Why aren’t women more financially literate?

By Felix Salmon
September 22, 2009
find:

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Annamaria Lusardi, Olivia Mitchell, and Vilsa Curto find:

There is now fairly robust evidence confirming that women do not do well in financial calculations and do not have a firm grasp of inflation and risk diversification.

I’d be fascinated to see whether this held true across cultures — does it apply in Japan, for instance, where women generally hold the pursestrings? And in any event, why should this result even hold true in the US? I can’t think of any good intuitive reason why men should be more financially literate than women, and certainly the experience of microfinance lenders is generally that women are much more responsible, when it comes to money, than men. There’s something very odd going on here: all theories gratefully accepted.

16 comments

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I’ve seen a lot of women, even intelligent ones, make a lot of financial discussions based on instinct and emotion, men do this too, but not the intelligent men I know.

Posted by Tim | Report as abusive

The study was conducted in the US and paid for in part by the US Social Security Administration. The study talks about how young people get a much better understanding about their financial situation when they are taught by their parents. Here’s a link to the full study: http://www.dartmouth.edu/~alusardi/Paper s/Financial_literacy_young.pdf

There is also the study of how women are less likely to do stupid testosterone trading, thus increasing the yield of their investment portfolio over that of men.

Posted by Joe S. | Report as abusive

Very very odd. Or maybe I’m confused by being in Texas currently, home of the least well-served by the education biz. Being female with 2 daughters (all of us brought up in the UK) we 3 have learned to make a point of taking control of the $ as US men seem so inept (unable to think longer than payday, risk-averse in the extreme (yes really), unhappy with the concepts of time value and valuation) – and I’m saying this married to a man with an excellent math degree and the kids having had boyfriends of differing backgrounds, societal stratum, race and educational background. I wonder if the study is repeated in a few years they’ll find the women have come out on top because they had to. I’ve seen a real difference between US and UK young adults. The US versions cling to mommy and daddy’s money far more than I had been accustomed to in the UK, and the males are often insecure and cossetted by mothers from the real world of work and self-reliance. I wonder if a generation of baby-boomer parents have held tight to the strings to keep control of their kids, but when the money vanishes (right around now) then the youngsters will rediscover the pleasures of hard work (slight joke). My anecdotes are of course jsut that and hardly a rigorous sudy but I’m astonished at the consistency of my observations. WRT to any formal analysis, there is going to be so much cultural dependence I don’t see how it’s possible to make a general case and of course I suspect the motivation (especially in a recession) where the male of the species would so much like less competition for available jobs they will play dirty (the battle of the sexes and the conditioning of both males and females is far more overt than in the UK).

Posted by SP | Report as abusive

There are studies that have shown women having better right-brain abilities than men, and men having better left-brain abilities than women. Daniel Pink, in his book A Whole New Mind” makes a compelling case for this. And raw financial calculations are a left-brain activity per excellence.

Even if we accept this argument though, I am of the opinion that finance would greatly benefit from employing and empowering more women. A crucial ability of right-brain people is to see through complex problems with a holistic approach that makes it harder for them to fall in the blind faith on mathematical models that left-brained people fall so easily for, and that probably was a major cause of the current financial crisis. And this ability is certainly more difficult to acquire through training than financial calculus.

I elaborate on this ideas in a recent blog post:

http://alanfurth.com/a-whole-new-mind-fo r-finance

give me a data set and i can prove that the kettle is white

Posted by dvictr | Report as abusive

Honestly I think this is due to a higher value of the OCEAN personality quality, neuroticism. I know this gets into dangerous territory because women have been marginalized by the general term “neurotic” before.

However, in the strict sense of the OCEAN test it is pretty well established that women are on average much more neurotic than men. This implies that they worry more about things that could go wrong.

From what I have seen this hurts women in financial decisions because there are so many ways that a financial decision can go wrong and the consequences can be big. As the pressure rises and people feel more worry they are likely to turn to rules of thumb or emotional choices that help limit the worry but may or may not produce good results.

A corollary to this, however, should be that women suffer far less from gambling and gross risk taking type errors than men.

Nobody cares.

Posted by Frank | Report as abusive

I don’t think women are financially less literate, i think they are less able to save, more easily swayed by marketing and advertising, and are bigger consumers than men. America doesn’t stress saving or having no debt b/c 70% of our GDP comes from consumer spending. What would happen if we all lived within our means? I’m a 30-something NYer and I feel I should deserve praise for having no debt and a meager savings account, but apparently unknown debt and a closet full of overpriced designer wears is sexier.

Women are perfectly capable of understanding inflation, savings rates and the like, but I think most American woman would rather focus on something more exciting. This needs to be a top-down mandate. I think we need more sex education in schools and financial education in school. Otherwise, people will continue using plastic like they are in a game of Monopoly.

well, my wife for one has ZERO interest in making investment decisions even though she is about 3-4x more intelligent than i am.

the lack of interest / “i’ll leave it up to my husband” philosophy is definitely in play in this instance.

My guess is that’s related to the old, outdated concept that women are less proficient in math.

Today more women are interested in the sciences. Years ago, they were steered to homemaking and steered away from careers.

That thinking led women to ‘leave it to the man of the house.’ And that ‘it’ included keeping the books and making decisions.

Those days are over, but it takes time for the older women who never bothered to learn to be replaced by the younger generation.

That women are preferred by microlenders isn’t necessarily inconsistent with this study. A lower average risk tolerance would fit both stories.

Posted by Jacob | Report as abusive

\”all theories gratefully accepted.\”

Simon Baron Cohen.

http://eqsq.com/eq-sq-theory/

A spectrum of brain types from systemising to empathising. Men tend to be the former, women the latter (probabilities only, saying nothing about any individual\’s place on the spectrum).

Can education or training shift you about? Certainly (this is indeed B-C\’s thing with autism, what he calls an \”extreme systemising\” brain type, training can indeed make things better) but it won\’t change the predisposition, just compensate for it.

Surely this is the result of a greater proportion of men studying fields such as mathematics and economics. The answers to the questions asked would be far more obvious to those used to dealing with such concepts on a regular basis – indeed they look almost like gotcha questions.

I would suggest that if those surveyed were given more time to reflect on the question and think through the concepts involved I’m sure you would see the difference narrow and possibly become insignificant.

Posted by stuart | Report as abusive

I believe men have a 4-5 point edge in average IQ.

While many women can, and do, run day-to-day household finances, they’re likely to be bored by wonk-type material.

Posted by Mike | Report as abusive

I believe this isn’t necessarily a gendar issue but more of an generation issue. In the past the women usually stay home as the men work and do all the finances so men must be more educated in this area. Today woman are running companies and have been educated on finances so we do have a grasp on financial issues but we also have a huge job at home raising children,etc and working a job, so we trust the head of the household to understand and prepare our fincances for the family….which us usually the husband.

Keep in mind this generation has been raised as consumers. The economy today proves this. So as adults let’s teach our children, boys and girls, about finances and economy now so we can change these statistics.