magnified by the coronavirus crisis. There is mounting evidence around the world that women’s finances have been disproportionately affected by the socio-economic effects of the pandemic over the past year. 

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.

In the UK, studies have shown that women are more likely to be working in “shut-down” sectors with a greater risk of losing their job, and may have picked up the brunt of childcare and home schooling under lockdown.

Anti-Brexit campaigner and asset management executive Gina Miller told the FT’s Money Clinic podcast she believed women working from home were losing out financially as a result. “What will that mean for how you judge bonuses? How would you judge contributing to fee income? There are lots of questions that come from this, which I think are incredibly worrying.”

One in four women globally said the pandemic had a negative impact on their careers, according to Fidelity International’s Women and Money study for International Women’s Day. 

Almost half of the 6,000 women polled said they were worried about their financial situation as a whole; three in 10 had experienced a fall in their personal income in the past year and a quarter said their ability to save and invest had been limited.

According to new research by Scottish Widows, the average UK woman in her twenties is on course to have £100,000 ($138,000 or €116,000) less in private pension savings at retirement than a man of the same age.

The disparity is due to women being more likely to have lower average earnings, work part-time and take time out of paid employment to care for family.

The Financial Times is setting up a charitable foundation to promote financial literacy in the UK and around the world. For more information, contact: financial.literacy@ft.com